AG exonomy continues to weigh on ethanol industry

Source: BY Todd Neeley/DTNProgressive Farmer • Posted: Tuesday, May 10, 2016

The overall downturn in the agriculture economy continues to weigh on some of the largest publicly traded ethanol producers in the United States, as evidenced by the companies’ recent quarterly reports.

In reports released this week, a number of ethanol companies said they continue to find ways to cut costs and improve efficiency at plants, essentially pinning margin hopes on the upcoming driving season.

Ethanol companies have faced margin pressure since the start of the year, borne out in the first-quarter financials reported this week by Green Plains Inc., Archer Daniels Midland, The Andersons and Pacific Ethanol.


The Omaha-based company reported a net loss in the first quarter of about $24.1 million, or about 63 cents per share.

That compares to a net loss of about $3.3 million, or 9 cents per share, for the same period in 2015. The company reported revenues of $749.2 million for the first quarter of 2016 compared with $738.4 million for the same period in 2015.

“The margin environment remained weak, providing little opportunity to generate a profit in the first quarter,” Todd Becker, Green Plains president and chief executive officer, said in a news release this week.

“The forward ethanol margin environment has improved since the beginning of the second quarter and we have hedged a portion of our future production. We believe the ongoing growth in global and domestic ethanol blending will continue to drive better market fundamentals for the industry and are optimistic the margin environment will improve during the balance of 2016.”

Green Plains operates 14 ethanol plants in Nebraska, Iowa, Michigan, Minnesota, Tennessee, Virginia, Texas and Indiana.

Although margins are tight, Green Plains reported higher ethanol production numbers in the first quarter of 2016 compared to the same time last year.

During the first quarter, Green Plains produced 247 million gallons of ethanol compared to 232.5 million gallons for the same period in 2015.


California-based Pacific Ethanol Inc., which owns and operates eight ethanol plants including a few in the Midwest, reported a good first quarter compared to 2015.

Pacific’s net sales grew by about 66% to $342.4 million in the first quarter 2016 compared to $206.2 million for the first quarter of 2015.

The company reported a gross profit of $1.1 million in the first quarter of 2016, or an increase of $2.1 million from the same time last year.

Neil Koehler, president and chief executive officer said in a news release the company has benefitted from paying off debt.

“We also paid off $17 million of our term debt in the first quarter, resulting in our four Western ethanol plants becoming completely debt free,” he said.

“…Current ethanol production margins have improved over the first quarter levels as both production and inventory have moderated in the face of growing ethanol demand.”

On the down side, Pacific reported an overall adjusted net loss of about $13.6 million for the first quarter of 2016, compared to $4.5 million in the first quarter of 2015.

That was as a result of added expenses from the acquisition of two ethanol plants in Illinois.


The Andersons, Inc., which operates four ethanol plants in Michigan, Indiana, Iowa and Ohio, as well as a grain and rail business, reported an overall net loss of $14.7 million for the first quarter, or $0.52 per share.

The ethanol side of the business was a bright spot, the company said in a news release this week.

“Ethanol Group performs well, remaining cash positive in margin environment challenged by low oil prices and coupled with seasonally lower first quarter demand,” The Andersons said.

The ethanol segment of the business reported a pre-tax loss of $2.7 million in the first quarter 2016 compared to the $5.3 million pre-tax income generated in the same period last year.

The Andersons said the expected stronger spring and summer driving months should improve ethanol margins.

Lower commodity prices have led the company to look for ways to cut costs in the grains business moving forward.

“We are understandably disappointed with these results,” Chief Executive Officer Pat Bowe said in a news release.

“Market conditions in the first quarter prevented our grain group from realizing meaningful basis appreciation following last year’s poor harvest in the Eastern Corn Belt. Additionally, our affiliates experienced losses resulting from limited trading opportunities, including compressed margins at both the producer and processor ends of the supply chain and significant reductions in distillers dried grain shipments to China.”

The Andersons produced 95.0 million gallons of ethanol in the first quarter 2016 compared to 93.5 million gallons in first quarter of 2015.

“Margins were at or below our five-year lows for comparable weeks for much of the first quarter, returning to levels above the low end of the five-year range as second quarter began,” the company said.


Archer Daniels Midland Company reported a 36% drop in overall operating profit from $892 million to $573 million, from quarter one in 2015 to quarter one in 2016.

“Challenging market conditions continued in the first quarter, particularly affecting Ag Services,” ADM Chairman and Chief Executive Officer Juan Luciano said in a news release this week.

“Low U.S. export volumes and weak margins continued, and in the quarter, poor results from the global trade desk impacted results for Ag Services.”

ADM announced it reached an agreement to sell its Brazilian sugarcane ethanol operations.

The company’s corn processing business that includes ethanol increased by about $2 million as “strong results for sweeteners and starches were offset by weaker lysine results and lower ethanol margins,” the company said.

“…In addition, ethanol margins continue to be impacted by high industry production levels that caused inventories to build throughout the quarter.”