May 1, 2007

ADM carries mixed feelings for ethanol boom

As Archer Daniels Midland, the country's largest ethanol producer, is reaping the benefits of a spike in demand for ethanol as corn prices rise to historical levels, it is worrying about falling revenues from its soy business.

The ethanol boom carries pros and cons for ADM: As more acres are dedicated to corn, fewer acres would be available for soy, a key crop in the company's oilseeds business.

Analysts have said strong demand for ethanol would help keep ADM profitable, since the company owns almost a fifth of the US ethanol market. Demand is expected to outstrip supply at least until 2012.

The improving market for high fructose corn syrup, an ADM offering, would also help offset high corn prices.

Margins for high fructose corn syrup producers have been improving in recent years as the industry gets rid of excess capacity, improved utilisation rates and regained pricing power, analysts said. 

Archer Daniels Midland shares grew 14 percent in the quarter and have climbed 6 percent during the past year.