Global Supply Chain Disruptions: Impact on Agribusiness Earnings

Current State of Global Supply Chain Disruptions

Global supply chain disruptions are causing price volatility, logistical hurdles, and labor shortages, impacting agribusinesses like Tyson Foods and Archer Daniels Midland. Companies are managing what they can amid evolving supply/demand environments, with additional challenges from disease and antibiotic policies affecting production.

"However, as we continue to face uncertain external forces including weather patterns and global supply chain disruptions, price volatility could remain." --- (TSN, press release, 2024/04/02)

"Additionally, disruptions in the supply chain, including logistical hurdles and labour shortages, further exacerbated the challenges faced by biofuel producers." --- (ADM, press release, 2024/04/05)

"Demand is good, customers at both ends of the supply chain and largely in the spot market, limits visibility later in the year. We're controlling what we can amid the evolving supply/demand environment in markets around the world." --- (BG, earning call, 2024/Q2)

"There has been some impact, cumulative impact from no antibiotics ever across the supply chain, and there are some, I won’t say new disease but disease persist that is creating mortality in the broiler." --- (TSN, earning call, 2024/Q2)

"the probability of interest rate cuts in 2024 has decreased. Last month, we mentioned that the global grain and oil seeds supply is expected to increase as anticipated improvements in weather would support larger production levels in key South American countries." --- (ADM, earning call, 2024/Q1)

Operational Impact: Production and Distribution

Agribusiness companies are enhancing operational excellence and asset reliability, leading to improved production volumes and efficiency (ADM, TSN). However, challenges in the global agricultural sector are causing production declines (DE). Sustainable practices and robust monitoring systems are also crucial for maintaining production and distribution (BG).

"Our enhanced focus on operational excellence and improving the reliability of our assets, as well as the ramp-up of our Green Bison JV, led to volume improvement in the AS&O segment, resulting in a $0.20 per share increase in EPS versus the prior year." --- (ADM, earning call, 2024/Q1)

"We like the progress we have made year to date relative to controlling the controllables, which for us is operational excellence and efficiency within our assets, managing our mix and delivering to our customer, and we like the runway in front of us relative to improvements that we can continue to make as we move through what is going to be a range of outcomes through the cycle as well. Adam Samuelson: Okay, I appreciate the color. I’ll pass it on. Thank you." --- (TSN, earning call, 2024/Q2)

"Company Outlook for 2024 Production volumes are expected to continue to decline during the remainder of 2024 due to demand shifts amid challenges in the global agricultural and turf sectors coupled with proactive production and inventory management while the construction industry remains relatively stable. Agriculture and Turf Outlook for 2024" --- (DE, sec filing, 2024/Q2)

"This ability to increase end-consumer confidence in soy projects is only possible thanks to the robust supplier's socio-environmental verification and monitoring system that we have structured over the last decade, which uniquely positions us to provide the connection of proven sustainable products with markets where the demand for them is increasing," says Rossano de Angelis Jr., Bunge's Vice President of Agribusiness in South America." --- (BG, press release, 2024/06/10)

"Since assuming control of CarOffer in December, we've been in the process of rebuilding our wholesale business and hiring new talent, with the aim of creating a more efficient and scalable wholesale platform, and we are confident in the operational progress made so far." --- (CARG, earning call, 2024/Q1)

Financial Impact: Costs and Pricing Strategies

Agribusinesses are facing significant financial impacts due to global supply chain disruptions. ADM reported a decline in earnings per share due to lower pricing and execution margins. DE highlighted increased rates affecting financing spreads and product demand. BG noted a drop in earnings per share due to transaction and integration costs. TSN observed inflation driving consumers to prioritize essential staples, impacting pricing strategies. Additionally, ADM experienced higher selling, general, and administrative expenses.

"Adjusted earnings per share were $1.03. Lower pricing and execution margins led to a decline of $1.03 per share versus the prior year period, largely reflecting the impact of lower crush and origination margins." --- (ADM, earning call, 2024/Q2)

"Increased rates impacted us in several ways, primarily affecting the financing spreads for the financial services operations and demand for our products." --- (DE, sec filing, 2024/Q2)

"Reported second quarter earnings per share was $0.48 compared to $4.09 in the second quarter of 2023. Reported results included an unfavorable mark-to-market timing difference of $0.82 per share and a negative impact of $0.43 per share related to transaction and integration costs associated with our announced business combination with Viterra. Adjusted EPS was $1.73 in the quarter versus $3.72 in the prior year." --- (BG, earning call, 2024/Q2)

"Now, the inflation impact coupled with historically low savings rates has created a more cautious, price sensitive consumer, and we’re also seeing a cautious consumer prioritize essential staples over discretionary categories." --- (TSN, earning call, 2024/Q2)

"Selling, general, and administrative expenses increased $0.1 billion to $1.9 billion due primarily to higher salaries and benefit costs, increased expenses for contracted outside labor, and higher legal and financing fees, partially offset by decreased provisions for bad debt." --- (ADM, sec filing, 2024/Q2)

Impact on Supply Chain Relationships

Agribusiness companies are navigating supply chain disruptions by optimizing processes and logistics, maintaining strong customer relationships, and addressing challenges in demand fulfillment. Despite stresses, firms like Bunge and ADM are resilient, focusing on technical and execution teams to solve supply issues and capitalize on strong demand and margins.

"And the other transition that, of course, we're seeing is you've got a supply chain that really the stresses off of." --- (BG, earning call, 2024/Q1)

"As Juan mentioned during the remarks, we have more than 1,200 initiatives, but they can be grouped into substantial areas or themes of effort and focus, working on plant process optimization, working on business process optimization, also very important on supply chain and demand fulfillment , which is part of the challenges that we've had in Nutrition." --- (ADM, earning call, 2024/Q1)

"What I'm describing to you is a new opportunity and a new waste being eliminated from our system, all through supply chain in terms of where we manufacture, what is the capacity utilization, the yields, the labors, all those things you would see in a typically commodity oriented business." --- (TSN, conference, 2024/05/15)

"So, that's been pretty resilient on the food side. And then with the lower price, we've seen some improvement on the energy demand as well.And then lastly, as I was talking about on the tropical side, we've definitely been a benefit of the tighter cocoa butter supply with our cocoa butter equivalents, and helping some of our customers solve problems on the supply side and/or lowering their cost for -- when they reformulate into our products.So, the team has been doing a great job, the technical team and the execution team, working with our customers as they're deal with a little bit of a challenging environment. Salvator Tiano: Thank you very much." --- (BG, earning call, 2024/Q2)

"I don't have top of my head where we export those from in terms of plants. But at this point in time, I would say the challenge, not the challenge, but maybe the activity has been on the logistics side to make sure that we can fulfill all the exports and we can get the materials to the ports, because, as you said, and I said before, demand has been very strong, and margins are very good, so we need to take advantage on that. Plants are running well." --- (ADM, earning call, 2024/Q2)

Technological Adaptations and Innovations

Agribusinesses are leveraging technological adaptations and innovations to enhance demand fulfillment, optimize costs, and drive growth. Companies like ADM and Deere & Company are integrating new technologies to improve profitability and sustainability, while Bee Vectoring Technologies emphasizes innovation and sustainability as core growth strategies.

"In our targeted areas of focus, we are continuing to make progress. We continue to improve demand fulfillment for Flavors in our EMEA region, following the implementation of one ADM. We're optimizing cost across the Animal Nutrition portfolio, building the foundation to drive continued sequential improvement across the core of the segment. The use of our refined M&A playbook with our recent flavor acquisitions has proven to be an important accelerator to integration and the ongoing growth of our leading global Flavors business." --- (ADM, earning call, 2024/Q2)

"But if you look at the fleet age and you look at the technologies that are coming and you look at how customers are adopting those technologies trend-wise over time, we look at profitability coming down, but it's still solidly profitable in the business." --- (DE, earning call, 2024/Q2)

""Gustavo's appointment is a reflection of our commitment to lead the industry into a future where innovation and sustainability are at the core of growth," said Ashish Malik, CEO of Bee Vectoring Technologies." --- (Bee Vectoring Technologies, press release, 2024/05/09)

"We continue to support our brands through efficient marketing, effective innovation and strong partnerships with our customers." --- (Tyson Foods, earning call, 2024/Q2)

"We’re excited to unveil our 2023 Corporate Sustainability Report, which details how our work to feed the world, protect nature and enrich lives is advancing ADM’s growth strategy while paving the pathway to a better future for us all. https://t.co/fuO6wVtwYz #sustainability #csr https://t.co/xs52Gw1fM9" --- (ADM, Twitter, 2024/05/14)

Future Outlook and Long-Term Impact

Agribusiness companies like Tyson Foods, Archer Daniels Midland, Deere & Company, and Bunge Limited highlight the sensitivity of future earnings to macroeconomic conditions, market price movements, and operational margins. Despite current disruptions, Tyson Foods maintains its long-term outlook, while uncertainties and risks remain significant for the sector.

"Consequently, their estimated fair values remain highly sensitive to future discount rate increases, changing macroeconomic conditions and achievement of projected long-term operating margins." --- (TSN, sec filing, 2024/Q2)

"So, I was just wondering if there were one-time issues during the quarter and if so, there's been rectified in order to reach all mid to high single-digit growth outlook for the year." --- (ADM, earning call, 2024/Q2)

"This call includes forward-looking statements concerning the Company's plans and projections for the future that are subject to uncertainties, risks, changes in circumstances and other factors that are difficult to predict." --- (DE, earning call, 2024/Q2)

"The most directly comparable GAAP measure has not been provided due to the inability to quantify certain amounts necessary for such reconciliation, including but not limited to potentially significant future market price movements over the remainder of the year." --- (BG, press release, 2024/07/31)

"Short version, yes, we’re not making any adjustments to the long term outlook on normalized ranges today." --- (TSN, earning call, 2024/Q2)