High price of corn is factor in ethanol losses

Source: Written by Dan Piller, Des Moines Register • Posted: Monday, November 5, 2012

Inventories are high because demand for gas is down, producers say.

Ethanol producers are reporting losses, caught between high prices for corn and low prices for the fuel.

Valero Energy of San Antonio said Wednesday that it lost $73 million at its 10 ethanol plants in the third quarter, compared with operating income of $107 million for ethanol in the same quarter last year.

The company, whose Iowa plants are located at Fort Dodge, Albert City, Hartley and Charles City, attributed the loss to “significantly lower gross margins caused by a combination of high corn prices and high industry ethanol inventories attributable to lower ethanol and gasoline demand.”

Valero said “due to poor margins, Valero reduced production rates at several of its plants.”

Iowa is the nation’s largest ethanol producer, with 41 plants that generate about 30 percent of the 13 billion gallons of ethanol produced nationally. Sales of ethanol to oil companies amount to about $15 billion annually.

Valero’s problems are industrywide. The price of ethanol has veered from more than $3 per gallon last year to as low as $2.20 per gallon this year, and ethanol refineries have had to pay as much as 12 percent more for corn in 2012 than a year earlier.

Archer Daniels Midland didn’t break out ethanol numbers specifically in its quarterly announcement this week, but it said “negative ethanol margins” played a role in a drop in net income to $182 million in its latest fiscal quarter from $460 million a year earlier. ADM has ethanol plants in Cedar Rapids and Clinton, as well as soybean- and corn- processing facilities in Cedar Rapids and Des Moines.

Green Plains Renewable Energy of Omaha reported a $1 million loss for the quarter ending Sept. 30. The company operates ethanol refineries at Shenandoah, Superior and Lakota as well as other facilities in Nebraska, Minnesota and Tennessee.

Green Plains’ loss represented an improvement over two previous quarterly losses of $12.7 million and $7.6 million this year.

President Todd Becker said Green Plains expects to return to profitability in the next quarter, but that tight margins will continue to be a factor.

“In the latest quarter, we had an operating margin of 2 cents per gallon versus 17 cents per gallon last year,” Becker said. Green Plains also operates grain elevators and leases rail cars.

Becker said a decision is expected by mid-November on a request to the U.S. Environmental Protection Agency to waive all or parts of the Renewable Fuel Standard mandate, which is the basis for much of the demand for the biofuel.

Livestock and food-processing groups, citing record-high corn prices, have asked for the waiver. But Becker said he doubted it would be granted.

“The case hasn’t been made that ethanol is the reason for higher corn prices,” Becker said.