BofA Downgrades Chemical Stocks Archer Daniels, Bunge

Both Archer-Daniels-Midland Co ADM and Bunge Ltd BG seem to be nearing peak earnings, with a likely contraction in soybean crush margins over the next couple of years, according to BofA Securities.

The Chemicals Analyst: Steve Byrne downgraded the ratings for Archer-Daniels-Midland and Bunge to Neutral, while raising the price targets from $80 to $100 and from $120 to $134, respectively.

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The Chemicals Thesis: “High futures prices for corn and soybeans represent purchasing costs for the grain handlers,” which could continue to be near record levels over the next two years, “as tight fertilizer supplies could lead to lower crop yields globally, and with US yields at risk from rail service disruption,” Byrne said in the downgrade note.

He added that there is some risk from a “food vs fuel” pause in regulatory support for renewable diesel.

“As such, the companies’ earnings leverage is limited in the current environment, relative to other Ag names,” the analyst wrote.

ADM, BG Price Action: Shares of Archer-Daniels-Midland had fallen 1.80% to $94.68, and Bunge shares were down 2.49% to $123.60 on Tuesday, according to Benzinga Pro.