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ADM to bring back idled US dry ethanol plants online in H1 2021

Highlights

Demand from China remains strong

Q3 net earnings drop on year

New Delhi — Archer Daniels Midland is expected keep its two dry ethanol mills in the US idled for the time being and may look to bring them back online in the first half of 2021, the company's chief financial officer, Ray Young, said in the company's third-quarter earnings call Oct. 30.

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ADM temporarily idled the two plants in Iowa and Nebraska in April during the height of the coronavirus pandemic, at a time when a large proportion of US ethanol capacity also went offline or operated at a reduced level.

Over that month, US weekly ethanol production fell to a 12-year low below 600 million b/d, led by a sharp fall in gasoline demand as motorists obeyed stay-at-home orders and driving miles plunged.

The two dry mills have a combined annual production capacity of 575 million gallons.

"From an ADM perspective, we believe we're probably going to keep these dry mills temporarily idled as we go through the low season of gasoline demand and hence ethanol demand, that's the responsible thing to do," Young said.

However, Young said the decision of bringing the plants online will depend entirely on the data around "how the US economy is recovering, and how driving miles are going to seasonally recover as well."

Other factors include the industry utilization rate for ethanol, and the 10th Circuit Court ruling on refinery exemptions, he said.

Young also mentioned inquiries from China for US ethanol, as the country is looking at potential imports, with one vessel already shipped.

"[Chinese buyers] are making a lot of inquiries about US ethanol," he said. "And so all these variables are going to be very important factors in terms of our assessment in terms of when we actually restart these dry mills."

No glut in offing

In a question to whether Argentinian currency devaluation may trigger aggressive farmer selling of soybeans, ADM CEO Juan Luciano said their is considerable demand in China.

If Argentinian farmers decide to sell as incentives arise, they may supply only 5 million mt of beans, and the market will absorb the volume very quickly and move on, Luciano said.

China has been rebuilding its hog herd after African Swine Fever wiped out 50% of the pig population in the country.

As China rebuilds the hog herd, the farmers are going into more professional animal production, which has led to an increased usage of soymeal and corn as feedstock, Luciano said, adding that "that's why you see so much pull from China for imported corn."

China's corn imports have soared this year, with its purchases reaching 6.7 million mt between in the first nine months of the year, 72.5% higher year on year, data from Beijing-based analytical firm Cofeed showed. Most of China's corn has come from Ukraine, at 4.9 million mt, while the US exported around 1.5 million mt.

As China's economy gains moment, while Brazilian suppliers have sold all the pipeline of beans, for the very first time in a long time, the world needs US supply for both beans and corn, Luciano said.

Margins

The company's adjusted operating profit for its Ag Services and Oilseeds segment in the third quarter rose 4.6% year on year to $436 million, ADM said.

The profits were mostly driven by strong industry export margins and volumes, Young said.

The company reported Q3 net earnings of $225 million, down from $407 million in Q3 2019.