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EC SD | From OP's first linked article:
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ADM utilizes a type of cost-based accounting. The company reports earnings by netting positions against the original cost base. I am avoiding the word basis here for agricultural reasons.
This means open soybean hedges and cash ownership may not net out in the PNL (Profit and Losses) this quarter but will over time. The gains and losses in future quarters, all things being equal. This gives the street an idea of how much of the PNL is real (versus unrealized due to a mismatch in timing).
“Hey, our oil seed processing revenue jump is from hedge gains on open futures. We expect new crop cash ownership in Brazil will offset most of this, so $125 million of our oilseed hedge gains will reverse next quarter.”
The implication is that the cash basis is rallying relative to futures hedges falling. The books get closed, the executives sign off, and the company pays compensation bonuses and taxes based on the official (GAAP accepted) figures.
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OK then - my interpretation:
1) ADM regularly buys physical grain at harvest times in both NA and SA
2) Instead of hedging the physical at the time of purchase, they short the market ahead of harvest at high volumes to drive the price lower
3) ADM doesn't report the speculation by using some accounting tricks which may or may not be "proper", because they know they can transfer this speculation position over to a hedge against physical position in a couple of months.
4) ADM profits by selling delivery contracts first (from ag commodities or products they produce from ag commodities), then shorting the crap out of the ag futures market, then buying the crop at a lower prices.
5) Farmers get lower prices for their production unless they are sophisticated marketers and/or have large grain storage facilities
What say you? Is this the kind of company you want to invest in?
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Here is a post on ADM that could clarify things a bit.
