ADM Should Move to Houston, Not Chicago

NEW YORK (TheStreet) -- Archer Daniels Midland (ADM) plans to move its headquarters out of Decatur, Ill., population about 76,000. Chicago is expected to be its destination, with St. Louis running second.

The move would affect just a few hundred people, mainly executives and computer programmers, with most employers staying in the town along I-72 between the state capitol of Springfield and Champaign, where the University of Illinois is located.

But if the company really wants to get its mojo back -- and that appears to be the intent here since the stock has yet to scale the heights it held in 2008 -- it should probably think about moving somewhere else.

Like Houston.

I have no hard evidence such a move is even being contemplated, but consider the following.

CEO Patricia Woertz came to the company from Chevron ( CVX), with expertise in ethanol and biofuels. Under former CEO Dwayne Andreas, now 95, ADM gave to both parties in order to build itself into a player in biofuels. About 27% of the 2011 corn crop went to fuel, according to the U.S. Department of Agriculture, and a bumper crop this year may increase that.

Last year's drought-hit crop has brought back the "fuel vs. food" controversy surrounding ethanol, however, and so ADM needs its friends in Washington more than ever. Opensecrets estimated the company spent over $2.2 million on politics last year, about two-thirds of that on lobbying.

A move to Houston might change that, as the city's political class gave more than five times as much to Republicans last year than to Democrats, according to the Houston Chronicle.

Such a move could also stop current Republican efforts to move against the Renewable Fuel Standard following this year's scandal, in which traders hoarded RFS certificates and drove the price up.

Ethanol presently trades at a big discount to gasoline, with industry Web site E85 showing ethanol blends at that level trading at an average price of $2.88/gallon, against $3.49 for regular gas.

The bigger problem is the rise of cellulosic (non-food alcohol) as E85 expects corn ethanol production to peak out at 15 billion gallons in 2015 while cellulosic production doubles over the succeeding five years. ADM is working on using corn plants, as opposed to the grain, to get into that business.

Another reason to choose Houston over Chicago? Houston is a major port, and under Woertz, ADM has acquired seven of the eight largest corn export ports, buying GrainCorp of Australia for about $2.3 billion earlier this year. It was ADM's biggest financial deal to date.

While ADM's stock is up 34% so far this year, it's hard to justify that based on the numbers. At that price, investors are paying 20.74 times last year's earnings, although the drought made 2012 an especially bad year. Its dividend yield is 2.07%.

Most analysts following the stock consider it only a hold, with an average target price just a few dollars higher than what it's trading for now, based on an earnings rebound to $3.24 a share.

The company is never more than marginally profitable, there is no top-line growth, and its only bright spot is cash flow.

With the corn syrup market having peaked and the ethanol market showing signs of strain, Woertz seems to have her work cut out for her.

Maybe getting back to her energy roots would change that.

At the time of publication, the author owned no shares in ADM.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Dana Blankenhorn has been a business journalist since 1978, and a tech reporter since 1982. His specialty has been getting to the future ahead of the crowd, then leaving before success arrived. That meant covering the Internet in 1985, e-commerce in 1994, the Internet of Things in 2005, open source in 2005 and, since 2010, renewable energy. He has written for every medium from newspapers and magazines to Web sites, from books to blogs. He still seeks tomorrow from his Craftsman home in Atlanta.

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