US corn millers will struggle in 2013 to win the same profits
uplift from corn-based sweeteners as they have this year thanks to lower sugar
prices, Credit Suisse said, flagging a further decline ahead for ethanol profitability
The likes of Archer Daniels Midland, Cargill and Tate &
Lyle appear to have enjoyed stronger profits from high fructose corn syrup
(HFCS) this year thanks both to a rise of some 15% in prices charged to big US
buyers, such beverage groups Coca-Cola and PepsiCo, and to strong exports to
While US use of high fructose corn syrup is in long-term
decline, thanks to a switch from fizzy drinks to options such as fruit juices and
water deemed healthier, exports to the growing market of Mexico have continued to
Tate & Lyle's 2012 margins from US corn-based sweeteners
should rise by some £15-20m this year, Credit Suisse said.
However, sales to the Mexican market look set to be limited
ahead by a drop in sugar prices, reflecting ideas of a global surplus of the sweetener,
which have driven local prices to some 27 cents a pound.
This compares with a price of high fructose corn syrup
delivered to Mexico of about 25 cents a pound, Credit Suisse analysts said.
"The HFCS suppliers might struggle to get much more than 2-3
cents increase on sales to Mexico under current market conditions," the bank
"We will see what the corn futures look like when it is time
to contract, but any margin impact here looks pretty modest."
Corn processors still hold some bargaining chips with
buyers, given the high corn prices, which hit a record $8.43 ¾ a bushel in Chicago
in August, and supplies tightened by Mexican demand.
"Capacity utilisation today is as tight as it was last year
when the sellers were able to increase their profits," the bank said, in
comments ahead of the annual round of price talks expected to begin this month.
However, firm prospects for HFCS profits come against a
background of weakened profitability for making corn for ethanol.
Gross margins on making the biofuel are currently about
$0.80 per gallon, well below a peak of approaching $1.50 a gallon late last
year, and on course to hit about $0.40 per gallon next month before staging a
revival, market values imply.
"Forward [prices] suggest even lower production economics,"
Credit Suisse said, estimating that a gross margin of less than $0.60 per
gallon signalled losses for operators, while a figure less than $0.90 per
gallon "does not justify capacity investment".
Credit Suisse also flagged up the threat from aflatoxin, a toxic
fungal residue, to the feed ingredients biofuel groups manufacture as
byproducts from converting corn into ethanol.
Alfatoxin is being found in unusually high concentrations in
this year's US corn crop, with drought-stressed plants offering reduced
resistance to many infections.
"Aflatoxin could create an issue with selling gluten feed
and meal – a concern to the [corn] wet millers," the bank said.
"It is too early to tell how problematic this will be," with
the US corn harvest still a long way from completion.