ADM targets Dec. 1 for launch of ethanol subsidiary

By Erin Voegele | October 31, 2019

Archer Daniels Midland Co. has announced plans to launch Vantage Corn Processors, its stand-alone ethanol subsidiary, by Dec. 1. Ray Young, chief financial officer at ADM, also said the company is working with interested parties on strategic alternatives for the business.

Young made his comments during an Oct. 31 earnings call held by the company to discuss third quarter financial results.

The company reported  that third quarter results for its carbohydrate solutions business were substantially lower than last year. The division includes bioproducts, which reported significantly lower earnings due primarily to the unfavorable margin environment for the ethanol industry.

During the call, Young said bioproducts results were significantly lower when compared to the third quarter of last year hear, driven by high industry inventories and higher net corn costs in North America. Those factors led to a challenged industry market environment, he said. Young also noted that ethanol margins remain negatively impacted by the lack of Chinese purchases from the U.S. and by small refinery exemptions (SREs).

Regarding the launch of Vantage Corn Processors, Juan Luciano, chairman and CEO of ADM, said the company is currently targeting Dec. 1. According to Luciano, the launch of the subsidiary is an important step as the company continues to evaluate strategic alternatives for its dry mill facilities.

Young said that ADM is currently working with “quite a few interested parties” and is at the initial stage of some form of sale, joint venture or other type of structured transaction. “We’re…well along our way there in terms of our strategic alternatives,” he said.

Young also briefly discussed the current state of the ethanol industry. He said the ethanol margin environment this year has been extremely challenging and many facilities have idled production. That idling of production capacity, however, has helped drive improved ethanol margins, he said, particularly after Labor Day. “There has been some rebalancing of supply and demand,” Young added, noting that increases in incremental demand are also needed to drive ethanol margins higher.

Moving forward, Young said it’s difficult to see a scenario by which ethanol industry margins in 2020 are worse than in 2019. He said he is somewhat encouraged by the idling of facilities, which shows there seems to be a bit more discipline in the industry right now in terms of trying to better match supply and demand.

“I do believe that it is important that the U.S. ethanol industry is strong, because that results in basically the U.S. agriculture industry being strong,” he said. “Therefore, we remain optimistic that we’ll get toward some solution that will drive incremental demand and hence stronger ethanol margins in the future.”

The bioproducts segment, which includes ethanol, reported an operating loss of $25 million for the third quarter, compared to $43 million in operating profit for the same period of last year. Overall, ADM reported $764 million in adjusted segment operating profit, down from $861 million during the third quarter of 2018. Earnings per share were 72 cents, down from 94 cents, while adjusted earnings per share fell to 77 cents, down from 92 cents.