REX reports high feedstock costs strained ethanol returns

By Kris Bevill | March 31, 2011

REX American Resources Corp., an investor in seven ethanol plants, recently released financial results for its fourth quarter of 2010 and the 2010 fiscal year. Net sales and revenue were up in the fourth quarter by nearly 22 percent compared to the previous year, mostly due to increased ethanol prices, according to REX. However, struggles at one of REX’s ethanol plants negatively impacted the company’s bottom line throughout the year and resulted in the company’s decision to reduce its share in the plant from 56 percent to 49 percent, effective Jan. 31.

“Throughout the year, REX’s alternative energy segment profits were impacted by the results of Levelland Hockley County Ethanol, a smaller plant which has been consistently challenged by higher costs and limited availability of sorghum in the market which weighed crush spreads,” said Stuart Rose, CEO and chairman of REX. “With the success of our other six ethanol production facilities, we determined that it was in our shareholders’ best interests to reduce our ownership in LHCE, deconsolidate its operations and write down the investment. The deconsolidation allows us to focus on our more profitable alternative energy segment holdings and other expansion opportunities.”

LHCE temporarily ceased production at the 40 MMgy plant in January due to the high price of sorghum and corn feedstocks. Plant manager Rodney Penton confirmed that grain prices were the sole reason for the shutdown and said the plant is expected to be re-started in April. According to REX’s financial release, LHCE incurred a pre-tax net loss of $5.9 million in fiscal year 2010. Reducing its ownership share of the plant resulted in REX incurring a one-time pre-tax charge of $18.4 million. Combined with losses sustained from operations at LHCE, REX experienced a net loss of $6.3 million for the fourth quarter of 2010, compared to an income of $13.7 million the previous year.

Unloading its majority share of LHCE will allow REX to continue with its plan to acquire other ethanol facilities as opportunities arise, according to the company. In 2010, the company “opportunistically acquired” a 48 percent stake in NuGen Energy LLC’s 100 MMgy plant at Marion, S.D., for $9.2 million with a commitment to invest another $6.5 million based on the plant’s profitability. The company also owns 74 percent of the 100 MMgy One Earth Energy LLC plant at Gibson City, Ill., 23 percent of the 100 MMgy Patriot Renewable Fuels LLC plant at Annawan, Ill., 10 percent of Big River Resources LLC’s 92 MMgy West Burlington, Iowa, plant and 100 MMgy Dyersville, Iowa., plant, and 5 percent of Big River United Energy LLC’s 100 MMgy plant, also located at Dyersville.