Archer Daniels Midland Co. is building two more large plants to produce ethanol, but, in light of the recent decline in ethanol prices, is maintaining an option to switch from production of ethanol to other corn products that might be more profitable.

ADM, based in Decatur, is the number one producer of ethanol in the country.  Its production capacity is 1.07 billion gallons per year, and its Decatur ethanol plant is the biggest in Illinois.

Ethanol futures have fallen 36 percent this year.  The price rose .039 cent Tuesday to close at $1.585 per gallon on the Chicago Board of Trade.

In a presentation to a New York conference Tuesday, company executives emphasized that ADM is still focused on ethanol production in the short term despite difficulties in the market.

Chief Financial Officer Doug Schmalz and Chief Technology Officer Michael Pacheco discussed the company’s ethanol strategy at the Citigroup Ethanol on the Cob II conference.

ADM will add two 275-million-gallons-per-year dry mill corn processing plants to its corn production operations, Schmalz said. They will be the largest dry mill plants in the industry.

According to David Weintraub, director of external communications, the plants, which are under construction in Columbus, Neb., and Cedar Rapids, Iowa, will allow ADM to increase its ethanol production by half. 

The executives acknowledged that the ethanol distribution system in the U.S. will have to be improved to keep up with supply, and that the profitability of ethanol could go through periods of highs and lows.

“I think throughout this industry," Pacheco stated, "as the different portions of the value chain are not totally synchronized, there will be periods where the profitability of these products at the front end are going to be very high, there may be periods where that profitability goes through lows, just like any commodity buildout."

Rich Kment, an ethanol analyst with Data Transmission Network, said in an interview that larger producers like ADM, VeraSun Corp. and American Ethanol Inc. have the economies of scale to weather these price fluctuations. The price for ethanol has declined since July as a glut has entered the market.

In response to questions, Schmalz said ADM is open to the possibility of shifting output to other products such as high fructose corn syrup and lysine if ethanol becomes unprofitable.

“We are going to maximize the valuation we get out of a kernel of corn. If that means we have to move capacity over to another product that has a better margin structure to it, we will do that,” Schmalz said.

At the same time, he added, ADM may purchase even more processing plants, from smaller companies as they struggle to compete in the market.

“I think the real key to it is we have to have properties that fit within our network,” Schmalz said. “Some plants just wouldn’t fit into that network, others might, and we just have to analyze that as and if they become available.”

Kment, the analyst, said he's not surprised by ADM’s interest in small ethanol plants.

“It’s part of their continued effort for capital gains,” Kment said of ADM. “They’re just buying up productivity.”

The Illinois Environmental Protection Agency has issued 59 permits for ethanol plants since January 2000. As ethanol prices decline, Kment said, these small plants are looking for “an exit strategy.”

“They’re willing to cash out,” Kment said.

ADM stock closed at $33.24 Tuesday, a gain of 7 cents.