The loss compares to a profit of $4.1 million or 14¢ per diluted share in the first quarter of 2015. The company reported revenues for first-quarter 2016 of $887.87 million, down 3.3% compared to revenues of $918.22 million in the same period of last year.
"We are understandably disappointed with these results," said Pat Bowe, chief executive officer. "Market conditions in the first quarter prevented our Grain Group from realizing meaningful basis appreciation following last year's poor harvest in the Eastern Corn Belt. Additionally, our affiliates experienced losses resulting from limited trading opportunities, including compressed margins at both the producer and processor ends of the supply chain and significant reductions in distillers dried grain shipments to China.”
The Grain Group reported a pre-tax loss of $17.4 million compared to pre-tax income of $743,000 in the same quarter of 2015. Although the group anticipated a difficult first half, some basis appreciation was expected, the company said. This did not materialize, negatively impacting profits.
Through the first quarter the market provided little carry or basis appreciation as global supplies and a strong dollar weighed on inventory movement, the company said. This resulted in losses in both the base grain business and the grain affiliates. Base grain saw almost no appreciation in basis or spreads, driving $9.7 million of the $12.8 million drop in performance versus the first quarter of 2015.
The group's affiliates were also impacted by the weak basis and spreads which limited space income. Lansing Trade Group was negatively impacted by the initiation of anti-dumping and countervailing duties investigation of U.S. distillers dried grains (DDGS) by the Chinese government in January. This, along with weak margins across the supply chain from producers to processors, limited margins in trading and drove them to a loss for the quarter.
During the quarter, the company announced that it signed an agreement to sell eight grain and agronomy assets in western Iowa to MaxYield Cooperative of West Bend, Iowa, U.S. While the company was able to generate improved results in these assets during 2015, it was determined that another party would be a better owner of the assets. The Andersons acquired the grain and agronomy locations as part of a larger transaction with Green Plains Grain Company in 2012. The Tennessee, U.S., assets acquired during that same transaction will remain a part of The Andersons. The transaction does not involve the Denison ethanol facility nor the recently-acquired Nutra-Flo facilities in Iowa. This transaction closed on May 1. The sale will result in a small gain in the second quarter.
Negative industry fundamentals persist for commercial grain handlers including high global inventory levels and moderate movement. These will limit opportunities for improvement for the Grain Group in the near term. Many factors do point to opportunities in the fourth quarter and on into 2017, the company said. The combination of the high levels of residual inventory in the industry and the recently published planting acreage estimates point to higher space utilization levels during this year's harvest providing opportunities for the company to purchase grain at more normal discounts and achieve desired profits from space.
“Grain performance will continue to be challenged until the fall harvest, which should produce opportunities to return to normal levels of profitability," Bowe said.
The Ethanol Group reported a pre-tax loss of $2.68 million compared to a pre-tax income of $5.28 million in the same period of last year. Prior year results were bolstered by hedge positions initiated in the fall of 2014. Market conditions in the fall of 2015 did not offer similar opportunities to lock in margins. The facilities did selectively run to maximize yield versus volume during weeks of peak industry inventory, and continue to optimize their performance.
The Ethanol Group produced 95 million gallons in the first quarter compared to 93.5 million gallons in first quarter of 2015. Margins were at or below five-year lows for comparable weeks for much of the first quarter, returning to levels above the low end of the five-year range as second quarter began.
The outlook entering the stronger spring and summer driving months is positive though mixed. U.S. national average gasoline prices are running below five-year lows, supported by high stocks of crude and low oil prices. Demand from higher gasoline consumption should provide some offset to margin pressures from current gasoline prices.
"We are aggressively moving forward to deliver improved operating results by addressing costs," Bowe said. "We see a stronger outlook for the remainder of the year as nutrient sales are trending favorably and ethanol margins are expected to improve with summer driving demand.”
