Ingredion bets on flat 2015 corn prices

January 30th, 2015

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Category: Grains, Oilseeds

Corn-on-Cob450x299(Agrimoney) – Ingredion said it was betting on little change in corn prices this year as, revealing it had been surprised by the revival in prices of the grain late in 2014, it unveiled an unexpected decline in quarterly profits.

The grain processor, formerly known as Corn Products International, said that “corn costs are expected to be relatively flat this year versus last year”, a factor which would bring to an end a period of price falls which have reduced the amount of capital the group has had tied up in raw materials.

At the end of both 2012 and 2013, it had hedged ahead 68m bushels (1.72m tonnes) in corn purchases, a volume equivalent to more than $250m of crop at current prices. (An end-2014 hedging figure is not yet available.)

However, Ingredion acknowledged the difficulties in grain price forecasting, saying that its corn costs at its North American operations, by far the group’s most important region, had proven “higher than expected” in the October-to-December quarter.

Obesity tax impact

Indeed, the North American business reported a 6.7% drop in $86.4m in operating profits for the quarter, on sales down 9.9% at $731.6m, hurt too by the strength of the dollar, which reduced contributions from Canada and Mexico, besides by “lower-than-expected returns” from corn processing products.

In Mexico, the “obesity tax affected core product volumes”, Ingredion said, a reference to the country’s introduction last year of a 1 peso-per-litre levy on sugary drinks, which are sweetened largely with the high fructose corn syrup produced by the likes of Ingredion, Cargill and Archer Daniels Midland.

In South America, operating profits fell by 8.1% to $33.9m, on revenues down 13.0% at $297.0m, dented by “soft” demand, undermined in Brazil by weak economic growth, besides by the strength of the dollar.

“The southern cone [of South America] remains a challenging environment,” Ingredion said.

However, European and Middle Eastern profits jumped 31% to a record $26.5m, despite a $1.0m fall to $140.3m in revenues, boosted by higher volumes and decreased costs.

Earnings fall

Group earnings sank 41% to $61.1m, on revenues down 8.2% at $1.45bn, although the drop in profits factored in one-offs including a $33m writedown to the value of its South American operations, to account for continued weakness in the region.

However, even adjusting for one-off effects, Ingredion’s earnings per share for the quarter fell to $1.30 from $1.35 a year before, and below the $1.51-per-share figure that Wall Street had expected.

Ingredion forecast earnings per share rising from $5.20 in 2014 to $5.40-5.90 this year, excluding contributions from ingredients group Penford, the acquisition of which is expected to close in the current quarter.

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