This is bigger news than is being reported…
Remember this little nuggett from last summer?
Archer Daniels Midland (ADM) will now apparently start cane-based ethanol production in Brazil with local partners according to a Brazilian newspaper Monday. According to the paper, ADM’s CEO Patricia Woertz is scheduled to be in the area August 19th and an announcement will happen on the 20th.
The company will participate in joint ventures to open two mills, both in center-western Goias state, financial newspaper Valor Economico said. Each mill will be able to crush 3 million to 4 million tons of sugar cane per year and first one should come on stream in 2010.
ADM of course has nothing to say about the potential deal. So if 1 ton of sugar cane gives us about 19.5 gallons of ethanol then ADM will ad roughly 120 to 160 million gallons of ethanol production a year to its abilities (approx. 1.5 billion gallons after current expansion finished).
Now, since we know that ethanol can be shipped to the US duty-free by using the Carribean Basin agreement and that currently the limits to those import are not even close to being tapped, ADM should be able to funnel this ethanol into the US duty free should it wish. As much talk as there is about “getting rid of the tariff on Brazilian ethanol” it is just that, all talk. The reason is that Brazil is currently decreasing its ethanol exports because it is requiring more for domestic use. Even if the tariff were lifted, it would not result in additional imports.
The bigger news here for shareholders is finally to company seems to have broken into the Brazilian market. Last June I wrote that ADM seemed to be intent on using the strategy that is currently being employed by Dow Chemical (DOW) and would go the JV route rather than just try for an outright purchase in the country. This seems to be happening.
It will require minimum cash outlays by the company ans assuming success, opens up options for other partnerships……win-win.
Disclosure (“none” means no position):Long ADM, Dow
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