Green Plains weathers storm in ethanol industry

Source: By Teresa Lostroh, Omaha WORLD-HERALD STAFF WRITER • Posted: Thursday, August 2, 2012

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Todd Becker, CEO of Omaha-based Green Plains Renewable Energy, at the company’s offices, 450 Regency Parkway.

When Becker, president and CEO of Omaha-based Green Plains Renewable Energy, looked in mid-June, September corn futures were around $5.50 a bushel.

A month later, prices had rocketed above $8.

“This is the most volatile we’ve ever seen” the market, Becker said.

The ethanol industry is no stranger to market fluctuations and the uncertainty they bring. High corn prices squeezed profits in 2008, when several ethanol companies went under and plans to build more plants were shelved.

This summer, the expensive corn and uncertainty are back, and they’re as unsettling as ever. But ethanol producers are different this time around, Becker and others say. They point to companies such as Green Plains as an illustration of how the industry has changed and why it can weather the latest storm.

“In all likelihood, profitability is going to be the result of well-managed companies that are making diverse portfolio products,” said Todd Sneller, administrator of the Nebraska Ethanol Board. “Those that continue to carry debt and haven’t diversified are going to have a hard time of it.”

Green Plains isn’t folding with Becker at the helm. Becker, 46, became CEO in 2009 and, since then, Green Plains has grown into North America’s fourth-largest ethanol producer, with about 700 employees, nine ethanol plants and the capacity to churn out 740 million gallons of ethanol a year.

“We had a vision as a company of what we wanted this company to be,” said Becker, who grew up in the north Chicago suburb of Morton Grove, the son of a salesman and a stay-at-home mom. “This was our vision from the beginning.”

Under his leadership, Green Plains has acquired five ethanol plants, three grain storage elevators and full ownership of BlendStar LLC, which operates a network of rail and truck terminals that distribute renewable fuels across the South and Southeast. Green Plains and two partners have also started construction on a five-acre plant to commercialize algae growth, although the company hasn’t yet monetized the technology.

Publicly traded Green Plains, headquartered at 450 Regency Parkway, reported $3.6 billion in revenue in 2011.

“They’re a very impressive operation,” said Tom Buis, CEO of Growth Energy, a coalition of ethanol supporters and producers, including Green Plains. “Their growth has been smart. (Becker) really understands the challenges and opportunities in our industry.”

Becker, who has four daughters under age 9 with this wife, Amy, joined the industry after almost 20 years in commodities trading.

He spent a decade of that at Omaha-based ConAgra Foods, including five years as the vice president of international marketing for the Fortune 500 company’s trade and merchandising division. While at ConAgra, he earned a master’s degree in finance from Indiana University. He also studied finance as an undergrad at the University of Kansas.

Becker left ConAgra in 2006 with the mindset that ethanol was “an opportunity to reinvent myself and take a risk.”

He came into ethanol during its heyday, when operating margins were at record highs. This year, industry margins are slim, at best.

“The outlook for what’s going on in the corn market and ethanol market continue to keep the industry rightfully nervous,” said Rick Kment, an ethanol analyst with DTN in Omaha. “Nobody really knows, given the significant drought, how much corn is available.”

The U.S. Department of Agriculture cut corn yield projections in July by 20 bushels an acre to 146 bushels.

Ethanol likely has a challenging harvest ahead, Becker said, but he’s adamant that its meteoric rise hasn’t become a meteoric demise.

He was around for ethanol’s low point in 2008. Becker joined Green Plains as chief operating officer late in 2008, after the company merged with VBV LLC. Becker was VBV’s first employee in 2007, backed by $100 million from Irish, Swiss and British investors.

Becker said the industry has evolved over the past four years, putting it in a better position to emerge from a tough year intact. Green Plains and other companies are more diversified and benefit from economies of scale, said Becker, Sneller and Buis.

In 2008, many ethanol producers had one-plant operations, so they hesitated to reduce or idle production when margins tightened. Since then, plants have become more concentrated among larger companies, giving them more flexibility to adjust production without risking failure, Kment said.

Three of Green Plains’ plants formerly belonged to producers that went bankrupt.

Altogether, Green Plains has nine plants scattered throughout Indiana, Nebraska, Minnesota, Iowa, Tennessee and Michigan. Combined, they convert about 2 percent of the country’s corn into ethanol. Overall, about 40 percent of U.S. corn ends up in ethanol plants.

The company hasn’t altered operations yet because of the drought, Becker said. It’s “very hard to say yet what the impact will be to our company,” but he said this year’s corn yield “doesn’t look good right now.”

Green Plains cut production in February at two plants by about 30 percent because the market was oversupplied. In late 2011 and early 2012, the industry had ramped up production because demand was strong, operating margins were good and blenders were rushing to buy ethanol before a generous 45-cents-a-gallon tax credit expired Jan. 1.

(Because it’s not a blender, Green Plains didn’t receive the subsidy. Becker said the company hasn’t been affected by its expiration.)

Green Plains’ quarterly production capacity is 185 million gallons; it’s operating at 175 million gallons. Green Plains hasn’t cut personnel and doesn’t expect to, Becker said.

Other ethanol producers, citing negative margins, have temporarily shut down plants, including three in Nebraska.

“The good thing for (Green Plains) right now is that we have other income,” Becker said. Green Plains expects to bring in $60 million this year from its non-ethanol offshoots. Still, about 70 percent of the company’s operating income comes from ethanol.

Since 2008, the company has expanded its marketing, sales and distribution of ethanol and distillers grains, which are the leftovers of ethanol production and are used as a high-protein livestock feed additive. Prices for distillers grains are at a premium right now, given the high price of corn.

The company’s agribusiness segment has almost doubled in size in four years. Green Plains dries, stores and sells corn, wheat and soybeans; sells ag inputs, such as chemicals, seed and fertilizer; and sells diesel, soydiesel, blended gasoline and propane.

In late 2010, Green Plains started extracting corn oil during ethanol production. The oil is sold to biofuel and livestock producers and generates about $35 million in annual operating income.

Green Plains gained full ownership of BlendStar, the terminal network, last year.

Together, those operations should help “soften the blow” the drought could deal to ethanol, Becker said.

Last week, Green Plains announced second-quarter revenues of $870.4 million and a net loss of $7.6 million — its second consecutive quarterly loss after 11 quarters of profitability. A year ago, Green Plains shares traded at $11.29. They closed at $4.32 Wednesday.

Becker said he expects the company to be back in the black by the fourth quarter because its futures contracts are set at profitable levels.

“There are people who are basically counting us out, but we’ll still be around by the end of the year,” Becker said, perhaps to the dismay of critics who say ethanol has been propped up by corporate welfare and that it’s driving up food costs.

The potential for a corn shortage this year has renewed criticism of the government’s support of ethanol. Livestock and poultry producers have asked the Environmental Protection Agency to waive the federal mandate that requires blenders to mix 13.2 billion gallons of corn ethanol with gasoline this year.

Becker and ethanol groups, including the Association of Nebraska Ethanol Producers, said it’s too early to consider a waiver because it’s unclear how much corn there will be after harvest.

Additionally, Becker said, 28 days’ worth of ethanol is in inventory, and blenders have stockpiles of built-up credit they could “cash in” to comply with the mandate without buying more ethanol

Regardless, a change in regulations won’t stunt the industry, Becker said.

“If the U.S. doesn’t want (ethanol), the world will take it,” he said. “If there’s corn, we’re going to make ethanol.”