Nov 4, 2014
By Jacob Bunge
Archer Daniels Midland Co. expects its corn-based ethanol business to remain strong in the year ahead despite sliding energy prices that have cut into profit margins, executives said Tuesday.
Strong demand over the summer for ethanol and low corn prices translated to the best profit margins in years for U.S. ethanol makers, helping ADM—one of the world’s largest traders and processors of agricultural commodities—increase third-quarter profits by 60%.
Steady sales of the biofuel to gasoline blenders and the potential for a rise in exports next year suggest that business will remain brisk for domestic ethanol producers, ADM President Juan Luciano told analysts on a conference call.
“Corn-based ethanol is still the lowest-cost octane enhancer on the market, and exports remain strong,” he said, noting ethanol margins would be “a little bit lower” in the fourth quarter than in the third quarter.
Ethanol production helped ADM’s corn-processing division more than double profits to $363 million in the three months ended Sept. 30, the Chicago company said. ADM ranks among the biggest U.S. ethanol producers, processing corn into the fuel additive and selling a resulting byproduct as an animal feed ingredient.
ADM reported an overall profit of $747 million, or $1.14 a share, up from $476 million, or 72 cents a share, a year earlier. Excluding inventory-accounting adjustments, asset-sale gains and other items, earnings rose to 81 cents from 47 cents.
Revenue decreased 15% to $18.12 billion. The drop reflected lower sales in the company’s agricultural-services segment due to slower selling of crops by farmers in South America.
ADM shares climbed 5.2% to $49.69 in midday trading.
The end of the busy summer driving season and a broader drop in crude oil prices dented profit margins for the ethanol industry in September and raised questions about how it would fare if oil remains cheap for a long time. Enlarged U.S. supplies and declining demand have helped push crude oil prices about 22% lower this year. Gasoline and ethanol prices fell sharply as well.
However, another projected record U.S. corn harvest will keep the main ingredient for U.S. ethanol cheap going into next year, ADM officials said. The company sees potential to sell more ethanol abroad in countries like Mexico, Canada, the Middle East and Asia, with overall U.S. industry exports in 2015 anticipated to range from 800 million gallons—steady with this year’s projected sales—to as much as one billion gallons, Mr. Luciano told analysts.
Ethanol profit margins have improved in recent weeks despite a 15% slide in crude oil prices over the past month, as ethanol producers more quickly throttled back production to respond to weaker demand, ADM officials said.
“The industry’s behaving in a much better way this year than we saw last year,” said Mr. Luciano, who told analysts that ADM was planning for the possibility that oil prices will remain sharply lower in 2015.
ADM predicted a continued rebound in its grain-trading division, which buys crops from farmers and grain elevators, and sells them to food companies or foreign buyers. Anticipated record hauls of corn and soybeans in the U.S. helped boost profits in ADM’s agricultural services unit to $64 million in the third quarter from $4 million in the prior-year period. Near-record volumes of crops moved through ADM’s export terminals in the Gulf of Mexico in September as southern U.S. farmers brought in this year’s harvest, officials said.
Transport problems plaguing U.S. railways drove earnings in ADM’s logistics management unit two-thirds higher to $35 million in the third quarter. The company’s trucks and barges both benefited from increased demand, officials said.
ADM’s oilseeds-processing segment reported that its operating profit rose by $1 million to $362 million from a year earlier, with the impact from slower farmer selling in South America offset by stronger global soybean and biodiesel results.
Read the original story here : Archer Daniels Sees Corn-Based Ethanol Business Staying Strong