ADM’s next CEO faces ethanol, global trade hurdles

Source: BY TOM POLANSEK, Reuters • Posted: Monday, November 10, 2014

(Reuters) – When Juan Luciano becomes chief executive officer of Archer Daniels Midland Co in the new year he will face easing demand for ethanol and increasing competition from global competitors.

Falling gasoline prices and waning U.S. government support for ethanol are confronting Chicago-based ADM eight years after the company hired outgoing CEO Patricia Woertz, a former Chevron executive, in part to lead the company’s growth in biofuels.

ADM on Thursday said Luciano, chief operating officer since 2011 and president since February, will replace Woertz as boss on Jan. 1. Woertz, 61, will remain chairman of the board and is expected to retire in May 2016.

Since Woertz became CEO in April 2006, ADM shares are up about 49 percent, compared to gains of 59 percent for rival Bunge Ltd and 99 percent for The Andersons, a smaller agribusiness firm.

Woertz and Luciano declined interview requests from Reuters. A company spokeswoman offered no immediate comment beyond statements of confidence from the executives.

Analysts were guarded about expectations once Luciano takes over.

“I wouldn’t say I’m expecting some kind of transformational event in how the company runs its business,” said Jeff Stafford, equity analyst for Morningstar. “There’s only so much you can do.”

Earnings in ADM’s bioproducts business, which includes ethanol, in the third quarter jumped more than 150 percent on the year to $185 million. The coming years will likely be leaner, analysts said.

The ethanol business has relied heavily on support from government mandates, and a U.S. Environmental Protection Agency proposal to lower its mandated renewable fuel targets is “a long-term negative” for ADM and other ethanol producers, said Joseph Agnese, S&PCapital IQ equity analyst.

U.S. ethanol production by the end of the decade may increase to 16 billion gallons from 13.3 billion in 2013, said Aakosh Doshi, vice president of commodities research for Citigroup. That is slow compared to the 8.4-billion gallon production increase since Woertz became CEO in 2006.

ADM’s global footprint is another challenge for the new CEO because the company is more focused on the United States than competitors Bunge and Cargill Inc. Traders said they expect Luciano to look for expansion opportunities, particularly in China.

Australia last year rejected ADM’s planned takeover of grain handler GrainCorp Ltd, an acquisition intended to provide access to fast-growing markets in Asia.

Last month, ADM completed a $3 billion deal for natural ingredient company Wild Favors, its biggest acquisition ever.

“With ADM, it’s a question of balancing their activities,” said Philippe de Laperouse, director of consultancy HighQuest Partners’ global food and agribusiness practice and a former Bunge executive.

Massive U.S. harvests are positive for ADM because they increase the volume of crops available to trade, process and transport. But it is difficult for ADM to differentiate itself because rivals have similar assets around the world, traders said. (Additional reporting byMichael Hirtzer in Chicago; editing by Andrew Hay)