ADM in talks to tap ethanol in Brazil

By Hal Weitzmann in Chicago
Published: August 5 2008 15:45

Archer Daniels Midland, the world’s largest grain processor, on Tuesday signalled a wave of expansion in Brazil as it struck a relatively gloomy note on US corn-based ethanol production.
ADM, a leading ethanol producer, has been a cheerleader for the industry in the US but its expansion into Brazil’s sugar-based ethanol industry suggests it wants to diversify from corn-based production.

The US ethanol industry has been under financial pressure in recent months as the price of corn spiralled. Although corn prices have dropped sharply in the past month, the industry still faces difficulties.
The subsidies paid to the industry have come under increasing scrutiny as ethanol production is widely seen as contributing to the rising cost of food.
About one-third of this year’s US corn production is expected to be used to make the fuel. John McCain, the Republican presidential candidate, is among those who oppose the subsidies.
Last month ADM united with other big pro-ethanol companies in the agribusiness sector such as Monsanto, Deere and DuPont to make its case through adverts and to boost lobbying in the US Congress.
John Rice, executive vice-president, commercial and production, noted on Tuesday that, at the same time that corn prices had increased, the industry was also facing a different series of higher costs.
“The cost to build plants these days – with stainless steel, labour costs and everything else – is going up,” he said. “[Ethanol producers] don’t see the margin out there right now and finding capital is also very tough.”
The downbeat tone on US ethanol contrasted with ADM’s Brazilian plans, as it confirmed reports it was in talks to move into sugar-based ethanol production.
“We have been interested and continue to stay interested in an investment in sugar and ethanol processing in Brazil and we have talked with several potential partners,” said Patricia Woertz, chief executive.
Mr Rice said the company would invest well beyond the ethanol industry. “We’re looking at this as a whole range of new opportunities for ADM,” he said.
Ms Woertz also dismissed Brazil’s threat to take legal action against the US in the World Trade Organisation over ethanol tariffs.
ADM on Tuesday reported quarterly results below Wall Street’s expectations as it failed to translate the commodity price boom into profit growth. Profits fell to $372m or 58 cents per share, down from $955m or $1.47 cents per share a year earlier, although the 2007 figures were boosted by several one-off transactions.
ADM shares were down 5.8 per cent at $25.82 shortly before the close in New York.
Copyright The Financial Times Limited 2008