(Minneapolis Star-Tribune) The dramatic fall in oil prices has ended the party for another energy industry — ethanol.
Some producers of corn-based ethanol made record profits in 2014, but that’s over. Industry executives now are talking about breaking even or staying slightly profitable.
Cheaper gas affects ethanol producers because they sell into the same fuel market. Most gasoline is 10 percent ethanol.
“It’s good for the consumer, but it is getting hard on the industry,” said Brian Kletscher, CEO of farmer-owned Highwater Ethanol in Lamberton, Minn., one of five Minnesota-affiliated producers to report record 2014 profits.
Crude oil prices have dropped 50 percent since June, allowing happy drivers to pump $2-per-gallon gasoline into their tanks. It’s brought less cheer to ethanol producers. In January, wholesale ethanol fetched half what it did on some days in 2014.
“Margins are pretty thin right now,” said Scott McDermott, chief operating officer of Ascendant Partners Inc., Colorado-based financial advisory firm that tracks the ethanol industry.
Minnesota, the nation’s fourth largest ethanol producer, has 21 ethanol plants that refine more than 1 billion gallons a year, about 8 percent of U.S. output. More than 12,000 Minnesotans work in the industry and dependent businesses, according to the state Agriculture Department.
The ethanol industry downturn is not like 2008 or 2012, when hard times and drought shuttered ethanol plants, including several in Minnesota. Nor are things as bad as in the oil industry, where producers have reported losses and slashed investment, including a 27 percent drop in North Dakota oil-drilling rigs in the past year.
McDermott said it is the first time the ethanol industry has faced such a precipitous fall in fuel prices. Yet many ethanol producers are in a good financial position, and some are looking to invest in new technology or related enterprises to reposition or expand their businesses, he added.
Kletscher, who also is chairman of the Minnesota Biofuels Association, said he hasn’t heard of any planned layoffs or plant shutdowns in Minnesota. None of the nation’s 213 ethanol plants have closed recently, according to the Renewable Fuels Association.
