GPRE credits hedging for profitable 3Q

By Kris Bevill | October 14, 2010
Posted Oct. 27, 2010

Green Plains Renewable Energy Inc. announced Oct. 21 that the third quarter of 2010 marked the company's sixth consecutive profitable quarter, owing much of its profitability to successful hedging strategies in the ethanol market. Net income for the quarter was $7.4 million, up nearly $2 million from the same period last year. "We continued to take advantage of opportunities to lock away forward margins as they became available," CEO Todd Becker said. "In the past few months, ethanol industry operating margins expanded as ethanol prices increased more than the recent increases in corn prices. As a result, we expect an even stronger fourth quarter." Becker said that as of Sept. 30 GPRE had locked in margins on 76.5 million gallons of ethanol production for the next 12 months and the company remains committed to its practice of being "absolute price agnostic."

On Oct. 22, the company finalized its acquisition of former Global Ethanol LLC plants in Riga, Mich., and Lakota, Iowa. The addition of the 57 MMgy Riga facility and 100 MMgy Lakota facility increases GPRE's production capacity by 31 percent to 657 MMgy. Becker said the company is ready to take over operations at the plants with no lost production time. "We also believe there is further de-bottlenecking to do at these plants and they are capable of producing more than the stated capacity," he added. The plants were purchased for 94 cents per gallon for production assets plus working capital, for a total of $169.2 million. According to Becker, the price paid for those facilities indicates GPRE's ability to utilize its assets make acquisitions at attractive rates and the company continues to seek additional consolidation opportunities. GPRE now markets and distributes more than 1 billion gallons of ethanol annually.

GPRE also received final approval in October for a $2 million matching grant from the Iowa Power Fund for Phase II of its algae harvest project located at the company's 65 MMgy plant in Shenandoah, Iowa. The $4.7 million project will verify some of the steps involved in its technology to convert carbon dioxide produced during ethanol production into algae, which can then be converted to biofuels. The second-phase project is expected to be complete by the end of the year.

In addition to increased capacity and marketing capabilities, Becker said GPRE's plans to expand its corn oil extraction operations will also contribute to the company's future bottom line. In July, GPRE contracted ICM Inc. to install corn oil extraction technology at all of its six existing ethanol plants. Corn oil extraction operations began at the 115 MMgy Obion, Tenn., facility earlier this month and it is expected that similar operations will begin at two of its other plants by the end of the year. Installation of the extraction technology will be complete at all six plants within six months, according to Becker. "This project, we believe, will have positive financial impact, generating operating income in the range of $15 million to $19 million annually, based on the production of 75 to 90 million pounds of corn oil," he said. The total cost of installing corn oil extraction capabilities at GPRE's five plants is estimated to be $18 million. Corn oil extraction technology is already installed at the newly acquired Riga and Lakota facilities.