I love the conference calls, they are infinitely more informative than the releases. On Archer Daniels’ (ADM) call Monday there were the usual nuggets.
On Ethanol pricing:
CEO Pat Woertz
“Actually, spot is a higher and higher amount, I think, each quarter. Or maybe another way to look at it is there are shorter contract periods than there have been in the past. So, a little bit of the inverse of what you were saying, not long-term contracts on a 100% basis. Therefore, going forward in the full year, I do think that spot prices are higher, but we expect ethanol prices to be up versus the second quarter. When you look at many quarters, you see a little question mark about the market, and you see some question about whether or not the full capacity as it comes on-stream will have a home? But we do see much more spot activity.”
John Stott
“Our ethanol prices, we feel this next quarter will be high and third quarter will be higher than second quarter.”
In the past ADM contracted out most of its ethanol production for the year and had pricing locked in. During the past year when prices fell, buyers now wanted shorter contracts so they are able to take advantage of them falling. What is happening now is that the spot market for ethanol will become a more accurate measure of what is happening out there. With prices pegged to rise this year, we can count on increased profits from this division.
Expansion:
Christine McCracken – Cleveland Research
“I just wanted to get an update, if I could on your new ethanol capacities and when that might be coming on line?”
Pat Woertz
“Actually it’s a great question about all of our projects and one thing we wanted to mention is that, next quarter we’ll give an update on all those projects. After we get through the winter here which has to do with a major piece of the construction period, particularly the weather, steel delivery et cetera. We’ll give you an update on both the projects and the timing. Having said that, there is one — the two projects, one is expected to come on at the end of ’08 and the other towards the end of ’09. And that’s pretty close to actually maybe pushed out just a tad from our original estimates.”
Southeast US:
Christine McCracken – Cleveland Research
“Alright, great. And then just on the changes in the Florida market. Obviously that’s a huge potential market for ethanol. Can you give us an update on where that proposal stands? Is that your expectation of that state in fact will be a much bigger market for us and on here in the short-term?”
John Stott
“Yes, we are seeing a lot of interest in all of Southeast. We are shipping to a lot of the Southeast destinations. So, I feel that market will come on very strong here in this next year.”
HFCS:
John Rice
“That 10% (price increase) is accurate. That is the timing. Some contracts started in January. Some contracts started in February, March, April, all the way through. And we have seen demand pick up in Mexico. The relationships with the price of HFCS to sugar will have an impact on how much more or are able to ship down on Mexico.
So, I don’t see anything. We have not heard from any of our customers down there that they will not be buying HSCS.”
Now, if you don’t digyou would miss this exchange:
Christina McGlone – Deutsche Bank
“Okay. And then you had mentioned higher manufacturing costs, what were those?”
John Stott
“Principally it is energy. Fuel costs are up from a year ago. We had a little bit more repair and maintenance type-cost activity going on too, but principally energy.”
Pat Woertz
“And keep in mind, Christina that our fuel costs, which are in the transportation sector, are also included in that manufacturing cost.”
Now, much of what was written about earnings today said “high corn costs” were the reason for earnings not being better. On the contrary, corn prices were consistent with last year, it was energy prices that were the culprit.
Now, both of ADM’s expansion projects are co-generation plants which will significantly lower their energy cost. That means all things being equal next year, profits will rise.
When you factor in the expected increase in pricing, decrease in energy costs and now this, even if ADM recognizes no operational improvements (not likely) results will get a positive boost just from this.
A question not even asked? ADM as an acquirer. I wonder why? The topic was not even broached. Frustrating..
No questions about biodiesel either. Hmmmm. It is as if these folks think the only thing ADM does is ethanol!!
All in all, nothing was said that would discourage the investment in the company. If anything, its global footprint is becoming more evident. Good
Disclosure (“none” means no position):Long ADM
