The ethanol market remains shrouded in "continued uncertainty" despite an upturn in prices, Tate & Lyle warned, as it unveiled a drop in first half profits and said that its $260m Fort Dodge corn mill remained on hold.

The sweeteners-to-starch group said that while a rise in ethanol prices, coupled with a softer corn market, had allowed producers to run at a "modest margin" on a cash basis, it was not clear how long this return to profit would last.

"Forward margins remain under pressure," Tate said.

Feed headwinds

The US market for animal feed, produced as a byproduct of ethanol manufacture, would also "remain challenging" into next year, keeping revenues from corn gluten feed and meal under pressure.

US cattle numbers remain near their lowest for decades, with the pig herd also in decline, reflecting lower demand fostered by recession on top of a hangover from a spike in feed prices some two years ago.

"Against a backdrop of continuing uncertainty in industrial starch, co-product feed and ethanol markets, we continue to evaluate the timing for final completion of our Fort Dodge plant," Tate said.

The US mill, commissioned in 2006 to process 150,000 bushels of corn a day, was mothballed in April before it had even opened because of the ethanol market slump which sent many producers to bankruptcy.

'Slightly ahead'

The comments came as the UK-based group unveiled a 29% slide to £50m in earnings for the April-to-September period on revenues up 7.4% at 1.70bn.

Excluding a $55m charge relating to the mothballing of a another US plant, a sweeteners factory in Alabama, underlying pre-tax profits fell 13% to £112m, narrowly behind City estimates.

Javed Ahmed, the group's newly-appointed chief executive, said that the group had performed "slightly ahead" of its expectations, once foreign exchange changes were factored out, and "despite challenging conditions in a number of our market".

"We are encouraged by the good progress made in reducing net debt, reflecting our focus on reducing costs, optimising working capital and reducing capital expenditure," he added.

City reaction

Panmure Gordon analyst Graham Jones said: "Of key interest is whether Javed Ahmed makes any strategic changes, but we think any announcements are more likely to come with the full-year results in May.

"Post these results we think it unlikely that consensus will change materially."

Tate shares cosed up 7.6p at 464.50p in London.