Archer Daniels Midland Co., the world’s largest grain processor, and Bunge Ltd. may benefit if flooding of Australian croplands shifts demand to other regions, said Rich Feltes, vice president of research for R.J. O’Brien & Associates.
“Natural disasters of that nature are a benefit to multinational companies,” Feltes said today in a telephone interview from Chicago, where futures brokerage R.J. O’Brien is based. “It creates market imbalances. That is a plus for large, integrated firms like Bunge and ADM.”
ADM, based in Decatur, Illinois, operates in more than 60 countries and White Plains, New York-based Bunge is in more than 30, according to the companies’ websites. That multinational presence allows them quickly to take positions in cash and futures markets to meet demand, Feltes said.
Australia’s Queensland state is forecast to get more heavy rain associated with the La Nina weather phenomenon in the next seven to 10 days after suffering from its worst floods in about 50 years, according to the British Weather Services.
The wet weather is likely to reduce the quality of Australia’s wheat crop, making it more suitable for animal feed than milling, Dennis Gartman, editor of the Gartman Letter LC, said today in a report. Demand for milling wheat will likely shift to the U.S., Feltes said.
Bunge’s sugar operations in Brazil, the largest producer and exporter of the sweetener, also may benefit if the heavy rain reduces Australia’s output, Diane Geissler, an analyst with Credit Agricole Securities in New York who rates the shares “buy,” said in a Jan. 5 report.
“As Australia exports nearly 80 percent of its crop, this could have a significant impact on global availability of sugar in 2011 and early 2012,” Geissler said. The Australian flooding “should also benefit Bunge over the near term.”
Heavy rain last year likely cut Australian sugar output to the lowest in nearly two decades, the government’s commodity forecaster projected last month. Wet weather also may curb next season’s production, according to producers group Canegrowers.
Susan Burns, a Bunge spokeswoman, declined comment. Roman Blahoski, a spokesman for ADM, didn’t immediately respond to a telephone call seeking comment.
Bunge’s grain-merchandising volumes rose in the quarter ended Sept. 30 as its South American business benefited from crop shortages caused by drought in Eastern Europe, the company said in a securities filing.
ADM rose 26 cents to $31.95 at 4:15 p.m. in New York Stock Exchange composite trading. Bunge fell 49 cents, or 0.7 percent, to $66.89.
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