Archer Daniels Midland on Wednesday announced plans to boost its ethanol production amid continuing controversy over future demand for the alternative fuel in the US.
The agribusiness group derives the bulk of its earnings from processing commodities such as oilseed, cocoa and wheat, but is now the largest US producer of ethanol and is expanding its biodiesel business.
ADM said it would build a new 275m-gallon-a-year plant in Iowa to convert ethanol from locally-grown corn, and recently-announced expansions will boost its annual production by 50 per cent to about 1.5bn gallons over the next two years.
The investment comes amid concerns that US producers would be unable to keep up with demand for ethanol, which is being phased in as a gasoline additive to replace MTBE, a compound known to contaminate water tables.
Sam Bodman, US energy secretary, last week suggested that the US could discard its tariff on imports – notably from Brazil – to meet demand. The remarks sparked outrage from the farm lobby, which is benefiting from millions of dollars in subsidies to boost production as part of the new US efforts to lift alternative-fuel production.
Mike Johanns, US agriculture secretary, this week sought to defuse the controversy by insisting that domestic producers were able to meet expected demand. “There are no current plans in terms of that tariff,” he said after a speech in Chicago, though he admitted it was a point of discussion.
Mr Johanns was introduced by Pat Woertz, a senior executive at Chevron who was last month lured from the oil and gas group to become ADM’s president and chief executive. “Renewable fuels are just exploding. The economics [of ethanol] are there regardless of your public policy position in various countries,” Ms Woertz told the FT following her appointment.
ADM’s share price slumped more than 8 per cent following Mr Bodman’s remarks, but has recovered and on Wednesday reached a 52-week high of $45.95. The stock has gained more than 85 per cent so far this year.
However, some analysts remain concerned that investors have priced in too much of a premium for future ethanol production as margins are expected to fall when supply bottlenecks linked to the phasing out of MTBE are resolved.