Ethanol giant ADM is bullish on fuel’s future

updated 6:05 p.m. ET March 2, 2008

CHAMPAIGN, Ill. - On a conference call back in early November, Archer Daniels Midland Chief Executive Patricia Woertz sounded like an ethanol bull on the prowl for a bargain.

With ethanol supply outstripping demand and its price falling, an analyst asked her if ADM, one of the world's ethanol's top producers, was on the lookout for failing competitors' plants it could buy up cheap.

"We're actively engaged in this market all the time, and we know where every plant location is," Woertz said. "But it would have to be a real value and scale and fit with our network."

A few weeks later, ethanol rival VeraSun Energy Corp. pulled the trigger on a $686 million buyout of US BioEnergy Corp. that, when it closes next month, will make VeraSun the top ethanol producer in the country.

ADM is still waiting — a decision experts say underscores the uncertainty of an industry struggling with a supply glut and a decision by the government to cap just how much it will contribute to ethanol producers who make their product from corn. The crop is the primary source for American ethanol.

"It was tough a couple of years ago to not make money producing ethanol; now it's a lot easier to not make money," said Pat Westhoff, an agricultural economist at the University of Missouri. "We expect there to be a lot of volatility in returns to ethanol producers over the next 10 years."

Just this week, Cargill Inc., another big ethanol maker, suspended plans for a $200 million ethanol plant near Topeka, Kan., because of poor market conditions.

Both ADM and Cargill, unlike almost all their competitors, are diversified enough to wait out the uncertain market.

"It seems that (ADM is) really continuing to stay the course and not to get big just to stay No. 1 in the industry just for the sake of staying No. 1," said Rick Kment, an ethanol industry analyst with agriculture-market information company DTN.

ADM can produce nearly 1.1 billion of the roughly 6.5 billion gallons the country currently produces, more than any other company, according to Renewable Fuels Association industry group. ADM in the past few years, in fact, has used ethanol and soy-based biodiesel to reposition itself to investors as an energy company. It hired Woertz in 2006 from Chevron Corp.

But ADM counts on ethanol for only about one-tenth of its total sales. It still makes most of its money by processing soybeans and corn for animal feed, oil and other food products.

Experts say the Decatur, Ill.-based company is big enough and diversified enough to wait out whatever lies ahead for ethanol. ADM doesn't have to buy plants or act in any other way to improve the health of the industry.

"I don't think so, unless they are really, really cheap," Morningstar analyst Ann Gilpin said. "Quite frankly, if you have some smaller guys go out of business that would solve some of the problems."

Added Kment, "It will be interesting long term on where ADM really focuses in the ethanol industry."

What he's talking about is inevitable change ahead for ethanol makers.

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