The Andersons Ethanol Group impacted by decreased margins

By Erin Voegele | November 08, 2017

The Andersons Inc. has released third quarter financial results, reporting that the company’s Ethanol Group was challenged by decreasing margins. The group generated pretax income of $6.1 million, down from $9.5 million during the same period of last year. The drop is primarily attributed to lower margins.

"Ethanol margins were lower year-over-year for the quarter in spite of strong U.S. exports,” said Pat Bowe, president and CEO of The Andersons. “Current margins are disappointing. Forward curve margins into the first quarter of 2018 are below last year's levels as well."

In its financial results, The Andersons aid robust industry production was the main contributor to the softer margin environment, even though export markets remained strong. In addition, the company said corn and natural gas costs were each up more than 4 percent year-over-year. The Andersons also said the group’s industry-leading E-85 sales increased by 10 percent.

The Andersons’ Ethanol Group continued to incur discounts on distillers dried grains (DDGs) during the quarter due to problems with vomitoxin present in the 2016 corn crop, primarily in the vicinity of the Albion, Michigan, plant. The company also said lower international demand for DDGs continued to pressure pricing and margins. According to The Andersons, those two conditions combined drove values 35 percent lower than the comparable period of 2016.

In addition, The Andersons said the Ethanol Group recorded $1.5 million in expense for preliminary engineering and design work for a potential capital project that did not meet its investment criteria and was cancelled.

During an earnings call, Bowe said the Ethanol Group is working hard on production efficiency. All four plants are running well, he said. During the third quarter, the industry continued to out-produce demand, he continued. Although margins began to rebound in late July and rose throughout most of the quarter, Bowe said that they began to decline rapidly in mid-September. He said the group is concerned about margins for the remainder of 2017 and into 2018. Specifically, he said the Ethanol Group is currently expected to post fourth quarter results that are about 50 percent lower than the fourth quarter of last year, but noted that the group posted unusually strong fourth quarter results in 2016.

During the call’s question and answer period, Bowe also expressed overall optimism about ethanol. The export market is expected to continue to grow he said. He also indicated the company things there is opportunities for technology to enhance new production methods for ethanol. Bowe noted that the ethanol industry always has cycles of ups and downs. He also said that even though current margins are not as strong as they were a year ago, margins are still positive.

The Andersons also includes several other business groups, including the Grain Group, the Plant Nutrient Group, and the Rail Group. Overall, the company reported net income of $2.5 million, or 9 cents per diluted share, up from $1.7 million, or 6 cents per diluted share, during the third quarter of last year.