Ethanol Suppliers Continue to Struggle
By Dave Hannon -- Purchasing (source: www.purchasing.com)
While suppliers in a variety of markets struggle, ethanol producers have perhaps been harder hit than most—hit by volatile corn prices wreaking havoc on balance sheets, hit by declining ethanol and gasoline prices, hit by a massive slide in demand, all happening amid record-tight credit markets.
The latest victim was Wisconsin-based ethanol producer Renew Energy, which filed for bankruptcy this week after a bank refused to renew its operating loan. Renew said it plans to emerge from bankruptcy later this year and sell itself amid falling prices for the grain-based fuel and rising costs for corn.
The ethanol demand decline has caught ethanol producers off-guard. Archer Daniels Midland Co., the third-largest U.S. ethanol producer, called the ethanol market “challenging” this week, estimating that almost 21% of U.S. ethanol production capacity has been idled amid the economic recession.
“While we did foresee the overbuilding of some supply a while ago, we did not foresee the depth of this current economic crisis or the decline in gasoline demand,” said ADM CEO Patricia Woertz on a conference call with analysts.
Matt Hartwig, a spokesman for the Renewable Fuels Association, told Reuters this week that many of the downed ethanol plants were in "hot idle," meaning they can be fired up to work at full rates within a few days, if demand rises. "If the economy rebounds ... ethanol will move forward," he said.
Other ethanol producers that have been hit in the past six months include VeraSun, which filed bankruptcy in October, and Cascade Grain Products, which halted production at its $160 million plant and filed for Chapter 11 bankruptcy on Jan. 28. Bloomberg reports that Northeast Biofuels also filed for bankruptcy in January citing a contractor’s failure to complete a plant properly, and Denco of Morris, Minn., halted output at its 25 million gal/year refinery, citing market conditions.
And as if the market dynamics were not enough for the ethanol supply base to deal with, a University of Minnesota study this week found that corn ethanol is no better than gasoline when it comes to fuel and may be worse for air quality.
But some help may be on the way for struggling ethanol suppliers from the Department of Agriculture, which announced in late January it plans to promote ethanol production best practices to ethanol producers to help them discover the most efficient methods for producing ethanol.
At a press conference last week newly appointed Agriculture Secretary Tom Vilsack said “it's fairly clear, ethanol producers are under a particular strain as is the case with most elements of our economy. There will be a premium on ethanol producers who are efficient and effective in the management of the facilities. USDA has a role I believe in helping to develop and promote best practices that will increase and enhance management efficiencies, which in turn will allow more of these producers of ethanol to stay in business.”
The USDA released $25 million in funding for biomass research last week
