August 7, 2008

    

ADM shifts its hopes to Brazilian ethanol production 

Archer Daniels Midland, the world's largest grain processor, Wednesday (Aug 6, 2007) announced intentions to expand its ethanol operations in Brazil.

 

ADM, a leading ethanol producer, has so far been using corn to produce ethanol. Its foray into Brazil, where sugarcane-based ethanol is the norm, suggests a shift away from corn-based production. 

 

Corn prices, which more than doubled over the past year, have clearly had an impact on the ethanol industry. Even though prices have eased recently, it still remains way over year-ago levels.

 

Ethanol companies have been fighting a pitched battle against public opinion as food prices rose. Several lawmakers and food companies such as Tyson have been blaming ethanol for causing price increases in corn which led to higher feed and meat prices.

 

At the same time, ethanol companies have argued that it is not ethanol but higher global demand that has caused food prices to increase. Another argument is that ethanol has at least prevented gas prices, which are at record-highs, from going higher.

 

Rising pricing prices have also put the government's ethanol subsidies into question as food producers lobbied to have the subsidies removed.

 

Last month, ADM along with other big pro-ethanol companies, ran its own ad campaign to do its own lobbying in Congress.

 

Besides corn, the industry would face higher plant-building costs and with credit markets tight, ethanol companies may be finding it difficult to raise cash.

 

ADM CEO Patricia Woertz has said that the company is interested in an investment in sugar and ethanol processing in Brazil and has talked with several potential partners.

 

ADM recent quarterly results fell below expectations it showed that the company has failed to benefit from the recent boom in agricultural commodities.

 

Profits fell to US$372 million or 58 cents per share, or a third of its US$955 million or US$1.47 cents per share a year earlier.

 

However, in 2007, the company's results were helped by several one-off transactions.