Green Plains CEO: Ethanol mills may not reopen

Some shuttered U.S. ethanol plants won't return to production, reducing supply and ensuring better margins for the remaining producers, Green Plains Renewable Energy Inc.'s chief executive officer said.

About 1.53 billion gallons of ethanol-production capacity is idle, according to the Renewable Fuels Association, a Washington-based industry group. The shutdowns, equal to about 12 percent of annual U.S. output, came amid volatile corn prices and a recession-induced slump in demand for the gasoline additive.

"It has helped" margins, the CEO, Todd Becker, said today in an interview. "Plants that are shut down are shut down for a reason. It's not easy to bring a bankrupt plant" back into production.

At least 10 ethanol companies have entered Chapter 11 bankruptcy reorganization in the past year. On May 18, Pacific Ethanol Inc., a West Coast producer, said the subsidiaries that own its plants sought court protection.

"People see we're surviving, we're not bankrupt," Becker said. "They see we're expanding."

Green Plains fell 19 cents, or 2.5 percent, to $7.57 at 4 p.m. New York time in Nasdaq Stock Market composite trading. The shares have risen more than fourfold this year.

Becker said the industry would need almost $400 million of working capital to return the idled capacity to production. A typical 100 million-gallon-a-year ethanol distillery requires as much as $25 million in working capital and banks may be hesitant to offer financing, he said.

Managing Margins

Green Plains avoided joining some of its competitors in Chapter 11 by utilizing both its grain and ethanol segments, Becker said.

"We managed margins," he said. "We didn't come into the year long corn. Whenever we buy corn we sell ethanol.

In May, the company bought two Nebraska mills that previously belonged to bankrupt producer VeraSun Energy Corp. for $123.5 million, making Green Plains the fourth-largest U.S. ethanol maker.

Ethanol is part of U.S. plans to lower reliance on imported oil. One bushel of corn distills into about 2.75 gallons of the renewable fuel.

The government requires the use of 10.5 billion gallons of the fuel this year and 15 billion gallons by 2015.

Demand for ethanol, made from corn in the U.S., has climbed as blenders use more of the fuel because it trades at a discount to gasoline, Becker said.

Tax Credit

Blenders and refiners receive a 45-cent tax credit for each gallon of ethanol blended into gasoline in addition to pocketing the difference between the two fuels. Yesterday, ethanol traded at a 45.42-cent discount to gasoline.

"The ethanol industry has turned the corner," Becker said. "Production is basically meeting demand."

U.S. ethanol makers produced an average of 669,000 barrels (28.1 million gallons) a day in May, up from 641,000 in April, the Energy Department said on July 30. There are 42 gallons in a barrel.

Poet LLC, based in Sioux Falls, South Dakota, is the largest ethanol producer, followed by Archer Daniels Midland Co., in Decatur. Valero Energy Corp., the San Antonio- based oil refinery owner, is the third-biggest ethanol producer.

source: dailyherald