ADM Pursuing Brazilian Ethanol? (ADM)

A Brazilian newspaper reports this morning that Archer Daniels Midland Company (NYSE: ADM) may purchase the Brazilian ethanol group Unialco, together with a mill belonging to Da Mata. According to the news report, a Unialco shareholder stated that ADM has signed a memorandum of understanding with the Brazilian company but there has been no comment from ADM.

Making ethanol from sugar cane is more energy efficient than making ethanol from corn. However, imported ethanol gets hit with a $0.54/gallon import tax.  It is unclear whether or not that tax would apply to ethanol imported by a US company. The Obama administration has so far demonstrated no willingness to lift the import tax on ethanol, and pressure from US farmers is likely to keep the tax in place.

This deal does not sound like a winner for ADM, which is the largest ethanol producer in the US. It’s hard to believe that ADM sees ethanol as anything but a transition transportation fuel, until something better (more efficient and cleaner) than gasoline comes along. Corn-based ethanol was a winner for the company because it supported ADM’s overall agricultural business. Sugar cane-based ethanol doesn’t offer the same overlap.  Then there is that great new development from Aventine over its “going concern” which shows more holes in ethanol.

This whole deal may just be wishful thinking on the part of some Brazilian shareholders. That’s where I come down on today’s report.

Paul Ausick
March 17, 2009