The last few months of 2007 were characteristically capricious for the corn ethanol industry. Gross margins evaporated in October, only to get a wintry boost from higher pump prices. On balance, Archer Daniels Midland
Revenue was remarkable at $16.5 billion, boosted by the combination of a domestic crop explosion and international supply constraints. Agricultural services were the real standout for the quarter, with operating profit posting a 140% gain over last year. Oilseeds processing was solid, though most of the segment's gains came from an investment in an Asian palm-oil producer. Corn processing faced a cost crunch, with bioproducts (i.e. ethanol) taking a 30% profitability pinch.
A few factors limited pre-tax profit growth to 9%. Most straightforward was the rise in input costs, which ran up just as furiously as revenue. Higher expenses ground gross margin down from 8.3% last year to 5.7%.
Perhaps less intuitive is the huge rise in the expense item labeled "Corporate." This nebulous figure roughly doubled last year's amount, and no, ADM didn't build a new headquarters out of gold bricks. Accounting adjustments have to go somewhere, and in this quarter, there was a doozy of a non-cash inventory charge. I'll save you the treatise on LIFO accounting; suffice to say that it's a tax-efficient practice in an inflationary world.
Since we rang in the New Year, corn has popped to a record high, and crude oil has backed away from the $100 ledge. This does not bode particularly well for ethanol enthusiasts VeraSun Energy
