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US tax credit, ethanol export hopes spur ADM optimism on biofuels

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Archer Daniels Midland unveiled an upbeat outlook for biofuel markets, helped by ideas of strong Brazilian and Chinese imports of US ethanol, and the return of a tax perk on biodiesel.

 

Juan Luciano, chairman and chief executive of the US-based ag trading giant, said that a “primary” driver of a 15.5% decline in profits at its oilseeds division in the October-to-December quarter, in results released on Tuesday, had been the assumption that the US would not repeat a biodiesel blenders’ tax credit.

 

“Last year, we had it. So far this year, we don’t have it,” he said.

 

However, he spurred ideas that Congress may renew the $1-per-gallon perk, talk of which was indeed credited by investors as sparking a 2.0% jump in soyoil futures for March in Chicago in the last session.

 

“There are strong indications that [tax credit renewal] may get approved sometime in the first quarter,” Mr Luciano told investors, after ADM’s results release.

 

Rising margins

He added that ADM was running its oilseeds processing operations “basically as hard as we can” in the face of improved crushing margins, albeit lifted primarily by increased prices of meal, a feed ingredient, rather than the vegetable oil also produced, much of which is turned into biodiesel.

 

“We saw margins trend up late in” the October-to-December quarter, ADM finance director Ray Young said.

 

“We continued to see the indicators of improving global demand for soybean meal as the effects of alternate proteins diminish and livestock numbers continue to increase.”

 

‘Maximising every shift’

 

Mr Luciano said: “We’re optimistic about the recent movements in crush as the margin outlook is positive due to increase in demand and improved trade flows.

 

“We are very encouraged how the supply-demand appears to be getting tighter for meal and oil,” he said.

 

“We are maximising every shift that we can to soy in our footprint as long as it makes sense. We are very bullish about that [soy] market particularly.”

 

While acknowledging talk of the lower protein in US soybean crops of late – a dynamic that a US Department of Agriculture report overnight said had fuelled the growth in Brazilian soy exprots to record highs, Mr Luciano downplayed the extent.

 

“We have noticed in some parts of the business a little bit of a lower protein, but we don’t see a big impact at this point in time that may change our forecasts.”

‘Big importers’

 

On ethanol, meanwhile, a market in which ADM also unveiled a profits drop in the October-to-December period, Mr Luciano said that “we are particularly encouraged about the demand side… especially from exports”.

 

US ethanol export last year had accounted for some 1.4bn gallons, and were poised to rise to 1.6bn-1.7bn gallons this year, with growth particularly in China and Brazil.

 

“We see strong demand in Brazil,” while in China an effort to lift the ethanol blend in gasoline to 10% is running in the country “not having enough capacity to supply that.

 

“So we will have China and Brazil for the next two or three years being big importers from North America ethanol.”

 

Mega ethanol plant

 

In a USDA briefing overnight said that construction has started on two Chinese ethanol plants expected to raise the country’s capacity by 25-33% by 2020.

 

State grain trader Cofco is building a plant in Liaoning in China’s north east – the key corn-growing region – with capacity for consuming 3m tonnes of corn a year, while China’s State Development & Investment Corp has begun work on a site in nearby Liaoning able to take 990,000 tonnes of corn a year.

 

The State Development & Investment Corp also has plans for further ethanol sites, “including a plant in Huludao, Liaoning… expected to consume 13m-17m tonnes of corn per year”, the briefing noted.

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