Archer-Daniels-Midland (ADM) Bets Big On Oilseed Crush Capacity

On August 4, Archer-Daniels-Midland (ADM) executives disclosed plans to expand capacity at four US oilseed-crushing plants during an earnings call. This $100 million investment into a growing business that experienced its strongest quarter in years. These upgrades, situated in Frankfort, Indiana; Deerfield, Missouri; Lincoln, Nebraska; and Spiritwood, North Dakota (a joint venture with Marathon Petroleum), are anticipated to increase crush capacity by approximately 700,000 metric tons by 2028 or 2029.

CEO Juan Luciano emphasized the cost-effectiveness of the projects, estimating the expense at around a quarter of what a brand-new facility would entail. The company's CEO noted that the projects would be implemented in a phased manner, providing flexibility to adjust if the current environment were to change. ADM's Q2 adjusted earnings per share reached $1.84, surpassing analyst expectations of $1.44.

The full-year 2026 adjusted EPS guidance was also revised to a range of $5.15 to $5.60 from the previous $4.15 to $4.70. Operating profit in the ag services and oilseeds segment, ADM's largest, increased by 129% year-over-year to $867 million. The crushing subsegment alone saw a $330 million boost, driven by a 5% rise in oilseed volumes.

ADM has identified 10 US soy processing plants for potential expansion and indicated that China is on track to purchase 25 million metric tons of US soybeans this year. Despite this growth, Luciano described the expansion as a phased approach, suggesting a potential option to scale back if the current environment does not sustain.

The expansion is projected to fit within ADM's existing 2026 capital expenditure range of $1.3 billion to $1.5 billion, following recent expansions in Brazil and a recent extension in Uberlandia. The success of the projects is contingent on favorable conditions beyond ADM's control. These include the definitive 2026 and 2027 renewable volume obligations under the US Renewable Fuel Standard and energy price increases following the Iran war.

While the ag services and oilseeds segment saw net positive mark-to-market and timing impacts, the refined products and other subsegments experienced a 3% profit decline due to negative mark-to-market impacts and supply-demand imbalances in South America. Equity earnings from ADM's stake in Wilmar decreased by 22%. Stock ownership in the company has edged down from 39 funds to 35 in the latest quarter, but short interest remains low at 3.33% of float.

The forward P/E ratio of 15.85 suggests that the market may not have fully incorporated the company's improved profit outlook. Analysts have differing opinions on the sustainability of the biofuels tailwind and whether the market has fully recognized the growth potential.