In an interview, ADM's senior vice president of strategy, Steve Mills, said the company hasn't ruled out a purchase of Brazil's largest ethanol producer, Cosan SA, in which ADM owns a small stake. A Cosan spokeswoman declined to comment.
Mr. Mills wouldn't say how much money ADM is willing to invest in Brazilian ethanol, and it isn't clear how soon they will move. Based on recent history, however, when ADM finally talks about something, action soon follows. Mills said sugar-cane ethanol is now "a key component" of ADM's immediate strategy. "We're devoting a lot of time and energy to this area. We're not talking about something 10 years down the road. It's on the front burner," he said.
Brazil is among the world's lowest-cost producers of ethanol, at a cost of about 90 cents a gallon, roughly two-thirds that of corn ethanol, according to the Institute for Studies of Commerce and International Negotiations, a think tank in Sao Paulo. This is very interesting, as it means corn based ethanol is made at a cost of about $1.20 a gallon. This really does squash the thought that ethanol is becoming unprofitable. It does mean that ADM will be able to make it 30% cheaper in Brazil to export both to the US and the rest of the world.
ADM will have enough flexibility to sell its Brazilian production. They can funnel Brazilian ethanol through Caribbean countries [as Bunge Limited (NYSE:BG) and Cargill plan to], which can export a limited amount to the U.S. duty-free and will also look to overseas markets, which are growing rapidly. "What ADM really understands is the global nature of green fuels," said Dan Basse, president of AgResource Co., a Chicago commodity-advisory firm.
Coming off the heels of the hire of former DOE Head Todd Werpy and last week's announced hire of Michael Pacheco, who served as the director of the National Renewable Energy Laboratory’s [NREL] National Bioenergy Center since 2003, ADM is gearing up for something big. Pacheco will lead ADM in the development of food and fuel processing technologies. At NREL, Pacheco was instrumental in the completion of the “Billion-Ton Report,” which confirmed the ability of U.S. biomass resources to meet the nation’s transportation fuel needs.