By David Shaffer
Star Tribune (Minneapolis)
High prices for corn have hammered the ethanol industry.
For the first time in 16 years, U.S. ethanol production declined in 2012, in tandem with a drop in gasoline demand thanks partly to more fuel-efficient vehicles. Ethanol makers got caught between the high cost of corn and ethanol prices that sometimes sank too low.
“No matter who you were, you were working hard to get through the year,” said Greg Ridderbusch, president of Blue Flint Ethanol, an Underwood, N.D., ethanol plant owned by Great River Energy, a wholesale power cooperative based in Maple Grove, Minn.
As corn farmers prepare to plant a record-size crop this season, the outlook for the ethanol industry could turn on the next corn harvest — and whether it brings lower prices.
“All they want to do is get to a new crop,” said John Christianson, principal in a Willmar, Minn., accounting firm that tracks ethanol plants.
Already, the ethanol industry is experiencing a modest recovery this spring, as corn prices have remained below $7 per bushel since March. Eight idled production facilities have reopened. Ethanol output has risen, though it remains below the levels of recent years.
“Everyone is optimistic because the price of corn has gone down,” said Larry Johnson, an ethanol industry consultant based in Cologne, Minn.
Omaha, Neb.-based Green Plains Renewable Energy, the nation’s fourth-largest ethanol producer with nine plants reported first-quarter profits of $2.6 million on May 1 and expects earnings to improve in the months ahead.
Yet the Fairmont plant, which once employed 66 people, recently shed all but 16, possibly until the fall. The owner, Biofuel Energy, based in Denver, lost $46 million last year, and has retained the Minneapolis investment bank Piper Jaffray & Co. to consider its options, including a possible sale. Company officials declined to comment.
Ethanol producers got caught last year in a commodities squeeze. They paid a lot for corn and didn’t get enough for ethanol. The industry also lost a cushion when a tax credit to blenders of corn ethanol expired Dec. 31, 2011.
The top 25 percent of ethanol plants that are most efficient continued to make money, though not a lot, said Christianson of the analytics service Biofuels Benchmarking.
To break even, plants increasingly rely on sales of byproducts like distillers’ grains, an animal feed that cattle ranchers purchase instead of corn. Yet as corn prices drop, so can those revenues, said Paula Emberland, an analyst for the benchmarking service.
REX American Resources Corp., a Dayton-based company, owns interests in seven ethanol plants and has experienced the ups and downs of the industry first hand. Last week, the company reported a 276 percent increase in profit for the quarter that ended April 30. The latest results followed a tough fourth quarter in which REX reported a significant loss.