Archer Daniels Midland Co. reported a 15-percent drop in quarterly profit, weaker than expected, as soaring grain prices squeezed the company’s corn processing business and drove up costs to make starches and other food ingredients.

Profit from making ethanol was up sharply as high fuel prices stoked demand for the corn-based additive from oil refiners, but that was offset by escalating costs in other businesses, including sweeteners and starches, that also rely on corn, according to an Aug. 2 ADM statement. While corn processing volume increased 15 percent, net costs increased “significantly” from a year earlier, ADM said.

Within ADM’s corn processing operations, operating profit in sweetener and starch production plunged 92 percent, to $9 million, as higher selling prices and sales volumes were more than offset by higher corn costs. Profit in bioproducts more than quadrupled, to $109 million, on higher ethanol prices, ADM said. The company indicated it will continue to run distilleries at high levels.

“With positive blending economics, ethanol consumption in the U.S. remains at maximum blendable levels,” ADM said in the statement.

ADM’s results underscore an intensifying “food-versus-fuel” debate, in which the U.S. ethanol industry has come under increasing criticism as corn prices doubled over the past year. Some blame ethanol for driving up prices for meat, milk and other foods. In June, the Senate agreed to end a 45-cents-a-gallon federal tax credit paid to fuel makers for blending the additive in gasoline.

Decatur, Ill.-based ADM is the second-largest U.S. ethanol producer, with capacity to make about 1.75 billion gallons a year at nine plants. Poet, LLC, based in Sioux Falls, S.D., is the biggest. If ADM ran its distilleries at capacity, it would use nearly 640 million bushels of corn, or about 5 percent of this year’s U.S. supply, based on analyst estimates and government data.

In the 2010-11 marketing year, corn use by the ethanol industry is projected at a record 5.05 billion bushels, up nearly 11 percent from 2009-10 and about 36 percent of total supplies, according to U.S. Department of Agriculture estimates. This year, ethanol producers for the first time surpassed livestock feeders as the single largest user of the U.S. corn supply.

U.S. corn and soybean supplies are tight, while global demand for crops and other agricultural products “remains strong,” ADM said.

“Global protein meal and vegetable oil demand continues to grow, while industry margins remain under pressure,” ADM said. Worldwide crop supplies “remain adequate following a good world wheat harvest and a record soybean harvest in South America,” the company said.

Corn is expected to remain historically high into next year even after U.S. farmers boosted planted acres to the second-highest level since the end of World War II. In recent weeks, a Midwest heat wave stirred concern over crop losses, fueling gains in Chicago futures.

In trading Aug. 2, corn for December delivery rose 30 cents, the maximum initial daily move allowed, to $7.15 ¾ a bushel, a contract high. In June, corn futures hit a record intraday high of $7.99 ¾.

ADM said operating profit in its corn processing unit, which includes ethanol distilleries as well as food and livestock feed production, fell 16 percent to $118 million during the quarter ended June 30, the company said in the statement.

Overall, ADM’s earnings were also reduced by taxes that more than tripled from a year earlier, to $385 million. For the three months ended June 30, ADM posted net income of $381 million, or 59 cents a share, compared to profit of $446 million, or 69 cents, during the same period a year earlier. Net sales rose 46 percent to $22.9 billion.

Per-share earnings fell short of analysts’ expectations by about 26 cents, according to Bloomberg L.P. The weaker than expected results sent ADM shares down $1.88, or 6.2 percent, to $28.60 in trading Aug. 2. The stock is down 4.9 percent over the past 12 months.

dairyherd.com