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(Adds background on ethanol rivals, link to story about industry woes)
CHICAGO/BENGALURU, April 26 (Reuters) - Archer Daniels Midland Co said on Friday it was considering spinning off its ethanol business after slim biofuel margins and Midwestern floods slammed the U.S. grains merchant's profit, which tumbled 41% in the first quarter.
A major cause was the "bomb cyclone" blizzards that devastated the Midwest and Great Plains this year, causing massive flooding across Nebraska, Iowa and Missouri, washing out rail lines and wreaking havoc in the moving and processing of grains. One-sixth of U.S. ethanol production was halted.
"The first quarter proved more challenging than initially expected," said Chairman and Chief Executive Juan Luciano, citing weaker earnings in its starches, sweeteners and bioproducts unit for the quarter ended March 31.
In March, ADM warned Wall Street that flooding and severe winter weather in the U.S. Midwest would reduce its first-quarter operating profit by $50 million to $60 million.
Ongoing turmoil in the ethanol industry also hurt ADM and "limited margins and opportunities" for the business, said Luciano.
ADM has been looking to strengthen its core businesses of trading, processing and transporting corn, soybeans and wheat and other crops as the U.S.-China trade war continues to roil global agriculture.
ADM is expecting the trade fight to end before the U.S. harvest this fall, Luciano told analysts on an earnings call Friday.
That, in turn, would help strengthen ADM's performance in the second half of the year, and bolster U.S. grains and livestock producers, Luciano said. The U.S. agricultural sector is expecting to export more ethanol to China to meet growing demand for the biofuel and more protein as African swine fever (ASF) continues to spread.
China is struggling to control the ASF epidemic, which some analysts predict could kill up to 200 million pigs or lead to them being culled this year, causing a huge shortage of pork in the world's top producer.
Despite bullish signals for U.S. ethanol demand, Chief Financial Officer Ray Young told analysts "a case for consolidation" remains in the sector, which is in a historic downswing due to the U.S.-China trade war, excess domestic supply and weak margins.
Rival producers such as Green Plains Inc and Pacific Ethanol Inc have laid off workers and idled or sold plants to stay afloat during the sustained downturn.
ADM is creating an independent ethanol subsidiary which would allow options such as a potential spin-off of the business to existing ADM shareholders, the company said. The unit will include dry mills in Columbus, Nebraska; Cedar Rapids, Iowa; and Peoria, Illinois.
ADM also said it planned to repurpose its corn wet mill in Marshall, Minnesota, to produce higher volumes of food and industrial-grade starches.
ADM shares fell 2.2% to $40.79 shortly after midday.
Net earnings attributable to the company fell to $233 million, or 41 cents per share, from $393 million, or 70 cents per share, a year earlier.
Revenue fell to $15.30 billion from $15.53 billion. On an adjusted basis, the company earned 46 cents per share, versus analysts' average estimate of 60 cents according to IBES data from Refinitiv.
(Reporting by Shradha Singh in Bengaluru and P.J. Huffstutter in Chicago; Editing by Shounak Dasgupta, Chizu Nomiyama, David Gregorio and Richard Chang)