ADM: Ethanol business remains 'challenging'

Archer Daniels Midland Co., the second-largest U.S. ethanol producer, said the ethanol business remains "challenging" and new government biofuels standards may increase demand enough to match supplies in early 2010.

The government's renewable-fuels standard, or RFS, will require the U.S. to use 10.5 billion gallons of ethanol this year, up from 9 billion last year, and additional increases are scheduled for next year.

"The ethanol business will remain challenging, but we know that the RFS blending requirement will increase to 12 billion gallons for 2010," Chief Financial Officer Steven Mills said today in a presentation in New York broadcast over the Internet. "We would expect margins to improve as we see this increase in ethanol demand."

Ethanol producers have struggled amid high costs and lower demand. On April 7, Aventine Renewable Holdings Inc., based in Pekin, Illinois, filed for bankruptcy protection, joining Renew Energy LLC, Cascade Grain Products LLC and VeraSun Energy Corp.

"There isn't that much capacity running now," John Rice, executive vice president of ADM's commercial and production unit, said at the BMO Capital Markets conference. With gasoline demand starting to increase, "we can possibly see in the first part of next year the supply and demand of the market balancing out."

Decatur, Illinois-based ADM on May 5 said third-quarter profit declined 98 percent because of investment losses and lower demand for agricultural commodities, including ethanol.

ADM fell 96 cents, or 3.7 percent, to $24.93 at 3:06 p.m. in New York Stock Exchange composite trading. The shares slumped 10 percent this year through yesterday.

ADM had a $97 million loss from refining corn into the alternative fuel and other products because of higher corn costs, lower selling prices and inventory writedowns. The company had a profit of $70 million from ethanol and other products a year earlier.