Summary
ADM is trying to mitigate its operations in this current credit crisis.Since the production is down and the sources of funding are minimal or dry.ADM is trying to scale down its involvement by cost cutting its operations while watching the Global recovery trend after which they may retake over the assets
Analysis
ADM is one of the leading world agricultural producers.
Agricultural commodities are always subject to volatile prices world
over.With the low purchasing power from leading consumers world
wide.prices for agricultural commodities are set to be low in this
period.
The decision by ADM to lease the Brazil cooperatives is an indication
that ADM is trying to cost cut its operations amidst the credit
crunch.With several grain crushing plants and storage units which are
redundant,the decision to lease off these assets is worthy to raise
some funds
Acloser look at the Brazilian Agricultural sector indicates that most
of the production has declined simply because of the disorders in the
financial inflows into the operations as most of the financial
institutions are not willing to lend out money and as such there is a
financial distress on the capital base.
Most of the cooperatives in Brazil where embarking on widespread
expansion and this calls for external financing sources to carry
on with the expansion amidst the debts earlier secured.
As a matter of strategy ADM finds it fit to lease out the ware
houses,generate funds from the leasing and be able to carry on other
operation while monitoring the Global Trends.
In future they will re take over the warehouse and alos buy off some
ofn the cooperatives assuming that the Global crisis receeds down in
the next year 2010-2012.They will re assess the possibility of re
taking over the ware houses.open up more facilities and sign more deals
with the local producers.
