Iowa Public Television


Ethanol Industry Leaders Have Rough 3rd Quarter

posted on November 7, 2008

According to the Agriculture Department U.S. farmers have harvested 55 percent of this year's corn crop… a big improvement from the previous week but about 30 percent behind the five-year average pace.

The harvest was delayed further this week by an early season blizzard that dumped as much as four feet of snow in parts of South Dakota.

But even as wind and weather challenges growers, the volatile corn market is testing the metal of processors. And for industry leaders VeraSun and Archer Daniels the end of quarter reports were dramatically different.

Ethanol Industry Leaders Have Rough 3rd Quarter Archer Daniels Midland, or A-D-M, has managed to weather the storm and more than double its earnings for the quarter ending September 30 to $1 billion. Industry analysts credit the nation's second largest biofuel producer's success to its ability to divert resources from loss leaders to profit centers among A-D-M's 230 processing plants. Other contributing factors included the the Dekalb, Illinois-based corporation's commodity trading experience as another reason for its recent success.

In a move to further diversify its holdings, A-D-M announced this week it will enter into a joint venture with Brazilian sugarcane producer Grupo Cabrera. At a cost of $500 million, a new plant will be built to convert sugarcane into 90 million gallons of ethanol annually. ADM already produces soy-based biodiesel at other plants around the world and has been trying to enter the Brazilian market for several years.

Rapid expansion, high corn prices, and a contract hedging scheme gone bad, all may have contributed to VeraSun Energy Corporation's losing battle with the bottom line. The acquisition of two ethanol producers which added almost $1 billion in debt, and an ill-fated short sale in the market, increased third quarter losses from $63 million to over $100 million. The resulting debt load became to great for the company to continue.

The struggle culminated late last week when the company filing for Chapter 11 bankruptcy. According to papers filed in the state of Delaware, the South Dakota-based ethanol maker, along with its 24 subsidiaries, faced a liquidity crisis that, without the infusion of cash, would have forced the company to discontinue operations.

In an attempt to keep the company afloat, Vera Sun appealed to the U.S. Bankruptcy Court under debtor-in-possession provisions of Chapter 11 to get enough money to shore-up the collapsing company. This week, the court ruled that the troubled ethanol producer could receive up to $215 million from its primary creditors to continue operation.

In June of 2006, Verasun Energy went public. During the first week of trading shares of VeraSun jumped more than 20 percent in the first few days of sales. But, the stock has trended downward for much of its existence. This week VeraSun was trading below 10 cents per share, down more than 99 percent from its 52-week high.

VeraSun produces 1.4 billion gallons of ethanol annually which is almost 15 percent of the industries total capacity. Company officials stated ethanol production will continue at its 16 Midwestern plants while the rest of the details are sorted out.

Bankruptcy experts predict the process could take up to two years to complete.

Tags: agriculture biofuels corn ethanol industry news renewable fuels