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Ethanol Moves Reflect Industry Change

Advanced Bioenergy Sells Plants to Glacial Lakes in $47M Deal

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The ethanol industry continues to evolve as market realities hurt bottom lines. (DTN/Progressive Farmer file photo)

OMAHA (DTN) -- As the ethanol industry continues to struggle, in part because of overproduction, one of the nation's largest ethanol producers said Tuesday it will not dial back production.

Omaha-based Green Plains Inc. CEO Todd Becker said during a second-quarter earnings call that when the industry was overproducing in previous years, Green Plains dialed back production while the rest of the industry ramped up -- and the company's shareholders paid the price.

"We're just going to keep going," Becker said. "I don't think Green Plains has to do the work for this industry anymore."

Green Plains reported 2019 second-quarter revenues of $895.9 million, compared to $986.8 million for the same period in 2018.

Despite reporting a $45.3 million loss in the second quarter of 2019, Becker said his company plans to continue at a company-wide 90% run rate -- meaning it will produce at near full capacity.

Ethanol margins have continued to deteriorate nationally in the past 18 months. Green Plains reported just a $1 million net loss in the second quarter of 2018.

The company launched an optimization plan in May 2018. The plan included selling three of its ethanol plants and undertaking a number of other measures to reduce its costs per gallon to 24 cents by the second quarter of 2020.

Green Plains slowed production by selling three ethanol plants and idling a plant in Madison, Illinois: the company produced 224 million gallons of ethanol in the second quarter of 2019, down from 296.3 million gallons for the same period in 2018.

Green Plains had costs of 36 cents per gallon in the first quarter of 2019, then lowered costs to 28 cents in the second quarter.

However, Becker said Green Plains needs to continue to produce at 90% of capacity in order to achieve its cost-saving goals.

"We cannot achieve 24 cents per gallon without running full hammer down every day," he said.

Green Plains operates 13 ethanol plants in Nebraska, Texas, Illinois, Indiana, Tennessee, Minnesota and Iowa, with a production capacity of about 1.1 billion gallons.

LONG-TERM STRATEGY

Becker said the company could sell one or two more plants by year's end as part of a long-term strategy to expand into the high-protein feed market.

Green Plains has reached an agreement to sell at least 50% of its cattle subsidiary. Green Plains said it would receive about $75 million. In addition, the move is expected to take about $335 million in debt off the company's books and save millions of dollars in annual interest.

While the ethanol industry faces a number of headwinds, Becker said his company will continue to make changes.

"While our company and industry have been hit hard by government policy, geopolitics and oversupply, we are not waiting for the recovery to happen," he said. "We will continue to transition this platform to high-protein animal feed production as a growing driver of more predictable and stable earnings, beginning with the completion of our high-protein project in Shenandoah, Iowa, in late 2019."

ADVANCED BIOENERGY EXITS

Minnesota-based Advanced Bioenergy LLC announced on Monday it was selling its two ethanol plants in Aberdeen and Huron, South Dakota, and plans to liquidate the company altogether. The plants have a combined production capacity of about 86 million gallons.

According to a filing with the U.S. Securities Exchange Commission on Monday, Advanced Bioenergy announced the sale of its plants for $47.5 million to Glacial Lakes Energy LLC, based in Watertown, South Dakota.

Advanced Bioenergy said on Monday it will continue to operate the ethanol plants until the sale is finalized later this year.

In addition, Advanced Bioenergy announced plans to liquidate the company altogether with the proceeds of any sale going to shareholders and to pay any outstanding debt.

Glacial Lakes said in an Aug. 1, 2019, letter to shareholders the purchase will expand opportunities for company growth.

"Strategically, both ABE plants fit well into GLE's current marketing, operational, and administrative footprint," the letter said.

"Strategic opportunities to achieve greater economies of scale that are within our trade area will not come along often and when they do, we must be ready to execute. We have conducted an extensive due diligence analysis of how these two plants would conceptually fit into our current footprint and we see operational, commercial, and administrative economies of scale to be achieved that wouldn't otherwise be available. Although margins have been difficult recently, the board and management remain optimistic about the long-term prospects of ethanol and higher blends."

With the purchase, Glacial Lakes will buy 125 million bushels of corn annually, produce about 350 million gallons of ethanol each year, about 1 million tons of feed and produce about 94 million pounds of corn oil.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(ES/AG)

Todd Neeley

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