ADM reports 2nd quarter results, optimistic on ethanol's future

By Holly Jessen | August 07, 2013

Archer Daniels Midland Co. reported net earnings of $223 million, or 34 cents per share, for the second quarter, which ended June 30. The company said Aug. 6 in an earnings call that earnings per share were down from 43 cents per share in the same time period the year before but that adjusted earnings per share were 46 cents, up from 38 cents per share in the second quarter of 2012. “The team managed well through this period, as tight U.S. crop supplies reduced volumes,” said Patricia Woertz, ADM Chairman and CEO. “Also, corn results improved amid volatile ethanol industry conditions.”

Looking at the corn processing segment, Juan Luciano, chief operating officer for ADM, said operating profit went up $149 million from the same time period a year before, landing at $223 million. Within that segment, sweetener and starches operating profit was down $9 million. But if the impact of corn hedging effectiveness was excluded the results actually improved by $25 million, due to steady sales in North America. Bioproducts, which includes ethanol, went up $158 million to $97 million, he said, adding that was a significant improvement.

During the question and answer period, Luciano said the company was “very optimistic” about the future of ethanol in the next two years. Despite attacks on the renewable fuel standard (RFS) he said he thought the energy policy would remain in place. “I think to the extent that the RFS impact us, we feel very confident that, that regulation will be maintained,” he said.

Woertz commented on the hearings held this summer on the RFS, saying that the RFS is important for assuring market access to ethanol. She also commented that the White House has continued to support ethanol. “The producers don't control the infrastructure, so consumers’ ability to buy it—E15, E85, etcetera—continues to be important,” she said.

Another question was about whether independent refiners have a legitimate complaint on renewable identification number (RIN) costs. Luciano pointed out that the current market provides incentives for blending ethanol. For retailers that sell E85, when it is priced correctly, the volume of the fuel sold can triple. “So, there is an opportunity there that is elasticity and demand will come if this ethanol is properly priced and then passed to the consumer,” he said.

He also pointed to the growing availability of E15, now offered at stations in 10 states. “We believe that people have options to blend more, and so we believe that the RIN prices is a reaction to their behavior,” he said. “If they could price ethanol more effectively, that would increase demand and they don't need to resource the RINs.”

The rollout of E15 has been slow, but that was expected. In fact the company said previously that it didn’t expect material volumes of E15 this year, he added. But, especially if there is a large corn crop this year, in combination with effectively priced E15, ADM believes the incentive to sell it will increase. “We think that as people get more comfortable and more states have the regulations in place, this will start to proliferate,” he said.