UPDATE: ADM Sees Revival In Ethanol Sector; 4Q Falls 83%

The head of Archer Daniels Midland Co. (ADM) on Tuesday forecast a revival in the economics of the U.S. ethanol industry, as regulators prepare for a key decision on its future.

Pat Woertz, chairman and CEO of the U.S. agribusiness group, said oil refiners are blending more of the additive than required by the existing federal mandate, with gasoline demand also above last year's levels.

Ethanol and buoyant global commodity markets had buoyed ADM profits in recent years before the renewable fuel sector slumped, leading to multiple bankruptcies and plant closures.

ADM still lost money on ethanol in its fiscal fourth quarter, but has worked through expensive corn inventory at a time when supply and demand is coming into balance.

The prospect of a bumper U.S. corn crop would also improve the economics of the business, and lift an agricultural services unit that suffered its first quarterly loss as commodity shipments fell around 2.5% from a year earlier.

A dip in global food and feed demand and hedging losses saw ADM's fourth-quarter profits fall 83%, missing analysts' expectations.

The stock recovered some early losses and was down 3.5% at $29.32 in recent trading.

"In the fourth quarter, we felt the impact of the global economic downturn," admitted Woertz on a conference call.

However, she expressed optimism about demand conditions, singling out sweetener sales and the renewable fuels sector, as well as tighter conditions in its oilseeds processing business.

The return of ethanol profits could prove to be a key driver to earnings, however. ADM has emerged as the largest U.S. producer, in part because of bankruptcies and the shelving of new plants across the Midwest.

ADM executives said some of the new capacity due to come online would not emerge because of working capital issues. As much as 2.5 billion gallons of capacity remains idle, with some 12 billion gallons expected to be up and running by year-end.

The U.S. Environmental Protection Agency is due to rule in December on a application from the industry to boost the amount of ethanol in gasoline from 10% to 15%.

"Even if it does not respond to go all the way to 15%, it's our expectation or hope that E12 on the way to E15 is one of the likely outcomes so that would be next year," said Woertz.

ADM reported a fourth-quarter profit of $64 million, or 10 cents a share, down from $372 million, or 58 cents, a year earlier. Revenue decreased 24% to $16.53 billion.

The company booked another $61 million tax charge against its investment in the palm oil venture with Wilmar International Ltd, taking the full-year cost to $158 million.

ADM cautioned it still faced one more charge that could take another year to determine, running at $500 million based on Wilmar's current valuation. The company had previously said the total charge could be as high as $500 million.

-By Doug Cameron, Dow Jones Newswires; 312-750-4135; [e-mail]

(Tess Stynes contributed to this article)