Green Plains will continue to purchase additional ethanol plants

By Holly Jessen | November 04, 2015

Green Plains Inc. announced Nov. 4 that, despite a tight margin environment, its net income for the third quarter was $6.2 million, or 16 cents per diluted share. The third quarter of last year had a net income of $41.7 million, or $1.03 per diluted share.

The results pleased Todd Becker, president and CEO, who predicted an even stronger fourth quarter. The company’s full press release on the third quarter is available online. 

“Even with this margin outlook we will continue to expand ethanol production and acquire ethanol plants,” he said. “To us it’s very simple. It’s about continuing to add to the base of operations we started with seven years ago. We believe the billion dollars or so we have invested in this company allows us to acquire and make better all types of plants, if they meet our requirements.”

The company is also in the process of ramping up ethanol production at its existing facilities. In the third quarter, Green Plains’ ethanol production was at 215.6 million gallons, or nearly 84 percent of its daily average production capacity. In the current quarter, the company is working to compete an about 35 million gallon expansion, as part of phase one of an expansion project, bringing the company to a 2.8 million gallons per day production number, or about 95 percent of its total production capacity. Additional ethanol production gallons will continue to be added, Becker said.

The company expects to start 2016 with 12 million tons corn processing capacity and 1.2 gallons of ethanol production. In addition, it will produce 3.4 million tons of livestock feed and 290 millionpounds of corn oil.

Becker also provided more details about the company’s announcement that it would be acquiring the Murphy USA ethanol plant in Herford, Texas, which is expected to be finalized in a few weeks. “The plant is running today and we expect a smooth transition to our platform from this location,” he said.

Although the company has said, in the past, that the destination plant model was not part of its plans, Becker called this facility a “little bit of a different animal.” For one thing, he pointed to the plant’s good performance following plant upgrades. “We believe it will rank, overall, in the middle of the range of all our plants from a profitably standpoint,” he said.

The company also believes it will be able to enhance the facility’s profitability with three main changes. First, the company will sever all third party agreements, he said. Secondly, the company feels it can leverage its experience at its multiple other ethanol plants to enhance operation metrics. “Finally, this will be an excellent location to bring in shuttle trains of corn and distillers grains distributed locally, by using the great infrastructure of the plant,” he said. “Not many of the other plants in the U.S. have this kind of opportunity with the feed demand in a 50 mile radius.”

The company’s other recent acquisition is the 60 MMgy ethanol plant in Hopewell, Virginia. The Green Plains team is already working to improve that facility and it’s expected it will restart by the second quarter of 2016. “I know this may sound crazy to some of you but we believe that we can improve this plants economics by more than 40 cents a gallon,” he said. 

Becker then listed off three main examples. First, Green Plains plans to invest $500,000 to improve the quality of the distillers grains produced at the facility, which are currently of low quality and sold at about 25 percent below market price. That is expected to add about 10 cents a gallon to the plant’s overall economics, he said. Secondly, the company will, while still employing the same local workforce, reduce SG&A (selling, general and adminstrative) labor costs by nearly 20 cents a gallon, he said. Finally, Green Plains will add corn oil production, which, along with other changes in areas such as water and chemicals, is expected to add about 10 cents a gallon.

Becker also pointed to the company’s plans to use the facility as a transload station for moving distillers grains to containers for export. And, the company has plans to ship ethanol produced at its other plants to that location, for distribution to the local market. That offers the company the chance to enhance both the Hopewell plant economics as well as Green Plains Partners LP, Becker said. Green Plains Partners is the company’s limited partnership which provides fuel storage and transportation services to Green Plans.

Finally, Becker noted that Green Plains has changed how it reports its ethanol crush margin. The consolidated ethanol crush margin is the company’s ethanol production segment operating income before depreciation and amortization, including corn oil as well as the intercompany storage and transportation activities. “This number is intended to give you a comparative number of our ethanol production margins versus others in the industry,” Becker said. 

Editor's note: A previous version of this story used an inccorect figure for the amount of corn oil capacity Green Plains will have by 2016. The correct number is 290 million pounds. It also omited SG&A from the phrase labor costs. SG&A is defined as the expenses to promit, sell and deliver a company's products as well as to manage the company.