ADM eyes Brazilian ethanol, report says

NEW YORK (CNNMoney.com) -- Archer Daniels Midland, the nation's largest producer of ethanol fuel from corn, is setting its sights on a move into Brazil's sugar cane-based ethanol business, according to a published report.

The Wall Street Journal says ADM (Charts, Fortune 500) is exploring a variety of strategies to enter Brazil's ethanol market, ranging from building sugar-cane mills and ethanol plants from the ground up to acquiring sugar-cane companies.

Steve Mills, ADM's senior vice president of strategy, told the newspaper that sugar-cane ethanol is now "a key component" of its ethanol strategy.

The paper reports estimates that 30 percent of ADM earnings now come from ethanol. The company had net income of $1.3 billion in the most recent year. But the increased demand for ethanol in the United States has driven up the price of corn and squeezed profits from the business.

But the rush to build new ethanol plants here could lead to greater supply than demand, according to the report, which could also drive down revenue and profit from the business.

Corn-based ethanol is also relatively expensive, requiring greater energy to convert the grain into alcohol than some other raw materials. The paper quotes an estimate from the Institute for Studies of Commerce and International Negotiations, a think tank in Sao Paulo, as saying that Brazil's sugar cane-based ethanol costs about 90 cents a gallon to produce, which is about two-thirds the cost of corn ethanol.

But a 54 cent-a-gallon tariff on imported ethanol has stopped lower-cost ethanol from Brazil or China from coming into the U.S. market. ADM has supported the extension of that tariff, and Mills told the paper that even if the company enters the market in Brazil, it does not necessarily indicate a change in that position.

Other U.S. producers of ethanol, including VeraSun Energy (Charts), Pacific Ethanol (Charts), Xethanol (Charts) and privately-held Abengoa Bioenergy Corp., have nowhere near the lobbying clout of ADM, which has its own political action committee that contributed $156,999 to federal candidates during the 2006 election cycle.