Archer Daniels Midland’s (ADM) calendar year second quarter—the fourth quarter in its fiscal year— profit more than doubled, fueled in part by ethanol prices. Quarterly profit totaled $410.3 million compared with a profit of $195.5 million during the same period last year.
Corn processing operating profit increased 69% to $286 million due to better ethanol and sweetener selling prices and volumes. ADM said oilseeds processing operating profit grew 61% to $195 million.
Earnings from its bioproducts division, consisting mostly of ethanol, jumped almost seven-fold from $25 million to $174 million.
On the company’s earnings conference call, CEO Patricia Woertz said that the company plans $2.4 billion in capital spending on new projects over the next 24 to 30 months, including new ethanol and biodiesel plants.
Despite the robust outcome for ADM, analysis by Oil Price Information Service (OPIS) suggests that big changes are in store for ethanol economics and sales.
OPIS notes that a quiet freefall has occurred in what was an overheated summer spot market for ethanol. The level at which the ongoing price plunge stabilizes may have a great impact on the course of wholesale and retail prices for the next 10 months. In a marked turnabout, ethanol may actually reduce finished gasoline prices this autumn and winter, according to OPIS.
|OPIS notes that spot ethanol prices, representing the value of fuel grade alcohol that bulk buyers and sellers negotiate, have dropped by nearly $3.00/gal in some markets in just six weeks. Click to enlarge.|
OPIS notes that spot ethanol prices, representing the value of fuel grade alcohol that bulk buyers and sellers negotiate, have dropped by nearly $3.00/gal in some markets in just six weeks. (See chart at right.)
Even lower prices could be in the cards for this winter. Much of the ethanol that gets purchased by refiners and gasoline wholesalers is negotiated in advance on a term basis, in quarterly or six month contracts. Prices for ethanol confirmed by OPIS this week for the forward time frames were at $2.55/gal for the fourth quarter, with slightly lower numbers in early 2007. The new prices could mean that based on pure price alone, ethanol may grab a much bigger market share of the 400-million gal/day U.S. gasoline business.—OPIS
Oil Price Information Service (OPIS) a private, independent publication not associated with managing investments, and provides a widely-accepted fuel price benchmark for supply contracts and competitive positioning.