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Archer Daniels Midland RISK Classification, Measurement & Mitigation
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ARCHER DANIELS MIDLAND COMPANY 2 ADM Archer Daniels Midland Company Founded in 1902 – Headquartered in Decatur, Illinois, USA ADM is one of the Largest Agricultural Processors in the world World’s Largest Corn Processor – Each Day ADM Processes 66,000 MT of Corn Fortune 28 Company (US) Fortune 92 Company (Worldwide) Fortune “Most Admired Food Production Company” (2009,2010, 2011)
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ARCHER DANIELS MIDLAND COMPANY 3 FY 12 Net sales:$89 Bn Employees:30,000+ Facilities:685+ Net Fixed Assets~$10Bn Market cap: (10/26/12) ~$18 Bn Premier Player in Global Agribusiness Key Facts Serving Vital needs throughout the world Ag Services Oilseeds Processing Corn Processing Other FY’12 Segment Operating Profit $2.9 Billion
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ARCHER DANIELS MIDLAND COMPANY ADM Corn Corn Syrup, High Fructose Corn Syrup Fuel Alcohol Dextrose (Liquid and Crystalline), Maltodextrin Xanthan Gum, Citric Acid, Lactic Acid, Yeast Propylene Glycol, Ethylene Glycol Additional Products Ethyl Lactate Food and Industrial Starches Lysine, Threonine, Astaxanthin Corn Oil Gluten Feed Gluten Meal Starch Isosorbide – Pilot Scale Sorbitol (Liquid and Crystalline)
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ARCHER DANIELS MIDLAND COMPANY ADM India: HQ & Offices/ Warehouse Crush Plants 3 rd Party Packaging - Branded Branded Oil Depots & Sales Offices Mangalore - Packing
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ARCHER DANIELS MIDLAND COMPANY RISKS - Classification 1.Price Position Risk 2.Currency Risk 3.Credit Risk 4.Counter Party Risk 5.Quality Risk 6.Production & Climate Risk 7.Regulatory Risk 8.Political & Country Risk 9.Fidelity Risk 10.Operational Risk 11.Financial Risk 12.Reputational Risk
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ARCHER DANIELS MIDLAND COMPANY RISKS - Measurement 1.Marked to Market 2.Value At Risk
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ARCHER DANIELS MIDLAND COMPANY Marked to Market S. NoCommodityBoughtSoldNet PositionAvg CostCMPDifferenceM 2 M AB(a-b) = Cxy(y-x)=z(c ) x ( z ) 1 Corn 2 Cocoa 3 Coffee 4 Cashew 5 Rice 6 Sesame 7 Wheat Total
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ARCHER DANIELS MIDLAND COMPANY Value At Risk S No.RiskCurrent Exposure in $ Percent Volatility Value at Risk 1Price-Position-Sales 2Price-Position-Buying 3Currency Risk (Uncovered currency) 4Credit Risk 5Advance Risk to Seller 6Quality Risk (Sailed not Received) 7Crop Risk (Qualitative) 8Country Risk (Qualitative) Total
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ARCHER DANIELS MIDLAND COMPANY RISKS - Mitigation 1.Price Position Risk – Position Limits & Sheet, Hedging 2.Currency Risk – Cover & Forward Cover 3.Credit Risk – Credit Assessment, Limits & Re-insurance 4.Counter Party Risk – PG Deposit, Payment Retention 5.Quality Risk – Staff Training, Storage, Transportation 6.Production & Climate Risk 7.Regulatory Risk – Dialogue & Anticipation 8.Political & Country Risk – Historical Assessment 9.Fidelity Risk – Re-insurance and Compliance Action 10.Operational Risk – Broad Def, Safety, Process Related 11.Financial Risk – Project, Interest Rate, Cost Comp etc. 12.Reputational Risk – Organizational, Response -> CEO.
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ARCHER DANIELS MIDLAND COMPANY RISKS – Global Consolidation Crop -> Region -> Country Country -> Region -> Crop -> ADM International Risk Management Teams, Risk Officers, Risk Offices
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