Specter Of Trump's Agriculture Policies Prompt JPMorgan To Downgrade Archer Daniels

Shares of Archer Daniels Midland Company ADM were down 7 percent after JPMorgan downgraded it to Underweight, citing Donald Trump’s surprise victory could have significant implications for the agriculture sector.

“[T]he full impact of the Presidential election result is hard to quantify at this point; however, we believe that the risks to US agriculture are now skewed to the downside,” analyst Ann Duignan wrote in a note.

Duigan believes a strong U.S. dollar versus South American currencies would weigh on Ag services and may reduce the competitiveness of U.S. exports. In addition, the competition for North American exports may increase earlier in 2017 as Brazilian farmers have been planting the 2016/2017 crop at a faster pace.

The analyst also noted that corn processing could be hurt by a weaker Mexican peso. Further, weaker economic growth could negatively impact exports into Mexico, which is the third largest export market for US agriculture.

“[T]he value of ADM’s ethanol dry mill assets could be reduced given heightened risks to demand (domestically and in terms of exports), this could negatively impact ADM’s ability to sell the dry mill assets in the near term,” Duigan highlighted.

Meanwhile, the expiry of biodiesel tax incentive at the end of 2016 may weigh on soybean crush margins into 2017. The company expects up to $50 million negative impact on EBIT.

Duigan also cut the price target by $6 to $36 on the shares, which lost 5.2 percent in the last two days. The analyst expects the stock to be under continued pressure as the impact of actual policy starts to weigh on the company’s core businesses.