ADM to sell only Brazil ethanol plant amid `challenging' market

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Bloomberg | 1 April 2016

ADM to sell only Brazil ethanol plant amid `challenging' market
 
Gerson Freitas Jr
 
Archer-Daniels-Midland Co. agreed to sell its sole ethanol plant in Brazil, ending an eight-year involvement in the country’s market for the alternative fuel after deciding that the asset was too small.
 
The factory and a sugar-cane plantation in Limeira do Oeste, Minas Gerais state, will be sold to JFLim Participacoes, Chicago-based ADM said Thursday in a statement. JFLim is a holding company focused on cane, sugar and ethanol, ADM spokeswoman Jackie Anderson said. No terms were given for the transaction.
 
With capacity to crush 1.5 million tons of cane and produce 37,000 gallons of ethanol per year, the plant is "too small for ADM to compete effectively in a challenging ethanol environment," Chris Cuddy, the president of ADM’s corn-processing unit, said in the statement. The operation was unlikely too meet long-term objectives for returns on investment, he said.
 
While ADM is the biggest U.S. ethanol producer, it’s a minnow in Brazil. Raizen SA, the Latin American country’s largest sugar and ethanol producer, operates 24 mills with the combined capacity to crush more than 60 million tons of cane annually.
Company Review
 
ADM purchased its initial stake in the plant in 2008, during a boom in investments in Brazil’s ethanol sector. Since then, Brazilian producers have struggled, with the government capping fuel prices as part of efforts to keep inflation under control. About 50 ethanol and sugar mills have closed and 70 have filed for bankruptcy in the country since 2011, according to the industry group Unica.
 
Still, Brazilian producers have started to recover with the jump in ethanol demand and prices that followed last year’s hike in domestic gasoline prices. Gasoline and ethanol compete at the pump as the country’s flex-fuel cars can run on either.
 
ADM said in February it was reviewing the way it allocates capital across its business after posting smaller-than-expected fourth quarter profit. It also announced it will study options for its corn dry mills in the U.S., which make products including ethanol. U.S. ethanol margins have slumped amid higher production.
 
The company is among Brazil’s largest soybean traders and processors, with several plants and port terminal operations. ADM handles about 11 million tons of grains in South America, according to the company’s website. Cuddy said it’s continuing to invest in the country.
Original source: Bloomberg
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