Corn prices pop ADM's ethanol profits
An ethanol pump
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Kai Ryssdal: The agribusiness giant Archer Daniels Midland saw profits plunge 61 percent last quarter.
ADM is one of this country's biggest producers of ethanol, but in its earnings announcement yesterday, it said it's a little worried about the future of the corn-based fuel in the U.S. High corn prices are killing its margins. On top of that, the food crisis is complicating matters, because governments are beginning to question incentives they give for alternative fuels made from crops.
Marketplace's Dan Grech reports the changing agricultural landscape has ADM rethinking its strategy.
Dan Grech: ADM is in a Catch-22: The more corn ethanol it produces, the less profitable that ethanol becomes.
Bruce Babcock is an agricultural economist at Iowa State University.
Bruce Babcock: The expansion of the ethanol industry was their own worst enemy because it caused their number one cost of production -- corn -- to more than double in price.
Take ADM's most recent numbers. Revenue has nearly doubled in the past year, to $22 billion dollars last quarter, but with corn so expensive, profits have taken a nose dive.
Chief executive Patricia Woertz said in a conference call that ADM may be looking in a new direction.
Patricia Woertz: We have been interested and continue to stay interested in investment in sugar and ethanol processing in Brazil and we have talked with several potential partners.
ADM owns a small percentage of Brazilian sugar ethanol producer Cosan. U.S. agribusiness is looking into Brazil for a simple reason: The country has more than 220 million acres of unused farmland.
Paolo Sotero directs the Brazil Institute in Washington, D.C.
Paolo Sotero: Those lands are near the production centers. Those lands are not in the Amazon region. They are in what we call the Cerrado region and it is natural that American companies would be attracted to that.
The EPA is currently considering a request to cut federal mandates on corn ethanol in half, yet one more reason for ADM to diversify its business.
I'm Dan Grech for Marketplace.