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Food processing company Archer Daniels Midland Company (ADM - Analyst Report) signed a memorandum of understanding with its long-time partner Wilmar International Limited to work hand in hand in areas such as global fertilizer purchasing and distribution, global ocean freight operations, and tropical oils refining in Europe.

As per the terms of the memorandum, both the companies will partner with each other in the global fertilizer business engaging in purchase and distribution. As global partners in ocean freight operations, the companies aim at the optimum utilization and management of their shipping fleets. Initially, each company is entitled to contribute two ships to the effort. Under the pact to refine tropical oils in Europe, the companies look to maximize the refining capacity utilization. 

The companies pointed out that the formation of a strategic partnership under the memorandum will be based on the execution of definitive agreements. The companies intend to conclude the definitive agreements over the next few months.

Archer Daniels’ association with Wilmar dates back to mid-1990s when the companies jointly undertook a project to build a network of soybean processing operations in China. Archer Daniels currently has about 16% stake in Wilmar. Both companies share a unique relationship of being the prime supplier for each other.

Archer Daniels and Wilmar attribute the success of their partnership to their ability to tap on each other’s synergies, which in turn, helped the companies build on their success in Asian operations, meeting the growing demand for agricultural products in the region.  In the coming years, the companies look forward to extend this co-operation globally, starting with the areas outlined in the recent memorandum of understanding.

Archer Daniels, which competes with Bunge Limited (BG - Snapshot Report) and Corn Products International Inc. , currently has a Zacks #5 Rank, implying a short-term Strong Sell rating on the stock. The company retains a long-term Underperform recommendation.

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