Archer Daniels Midland raised hopes for a revival in US ethanol industry fortunes as the agricultural commodities giant revealed a 12% drop in profits, led by a slump in takings from the biofuel.
The US-based group, which last month closed an ethanol plant in North Dakota, reported operating profits from manufacturing the biofuel down 77% at $37m in the first three months of the year, as "excess industry production" left margins "weak".
However, the surplus production "lessened through the quarter", ADM noted, flagging the impact of the sector's weakened profitability in shifting US output down a gear.
"Depressed US ethanol margins have slowed industry production, improving alignment of supply and demand," the group said.
And Patricia Woertz, the ADM chief executive, said she was "encouraged"by US farmers' plans to lift corn sowings this year to the highest level in 75 years - an increase which, in boosting supplies, stands to soften corn prices and potentially rebuild margins for ethanol plants.
'Excess industry supplies'
The comments follow official data showing a decrease of some 860,000 barrels, to 21.9m barrels, in US ethanol reserves from a record high in mid-March.
Production has slowed to 865,000 barrels a week, from levels above 960,000 barrels late last year as plants scrambled to make the most of ethanol tax perks which expired at the end of December.
Separately on Tuesday, US energy group Valero revealed an 80% slump to $9m in operating profits from its ethanol operations, a slide which the group said was "mainly due to lower gross margins".
"Ethanol prices were pressured by excess industry supplies," a factor Valero also said reflected "weak US gasoline demand".
'Difficult margin environments'
ADM unveiled a 31% drop to $399m in profits for the January-to-March period, despite a 5.4% rise to $21.2bn in revenues.
Excluding one-off effects, earnings per share showed a slower decline, of 12% to $0.78, ahead of market forecasts of a $0.59-a-share result.
"We delivered very good results despite difficult margin environments, particularly in ethanol and European oilseeds," Ms Woertz said.
Sweetener from sweeteners
Profits from oilseed processing also tumbled, by 33% to $271m, a drop in part reflecting one-off effects, on comparison with a strong quarter last year, but also weak European crushing margins.
However, ADM noted improved results from its agricultural services division, as rising trade in Black operations offset a fall in North American grain volumes.
And operating profits from turning corn into sweeteners and starches doubled to $93m, thanks to "strong" export demand, and the boost to margins from a lift to high fructose corn syrup prices negotiated with major consumers, such as drinks groups.
Profits also-near doubled, to $201m, in processing crops such as cocoa, thanks to "good" margins, but also a $72m uplift from mark-to-mark gains.
ADM shares jumped 7.1% to $33.02 in New York, adding more than $1.4bn to the group's stockmarket value.