Uncertainty about ethanol remains a thorn in ADM’s side



Third-quarter earnings results released Tuesday by Decatur-based Archer Daniels Midland Co. [[ADM]] indicate that the ethanol industry remains a grey area, even for a large diversified company. Concerns about blending levels, emission standards, capacity and demand continue to be punctuated by question marks.

The company reported a loss of $97 million in its bioproducts processing sector for the quarter ended March 31, primarily from a significant decline in ethanol margins due to higher corn costs, lower demand for gasoline and overcapacity in the industry. And the potential for environmental regulation could add even more to expenses down the line.

Just ahead of the Environmental Protection Agency’s announcement about government plans to measure greenhouse gas emissions from production of biofuels, ADM’s CEO Patricia Woertz said in a conference call the company is engaged in dialogue about carbon issues, and that a focus on sustainable growth will benefit the renewable fuels industry in the long run.

Woertz pointed out there is still potential to profit from ethanol, saying the limit for blending with gasoline, currently set at 10 percent, is poised to change. The Renewable Fuels Association, an industry group, has petitioned the EPA to raise the level to 15 percent, but Woertz said even a 2 percent increase would ease the pressure on the struggling industry.

We feel quite positively that there is a recommitment of efforts supporting biofuels in the markets.

Others remain skeptical. Chiming in on the conference call, John Roberts, an analyst with Buckingham Research Group Inc., questioned the company’s decision to build any additional plants given the oversupply in the industry, pointing out that Valero Energy Corp. [[VLO]] has announced it will rev up production at the facilities it acquired earlier this year from bankrupt VeraSun Energy Corp.

Although the balance of supply and demand remains uncertain in the crowded industry, ADM maintained it occupies a strong financial position and that smaller, inefficient players are steadily dropping out.

In terms of gauging ADM’s output, Woertz noted that underlying ethanol demand is in line with basic gasoline consumption, and said, “We are approaching driving season.”

ADM’s stock was trading at around $23.50 following the earnings call, down 10 percent from its closing price of $26.17 on Monday.

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