ADM CEO: Ethanol Tariff Removal Would Have Little Impact
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05-18-06 07:46 PM EST
CHICAGO -(Dow Jones)- The newly appointed chief executive at agriculture processing giant Archer Daniels Midland Co. (ADM), the leading U.S. producer of ethanol, doesn't think that the possible elimination of an ethanol import tariff would have much of an impact on the U.S. market.
"When we chat with people in (major ethanol producer) Brazil and so forth, I'm not sure there's much ethanol even available to export, even if there wasn't a tariff," ADM President and CEO Patricia Woertz said during a presentation at a Harris Nesbitt-sponsored agriculture conference.
She noted that small amounts of ethanol have been imported under the Caribbean Basin Initiative - which allows for tax-free shipments - but that the level of imports is far below the allowable amount even without a tariff.
"So I'm not sure if (the overall import tariff) was lifted that it would make a whole lot of difference in the medium term," Woertz told analysts and investors in remarks that were broadcast over the Internet.
Earlier this month, U.S. Energy Secretary Samuel Bodman said that the Bush administration, hoping to ease a possible fuel crunch during the summer months, is weighing the possibility of lifting the 54-cents-a-gallon import tariff on ethanol. Congress has the final word on the proposal, which has attracted criticism from U.S. ethanol producers and corn farmers.
Shares of ADM, despite losing ground in recent sessions, have more than doubled over the past year, owing largely to optimism about the company's fast- growing ethanol business. ADM's ethanol operations have benefitted from the U.S. government's efforts to reduce reliance on foreign oil and an increase in ethanol prices. ADM accounts for about a quarter of U.S. production of ethanol, an alcohol-based gasoline additive that's made from corn in the U.S.
Production of ethanol in the U.S. is expected to total 4 billion gallons this year and rise to 7.5 gallons by 2012. The increase is driven in large part by the renewable fuel goals set by Congress in the Energy Policy Act and Renewable Fuels Standard passed last year.
"It seems to me that this government is committed to an energy policy that includes a component of renewable fuels, a significant commitment to renewable fuels," Woertz said when asked about the possible impact of the elimination of the import tariff. "So it doesn't seem likely that those types of incentives to continue to grow the renewable fuels markets in this country would change in the near term."
ADM is ramping up its production capacity in biofuels - such as ethanol and soy-based biodiesel - and the appointment of Woertz as CEO this month underscored the company's commitment to its energy-related business. Woertz was previously a senior executive at Chevron Corp.
With the ethanol production capacity that's slated to come on line the next few years - including two new ADM ethanol plants that should be completed by 2008 - the ethanol market in the U.S. will be about 7 billion gallons a year, Woertz said. That number could rise significantly as gasoline additive methyl tertiary-butyl ether, or MBTE, gets phased out and blenders increase the amount of ethanol in the fuel mix.
"If you dreamed the biggest number, such as 10% of all gasoline blended in the U.S., you'd get upwards of a 14 or 15 billion (gallon) ethanol market," Woertz said. Most cars in the U.S. can run on so-called E10, a blend comprised of 10% ethanol.
"There is the ability to have a strong demand pool," she said, noting that energy-price trends also will play an important role.
Consumers have been expressing more of an interest in alternative fuels such as ethanol and biodiesel amid a surge in gasoline prices in recent months.
As for biodiesel potential, Woertz said the company's experience as a supplier in Europe - where biodiesel is used heavily - will work to its advantage in the U.S. She said that ADM can play an important role in ensuring that biodiesel in the U.S. has appropriate purity levels. She said the quality of biodiesel is a potential concern at a time when so many producers are entering the market, some of them with questionable production processes.
ADM is adding two new biodiesel plants in the U.S. - one in Missouri and another in North Dakota. The market pales in comparison to ethanol so far, only reaching about 600 million gallons once current industry capacity expansion plans are factored in, according to ADM. Nonetheless, the company expects that demand for soybean oil will increase and processing margins will improve thanks to rising production of biodiesel.
Shares of ADM, which some analysts have said are overvalued after their recent run-up, ended Thursday's session at $39.80, down $2.39, or 5.7% from the previous day.
-By Stephen Wisnefski, Dow Jones Newswires; 312-750-4142; stephen.wisnefski@ dowjones.com
(END) Dow Jones Newswires
05-18-06 1946ET
Copyright (c) 2006 Dow Jones & Company, Inc.
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