Green Plains’ third-quarter profit down amid oversupply of ethanol

Source: By Russell Hubbard, Omaha World Herald • Posted: Monday, November 6, 2017

Omaha-based Green Plains, the second-largest ethanol producer nationally, said third-quarter profit fell amid the motor fuel’s persistent oversupply that it hopes will be remedied by increasing adoption of higher blends such as E15.

Chief Executive Todd Becker told analysts and investors on a conference call Thursday that he expects another 1,000 U.S. gas stations to begin offering clear gas blended with 15 percent ethanol this year, to bring the total to 2,000 outlets nationwide. Right now a 10 percent blend is ubiquitous in the U.S., but that is not high enough of a mixture to fit all the renewable fuel mandated by federal law into the nation’s gas tanks.

Most ethanol is distilled from corn, so it matters to a lot of Nebraskans and Iowans, top producers of both the grain and the motor fuel, with about 70 plants between the two states.

And there are worries in the corn patch: Despite President Donald Trump’s staunch support of ethanol on the campaign trail last year, the Environmental Protection Agency has been adjusting biofuel blending requirements and other aspects of renewable fuels policy that don’t jibe with desires of green energy advocates.

The impetus is the federal Renewable Fuel Standard, adopted after bipartisan legislation to encourage development of nonfossil fuels was passed by Congress last decade. Next year, refiners will be required to blend about 15 billion gallons of traditional biofuel — corn-based ethanol — into gas supplies. That is level with 2017, drawing some ire from ethanol producers.

E15, however, is the future, Becker said.

“We are seeing a real competitive response to stations that put in” E15-capable pumps, tanks and hoses, Becker said. “Those that don’t are losing share.”

Detractors of the whole business are many, saying it is all an illusion. While ethanol blends are cheaper than clear gas — liken it to cutting an expensive beverage with a less costly one — the energy content is lower. And that, critics say, means lower gas mileage.

Amid the debate, Green Plains Wednesday reported a third-quarter loss, excluding certain items, of $7.4 million, or 18 cents a share. That is from a net profit of $8 million, or 20 cents a share, a year earlier. Results fell on lower production after the company idled production at some of its 17 plants nationwide amid the oversupply of ethanol.

Including certain one-time tax gains, Green Plains had net income in the third quarter of $13 million, a drop of two-thirds from a year earlier. Shares of the company fell 7.4 percent to close around $16.77 in Nasdaq trading Thursday. The shares have fallen about 35 percent in the past year, which analyst Craig Irwin of wealth adviser Roth Capital Partners sees as unwarranted.

Irwin said Green Plains also operates cattle feedlots and a food-grade vinegar business that use ethanol or ethanol byproducts, and they alone are worth more than the current valuation.

“They are being dramatically undervalued,” Irwin said. “Anyone who gets in at these prices has a chance of being very happy with the results.”

Still, investing in ethanol can be volatile on the stomach. It is a global commodity with many unpredictable facets affecting producers — corn prices, weather, gas and oil prices, worldwide politics. Green Plains shares demonstrate the gyrations: In the past five years, shares have traded as high as around $45 and as low as around $8.