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Drought idling upwards of 20 ethanol plants across U.S.
By MATTHEW D. ERNST
Missouri Correspondent

MACON, Mo. — The POET Biorefining plant in Macon announced last week it would suspend production Feb. 1, due primarily to a lack of local corn from last year’s drought.

According to POET, $14.5 million in upgrades will be made to the plant while production is suspended. No timeline was announced for resuming production at the plant, whose annual production capacity is 46 million gallons.

The short 2012 crop in drought-stricken areas such as Missouri compounded existing challenges for ethanol plants.

“2012 was already a very challenging margin environment due to (ethanol) oversupply. The drought was like a second punch in the stomach for plants in drought areas,” said Scott McDermott, financial advisor at Ascendant Partners, a Colorado firm that advises mid-sized agribusinesses, including ethanol plants.
All of Missouri remained in severe or moderate drought at the end of January, according to the National Weather Service.

POET’s was the latest in a string of ethanol plant suspension and consolidation announcements. Last week, two ethanol plant shutdowns were reported in Nebraska, while ethanol plants were also idled in California and Texas. In late January, in southern Minnesota, the sale of a struggling plant to a consortium of other ethanol producers was announced.

McDermott estimates 10-20 ethanol plants nationwide have idled, or are idling, thanks to the drought’s “second punch.”
“You’ve got to be really thoughtful about taking an ethanol plant down,” he said. “We typically would not expect plants to be idling for maintenance during the winter.”

The U.S. Energy Information Administration (EIA) reported ethanol production at 770,000 barrels per day for the week of Jan. 25, the lowest production level since the agency started tracking ethanol production. The EIA attributed declining ethanol production to a combination of lower corn supplies, higher corn prices for ethanol producers and weaker gasoline demand.

Industry consolidation, including more announcements of plant sales and shutdowns, is not unlikely in 2013.

“I’d say that two-thirds of the plants right now are still cash-flowing,” said McDermott. “But we are seeing stress right now, and people are going to have to make decisions.

“We in commodities are used to market and weather challenges. But this market situation, with the drought, is making this an extra tough run.”

In late January, the sale was announced of the Heron Lake BioEnergy plant, a Minnesota ethanol plant with an annual production capacity of 60 million gallons. The purchaser was Guardian Energy Heron Lake, an LLC made up of four ethanol plants in Minnesota and Nebraska.

Three of the four plants named as members of Guardian Energy Heron Lake LLC were also named as part of the Guardian energy group that bought the ethanol plant in Lima, Ohio, in 2010.
“This ownership group has a history of operating successful ethanol plants both individually and collectively,” said Don Gales, CEO of Guardian Energy Heron Lake LLC.

The New Energy Corp. ethanol plant in South Bend, Ind., which closed production in November, was slated to be sold at auction Jan. 31. Information on the results of that sale was unavailable at press time.
2/7/2013