Ethanol producers look to rebound from bankruptcy

By Bryan Sims | March 05, 2009
As ethanol producers battle compressed operating margins and volatile commodity markets, some have been forced to file for bankruptcy. According to data compiled by EPM, four ethanol plants representing approximately 443 MMgy filed for Chapter 11 bankruptcy protection in January.

According to a research bulletin written by David Peters, assistant professor of sociology for Iowa State University's College of Agriculture and Life Sciences, a typical 100 MMgy corn-based ethanol plant built in 2005 with capital debt can expect to operate at a net loss when the spot price of ethanol is between $1.50 and $1.75 per gallon. For those same plants to break even, corn prices would need to drop to $2.25 or $3.30 per bushel, respectively.

Conversely, a typical 100 MMgy corn-based ethanol plant built in 2005 with no capital debt will continue to lose money when the spot price of ethanol is $1.50 to $1.75 per gallon, Peters found. For those plants to break even, corn would need to fall to $2.85 or $3.90 per bushel, respectively.

In February, South Dakota-based ethanol producer VeraSun Energy Corp. signed an agreement in bankruptcy court with Valero Energy Corp. to sell five of its ethanol plants to the Texas-based oil refiner for $280 million. Those five facilities are located in Aurora, S.D.; Charles City, Fort Dodge and Hartley, Iowa; and Welcome, Minn. The deal also included a site under development in Reynolds, Ind. VeraSun said it would welcome proposals from other bidders by March 13. An auction, if necessary, was to be held March 16. VeraSun expected to complete the asset sales by March 31 or in the second quarter of 2009.

Cascade Grain Products LLC, Northeast Biofuels LLC, Panda Ethanol Hereford LP and Renew Energy LLC were the plants that filed Chapter 11 bankruptcy in January.

Some ethanol companies halted operations recently for reasons unrelated to bankruptcy. Husker Ag LLC temporarily shut down its 67 MMgy corn-based ethanol plant in Plainview, Neb., but later resumed operation in late January. Pacific Ethanol Inc. temporarily suspended operation of its 40 MMgy corn-based plant in Madera, Calif., and DENCO LLC temporarily shut down its 24 MMgy corn-based ethanol plant in Morris, Minn.

Suncor Energy Inc. scrapped plans for a proposed $101 million expansion project at its existing 200 MMly (52.8 MMgy) plant in Sarnia, Ontario. The expansion project would've doubled capacity to 400 MMly (106 MMgy). Suncor intends to revisit the project in early 2010.

Show Me Ethanol LLC requested permission from its shareholders to ask for $10 million in additional funding through a voluntary capital contribution and a capital call of approximately $4,800 per share. The funding would maintain operations at its 55 MMgy facility in Carrolton, Mo., according to a Dec. 29 filing with the U.S. Securities and Exchange Commission. The company said if the money wasn't raised, it would have to file for Chapter 11 bankruptcy.

Atchison, Kan.-based MGP Ingredients Inc. confirmed in an 8-K filing with the SEC on Feb. 3 that it planned to exit the fuel-grade ethanol business and temporarily shut down its food-grade alcohol production at its 78 MMgy facility in Pekin, Ill. At the time of the filing, MGPI said the Pekin facility would be shut down for approximately 90 days.

As a result of the slowdown in the ethanol industry, Dallas-based railcar manufacturer Trinity Industries Inc. elected to indefinitely defer an $800 million investment in approximately 10,000 railcars for multiple ethanol producers. The railcars were scheduled for delivery to Trinity's leasing company in 2010 and 2011.