May 24, 2006

 

Corn Products refuses to be drawn in by ethanol fever

 

 

Corn Products International Inc has not been drawn in by the current ethanol fever, despite ethanol being the most favoured corn derived product currently.

 

Besides refining corn into starches and sweeteners for food ingredients and industrial uses, the company also manufactures feed products. The company is also the top corn processor in South American markets.

 

Although it made sense to avoid ethanol production when prices were weak in the past, the company's decision to hold out has become questionable now that prices have doubled and oil companies have acquired an unquenchable thirst for the product.

 

CEO Samuel Scott admits the company's strategy has come under some pressure from investors. However, he said the company would be unlikely to achieve the scale required for profitable production, given the huge investment required of equipment and facilities.

 

Furthermore, the competition would likely become more intense as scores of ethanol plants are under construction now, leading to uncertainties in prices in the future. 

 

The going has been good for ethanol for the last year and a half but it has been rough for the last decade, Scott said. Things may go back to normal again, he mused.

 

Although ethanol demand is fuelling price increases for corn, Scott does not see it as a problem as corn prices have been low in recent years. The price increase merely signaled that things are going back to normal, Scott said. Furthermore, the company has large stocks of corn. 

 

Still, the company is not without its share of troubles, an outbreak of animal disease in South America lowered demand for its livestock feed.

 

Income fell 4 percent to US $89.4 million in 2005 despite a 4 percent rise in sales of US2.55 billion. 

 

First-quarter income climbed 41 percent to US$23.4 million, in line with Wall Street expectations while sales rose 8.5 percent to US$665.8 million.