Tough times have hit the ethanol business again.
Profit margins have plunged. Producers big and small are getting squeezed and rock-bottom gasoline prices are mostly to blame.
One of Minnesota's 21 ethanol plants, in Buffalo Lake, has shut down amid losses. Archer Daniels Midland Co. (ADM), the nation's largest ethanol producer, is studying "strategic options," which could mean the sale of plants, though not the one in Marshall, Minn.
"The margins are bad — the margins just aren't there," said Jed Latkin, chief financial officer of Buffalo Lake Advanced Biofuels, an ethanol plant 80 miles west of the Twin Cities that survived a 2012 bankruptcy only to close at least temporarily in January.
The downturn in the ethanol industry isn't as bad as four years ago, when the price of corn spiked as high as $8 per bushel. Corn, the key ingredient in U.S. ethanol, costs less than half that today. But ethanol, which is blended at 10 percent to 15 percent rates at the pump, is selling into a U.S. gasoline market where prices recently hit a seven-year low thanks to the worldwide crude oil glut.
With low prices and a stronger economy, fuel consumption, including ethanol, rose 1.4 percent in 2015. Ethanol plants kept producing as prices dropped. Preliminary data analyzed by University of Illinois economist Darrel Good indicates 2015 was a record year for U.S. ethanol production — up 3.5 percent over 2014.
Yet profits worsened as 2015 wore on. In the fourth quarter, Minnesota-affiliated producers that disclose financial results reported a 76 percent to 89 percent drop in operating income compared with the period in 2014, a Star Tribune analysis shows. Two reported losses.
Conditions haven't improved. In January, a typical ethanol plant's return over operating costs was negative, according to an Iowa State University financial model.