ADM Makes Ethanol Push Into Brazil With Venture

By DOUG CAMERONArticle

Archer Daniels Midland Co. said it will enter the ethanol market in Brazil, just as the economics of biofuel production in the U.S. are deteriorating.

The Decatur, Ill., company said Tuesday it would produce ethanol from sugar cane in Brazil through a joint venture. ADM will invest $370 million over seven years in two ethanol plants, with partner Grupo Cabrera adding $130 million.

ADM also reported a sharply higher quarterly profit, blowing past analysts' expectations with a performance driven by its core business of handling and processing commodities.

ADM already produces biodiesel in Brazil using soybeans. The new joint venture would expand its footprint in Latin America and augment its portfolio of biofuels operations in Europe, Asia and North America, underscoring the company's long-term belief in the business.

ADM is one of the largest producers of corn-based ethanol in the U.S., a sector that has turned from boom to bust despite billions of dollars in federal and state subsidies. Ethanol and biodiesel were key contributors to ADM's earnings in the past two years until market dynamics left the U.S. industry "barely profitable" this year, according to Ann Duignan, an analyst at J.P. Morgan Chase.

The economics of corn-based ethanol in the U.S. have deteriorated in recent months as companies struggled with a mix of high corn costs and weak ethanol prices. Construction of new plants has ground to a virtual halt after a three-year construction boom, and several operators -- including VeraSun Energy Inc. -- have sought bankruptcy protection.

A federal mandate will increase the amount of ethanol that must be blended with gasoline next year to 11.1 billion gallons. Investments required to meet tougher emissions standards for ethanol refiners are likely to extend the advantage of producers such as ADM that have balance sheets strong enough to handle the weak pricing environment.

ADM Chief Executive Patricia Woertz said ADM would complete two ethanol plants delayed by supply shortages, and remained interested in "distressed assets" that other struggling ethanol producers might put up for sale.

Ms. Woertz described the company's fiscal first quarter, which ended Sept. 30, as an "exceptional performance." She said it reflected ADM's balance-sheet strength, which allowed the company to buy and trade commodities at a time when smaller rivals have struggled to secure credit.

ADM generated record earnings for the quarter, with net profit more than doubling to $1.05 billion, or $1.63 a share, from $441 million, or 68 cents a share, a year earlier. Revenue rose 65% to $21.16 billion, as volume was little changed but selling prices soared.

Analysts had expected earnings of 69 cents a share, and ADM's stock was ahead $3.22, or 15%, at $24.33 in 4 p.m. composite trading on the New York Stock Exchange.

The performance helped lift the broader agribusiness sector, with Bunge Ltd.'s share price rising 8.6% and Monsanto Co. climbing 7.3%. Shares in the agribusiness sector have slumped over the past six months amid slowing growth for protein-based feed for animal and human consumption.

ADM, like Bunge, has insisted that underlying demand remains strong despite the slowdown, and Ms. Woertz said Tuesday she was "frustrated" at the company's share price. The stock fell from a peak of $48.95 in April to a low of $13.53 on Oct. 10, but has rallied since then.

Ms. Woertz said the Brazilian venture would produce 70 million to 90 million gallons of ethanol a year, and added that ADM is exploring other opportunities in the country.

While Brazil is the world's largest exporter of ethanol, ADM said selling into the U.S. remained uneconomical because of tariffs and transport costs. The company, nonetheless, continues to support the U.S. tariff on Brazilian ethanol imports.

—Emily Schulman contributed to this article.
Write to Doug Cameron at doug.cameron@dowjones.com