Archer Daniels Midland (ADM)

Company Products/Services/Markets:

Segment Descriptions

The Company’s operations are classified into three reportable business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.  Each of these segments is organized based upon the nature of products and services offered.  The Company’s remaining operations are aggregated and classified as Other.

Oilseeds Processing

The Company is engaged in processing oilseeds such as soybeans, cottonseed, sunflower seeds, canola, peanuts, and flaxseed into vegetable oils and meals principally for the food and feed industries.  Crude vegetable oil is sold “as is” or is further processed by refining, bleaching, and deodorizing into salad oils.  Salad oils can be further processed by hydrogenating and/or interesterifying into margarine, shortening, and other food products.  Partially refined oil is sold for use in chemicals, paints and other industrial products.  Refined oil can be further processed for use in the production of biodiesel.  Oilseed meals are primary ingredients used in the manufacture of commercial livestock and poultry feeds.  Cottonseed flour is produced and sold primarily to the pharmaceutical industry.  Cotton cellulose pulp is manufactured and sold to the chemical, paper, and filter markets.

Golden Peanut Company LLC, a joint venture between the Company and Alimenta (U.S.A.), Inc., is a major supplier of peanuts to both the domestic and export markets.  The Company has a 50% ownership interest in this joint venture.

The Company has an ownership interest in Wilmar International Limited, a Singapore publicly listed company.  Wilmar International Limited is the largest agricultural processing business in Asia and operates palm plantations; soybean, rapeseed, cottonseed, sunflower seed, peanut, palm kernel, and sesame seed crushing facilities and related vegetable oil refineries and packaging facilities; an oleochemical plant that produces fatty acids, glycerin, and soap noodles; a soy protein plant; wheat flour mills; rice mills; feed mills; fertilizer operations; and related silos and storage facilities.

Corn Processing

The Company is engaged in wet milling and dry milling corn operations.  Products produced for use in the food and beverage industry include syrup, starch, glucose, dextrose, and sweeteners.  Dextrose is also produced for use by the Company as a feedstock for its bioproducts operations.  Corn gluten feed and meal as well as distillers grains are produced for use as feed ingredients.  Corn germ, a by-product of the wet milling process, is further processed as an oilseed into vegetable oil and meal.

By fermentation of dextrose, the Company produces alcohol, amino acids, and other specialty food and feed ingredients.  Ethyl alcohol is produced to beverage grade or for industrial use as ethanol.  In gasoline, ethanol increases octane and is used as an extender and oxygenate.  Amino acids, such as lysine and threonine, are vital compounds used in swine feeds to produce leaner animals and in poultry feeds to enhance the speed and efficiency of poultry production.  The Company also produces, by fermentation, astaxanthin, a product used in aquaculture to enhance flesh coloration.  The Company produces citric and lactic acids, lactates, sorbitol and xanthan gum which are used in various food and industrial products.

Almidones Mexicanos S.A., of which the Company has a 50% interest, operates a wet corn milling plant in Mexico.

Eaststarch C.V. (Netherlands), of which the Company has a 50% interest, owns interests in companies that operate wet corn milling plants in Bulgaria, Hungary, Romania, Slovakia, and Turkey.

Agricultural Services

The Agricultural Services segment utilizes the Company’s extensive grain elevator and transportation network to buy, store, clean, and transport agricultural commodities, such as oilseeds, corn, wheat, milo, oats, and barley, and resells these commodities primarily as feed ingredients and as raw materials for the agricultural processing industry.  Agricultural Services’ grain sourcing and transportation network provides reliable and efficient services to the Company’s agricultural processing operations.

A.C. Toepfer International (Toepfer), in which the Company has an 80% interest, is a global merchandiser of agricultural commodities and processed products.  Toepfer has 38 sales offices worldwide and operates export, river, and country elevators in Argentina, Romania, and the Ukraine.

The Company has a 45% interest in Kalama Export Company, a grain export elevator in Washington.

Other

The Company is engaged in milling wheat, corn, and milo into flour.  Wheat flour is sold primarily to commercial bakeries, food companies, food service companies, and retailers.  Bulgur, a gelatinized wheat food, is sold to both the export and the domestic food markets.  Corn meal and flour is sold primarily to the cereal, snack, and bakery mix markets.  The Company produces bakery products and mixes which are sold to the baking industry.  The Company also mills milo to produce industrial flour used in the manufacturing of wallboard for the building industry.

The Company processes cocoa beans and produces cocoa liquor, cocoa butter, cocoa powder, chocolate, and various compounds for the food processing industry.

The Company produces wheat starch and gluten for the baking industry.  Lecithin, an emulsifier produced in the vegetable oil refining process, is marketed as a food and feed ingredient.

The Company produces a wide range of edible soy protein products including soy flour, soy grits, soy protein concentrates and soy isolates that are used in processed meats, baked foods, nutritional products, snacks, and dairy and meat analogs.  The Company further processes these ingredients into dry and frozen meat analogs that it markets to foodservice operators, retail and private label brand marketers, and direct-to-retail stores.

The Company produces natural source vitamin E, tocopherol antioxidants and phytosterols from co-products of oilseeds which are marketed to the dietary supplement and food industry.  The Company produces soy isoflavones, a dietary supplement, from a co-product of edible soy processing.  The Company processes and distributes edible beans for use as a food ingredient.  The Company produces and distributes formula feeds and animal health and nutrition products to the livestock, dairy, poultry, and pet food industries.

Gruma S.A. de C.V. and affiliates (Gruma), of which the Company has a 27% interest, is the world’s largest producer and marketer of corn flour and tortillas with operations in the United States, Mexico, Central America, South America, and Europe.  Additionally, the Company has a 20% interest in a joint venture which consists of the combined United States corn flour operations of the Company and Gruma.  The Company also has a 40% share, through a joint venture with Gruma, in nine Mexican-based wheat flour mills.

International Malting Company, a wholly owned subsidiary of the Company, operates malting barley plants in the United States, Australia, New Zealand, and Canada.

Hickory Point Bank and Trust Company, fsb, a wholly owned subsidiary of the Company, furnishes public banking and trust services, as well as cash management, transfer agency, and securities safekeeping services, for the Company.

ADM Investor Services, Inc., a wholly owned subsidiary of the Company, is a registered futures commission merchant and a clearing member of all principal commodities exchanges.  ADM Investor Services International, Ltd. specializes in futures, options and foreign exchange in the European marketplace.  ADM Derivatives, Inc. offers foreign exchange services to institutional and retail clients.

Agrinational Insurance Company, a wholly owned subsidiary of the Company, provides insurance coverage for certain property, casualty, marine, and other miscellaneous risks of the Company and participates in certain third-party reinsurance arrangements.

The Company has a 50% interest in Telles, LLC (Telles), a joint venture formed between the Company and Metabolix to market and sell PHA produced in a facility being constructed by the Company which is expected to be completed during fiscal 2009.  This facility will produce PHA to be sold to Telles for marketing, sale, and distribution to the end consumer.

The Company is a limited partner in various private equity funds which invest primarily in emerging markets.

Strategy:

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Competitors:

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Industry Trends and News:

Acquisitions, Divestitures, Major Transactions, Spin-offs :

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Management – Pros & Cons, Changes:

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Buy Rationale:

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Sell Rationale:

A November 19, 2007 Barron's story made a compelling case that ADM is overvalued:

• "investors have bid up ADM shares to a valuation that doesn't reflect risks to its margins and profit forecasts over the next few quarters"
• "ADM is plowing new capital into an aggressive ethanol-production expansion while the economics of ethanol supply and demand are unfavorable."
• "a recent spate of selling by top ADM executives hardly seems to validate overwhelming Street bullishness"
• "significant new capacity for storing and processing soy is coming on line. This could pressure soy margins."
• "total US ethanol capacity is projected to nearly double by the end of 2008", much of which is coming from "subsidized farm cooperatives less inclined to demand a proper return on investment"
• ADM's capital expenditures for this year is estimated to be $1.7 B, up from $1.2 B last year and this will cut their free cash flow by almost 40%

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The industry capacity additions are the most troubling because once capacity is put in place it becomes a sunk cost for the investors and as prices drop this capacity stays on line as long as revenue exceeds operating costs - i.e. a proper return on investment is no longer required.