May 13, 2009 / 10:24 PM / 10 years ago

ADM hopeful on ethanol, may bid on bankrupt plants

* ADM optimistic on ethanol as RFS targets left intact

* Will be selective in buying bankrupt ethanol plants

* Plant acquisitions need to be “right price, right fit” (Recasts, adds details, CFO comment)

By Karl Plume

CHICAGO, May 13 (Reuters) - U.S. agricultural processor Archer Daniels Midland Co (ADM.N) said on Wednesday it was “cautiously optimistic” about the struggling ethanol industry because U.S. law still mandates its use.

The ethanol industry had been worried that the U.S. Environmental Protection Agency would scale back requirements for ethanol use in a new draft Renewable Fuels Standard this month, but it left its annual blend targets intact.

“We do know that the RFS fuel standard will increase to 12 billion gallons in 2010,” Steve Mills, chief financial officer at ADM, said at the BMO Capital Markets’ Agriculture, Protein, and Fertilizer conference in New York.

He was referring to the mandated increase to 12 billion gallons of current generation biofuels for blending into gasoline in 2010 from 10.5 billion gallons in 2009.

The law requires 36 billion gallons of biofuels to be used in 2022, most of it next-generation biofuels made from non-food sources.

ADM did not comment on a potential increase in the amount of ethanol which can be safely blended into gasoline without harming car engines, which could bolster the struggling industry by boosting demand.

Ethanol supporters have petitioned the EPA for an ethanol blend rate increase to 15 percent, up from the current 10 percent.

The EPA said in April it would take a year to complete government testing on whether a higher blend rate would harm car engines. It is seeking public comment on the issue.

OPEN TO ACQUISITIONS

ADM said it was open to acquiring ethanol facilities from bankrupt biofuels makers, but added it would be selective.

“It really would have to be a great fit at a great price for us to consider it,” Mills said.

The high cost of corn, which ethanol makers convert into the biofuel, coupled with a steep drop in fuel prices from last year’s record highs have squeezed profitability of the ethanol sector and forced several producers into bankruptcy.

ADM, the No. 2 U.S. ethanol producer, bid on some assets of bankrupt ethanol producer VeraSun Energy Corp VSUNQ.PK in a March auction, but did not acquire any facilities.

Another ethanol producer, Pacific Ethanol Inc (PEIX.O), warned on Tuesday it would need to file for bankruptcy protection if it could not restructure its debt soon after its first-quarter sales fell by nearly half. [ID:nN12306260] (Reporting by Karl Plume; Editing by David Gregorio)

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