GPRE expects tough summer, overall good year for ethanol industry

By Kris Bevill | April 28, 2011

Green Plains Renewable Energy Inc. CEO Todd Becker said tight margins will create a “summer of discontent” for ethanol producers, but he expects that to change later in the year as margins improve, crop yields rebound and world production increases. “Ethanol continues to be the cheapest motor fuel in the world and as a result our industry fundamentals remain very solid,” he said during the company’s first quarter financial results conference call on April 28. “Combining export demand with the 12.6 billion gallon mandate for U.S. refiners and blenders and the economic incentives to blend … ethanol is an important source of octane for sub-grade CBOB and an oxygenate for the reformulated gasoline markets,” he said. “2011 remains a solid opportunity for ethanol producers.”

GPRE reported a net income of $7.7 million for the first quarter of 2011, down more than half from the same quarter a year ago. Revenues nearly doubled for the quarter compared to last year, however. Becker attributed the company’s continued profitability to its diversified income strains and noted that the company’s ethanol production volume increased 39 percent, up to 172 million gallons, during the first quarter of 2011. Credit for the increase in production is owed mostly to GPRE’s acquisition of a 60 MMgy plant in Riga, Mich., and a 100 MMgy in Lakota, Iowa, late last year. The company completed the purchase of 60 MMgy Otter Tail plant in Fergus Falls, Minn., during the last week of this year’s first quarter, so it contributed only slightly to the company’s overall production for the quarter. The reduction in net income for the quarter is due to capital invested in the $55 million purchase of the Otter Tail plant and grain storage expansion projects at GPRE’s grain elevators in Tennessee and the Otter Tail plant. Those projects are expected to be completed before the fall corn harvest.

Becker said high corn prices will make it an “interesting summer” for producers, but said GPRE will continue to lock in corn supply as opportunities allow. While some plants have slowed production recently, GPRE’s plants are all operating at full capacity and have no intention of slowing down, Becker said. During the conference call, he said that conversations with farmers supplying corn to facilities have led GPRE officials to believe there may be more corn acres planted this year than the USDA has predicted, which should further contribute to improving margins throughout the year. “In addition, we strongly believe that the USDA is under estimating ethanol yields in the industry and their supply and demand balance sheet,” he said, adding that the ethanol industry is trending to average production rates that could exceed 2.8 gallons of ethanol per bushel of corn.

Exports are another area of positive growth for the industry, Becker said. He reported that U.S. producers exported 117 million gallons of ethanol during the first two months of the year, which puts the industry on trend to export 700 million gallons over the course of the year. He expects that healthy export trend to continue into 2012, he said.

The opening of BioProcess Algae LLC’s commercial-scale algae bioreactors at GPRE’s Shenandoah, Iowa, plant was a high point for the company during the first quarter. The bioreactors began operating in February and were officially unveiled during an event held at the plant on April 15. Site work has begun at the ethanol plant site for a 5 acre commercial-scale algae farm and work is being done to develop product demand for algae produced at the site, including testing to produce oil directly from the algae at refineries.

In addition to the algae project, GPRE has completed the installation of corn oil extraction technology at six of its plants. The remaining three plants will deploy the technology by the end of the third quarter. Becker said the corn oil product is performing better than expected and major feeders are expressing interest in using it for their operations.