Ethanol Manufacturer: Cheap Oil Will Force Industry Consolidation

The cheapest crude oil prices in 12 years could spark a wave of ethanol industry mergers in 2016, Green Plains Inc., a producer of the biofuel, said Thursday.

So far this year, returns from converting a bushel of corn into the gasoline substitute have been poor as the oil rout reduces motor fuel prices, Todd Becker, chief executive officer of Green Plains, said Thursday on a conference call to discuss quarterly earnings. That could force everyone from smaller companies to major producers to consolidate.

“There will be M&A activity in 2016,” Becker said. “In 2016 you’ll see consolidation in the industry.”

Crude has slid about 28 percent this year. That, combined with high corn costs, has gutted ethanol margins. Denatured ethanol for March delivery has fallen 4.9 percent in the past year to $1.375 a gallon on the Chicago Board of Trade.

Meanwhile, stockpiles rose to a record 23 million barrels in the week ended Feb. 5, according to data from the U.S. Energy Information Administration, and lawmakers have been debating whether or not the U.S. should continue to require the biofuel’s use. Earlier this month, Archer-Daniels-Midland Co., the largest producer, said its assessing the future of some of its plants.

About 40 percent of the industry’s capacity is controlled by the top five producers with the remaining share held by smaller companies, including farmer-owned cooperatives, Becker said.

“Industry margins have not gotten better since the first of the year,” he said. “They haven’t seen a year like this for a while.”

Green Plains fell $2.58 or 17 percent to $12.43 at 1:54 p.m. in Nasdaq composite trading, after earlier touching $12.39, the lowest since 2013. The Omaha, Nebraska-based company reported a net loss for the fourth-quarter of $3.6 million, or 9 cents a share compared with profit of $42.2 million or $1.07 a share a year earlier.

Source: Agri Marketing

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