NEW YORK — Soaring corn and soy prices on top of rising construction costs and tight credit markets have pushed about a dozen U.S. biofuel plants to file for bankruptcy protection, experts said.
Prices for corn, the feedstock for most U.S. ethanol plants, hit fresh records above $8 per bushel this week as floods this month in the Midwest have caused billions of dollars of crop damage.
“Corn prices are making the feasibility of ethanol plants every day more and more questionable,” said Alex Moglia, president of Moglia Advisors in suburban Chicago, which helps biofuel companies restructure.
Meanwhile prices for soy oil, the feedstock for most biodiesel plants, have been been high on rising global demand for months, making life miserable for most producers. The miserable profit margins have pushed many makers of the alternative motor fuel to run plants at only about half of their capacity.
Moglia said about 12 small to midsize biodiesel and ethanol plants have declared bankruptcy in recent months. Renova Energy LLC, a company that owns a partially built 20 million-gallons-per year ethanol plant in Idaho, was the latest to declare bankruptcy last week. Kansas-based Ethanex Energy Inc declared bankruptcy in March.
“There will be more to follow,” said Moglia. Some plants are restructuring their debt and taking steps to manage risks, but many others are not, he said.
U.S. ethanol plants are still opening but plans for the opening of plants through 2009 are being increasingly delayed or scrapped.
Besides the high feedstock prices, the fact that prices for the alternative fuel have not kept up with surging gasoline prices also hurts distillers.
The giant oil industry, which is required by renewable- and clean-fuel mandates to mix the blendstock into gasoline, has done its best to buy ethanol at low prices. Ethanol supplies have been glutted in the Midwest as the industry works to ease transportation to the coasts, another factor keeping a lid on ethanol prices.
The discount to gasoline, construction costs and tight credit markets mean “we are likely to see more plant delays and more ethanol producers filing for bankruptcy protection soon,” Credit Suisse said in a research note this week.
Large ethanol players such as private company Poet Energy, food and grain company Archer Daniels Midland and VeraSun Energy Corp are somewhat protected because of their diversification, efficient plants, and access to cheap train transportation for distributing ethanol.
“It’s those single purpose-type legal entities that gambled everything into a single plant” that are feeling the squeeze the most, said Moglia.
But high corn prices have challenged even the big players, with VeraSun saying this month it will delay the opening of three ethanol plants with a total capacity of 330 million gpy on the high corn costs.
Poet canceled a 65 million to 70 million gpy Minnesota plant in May, but said it would look at other projects.
The outlook was not entirely bad, said Todd Alexander, a partner at Chadbourne & Park LLP in New York specializing in energy finance. Biofuel output from plants that survive the current high feedstock prices should continue to be in demand because the U.S. mandates that require the blending of biofuels into gasoline are set to rise in volume year after year.
Still, “the majority of ethanol plants are not as happy as they once were,” he said. The full effect of high corn prices has not been felt yet because most distilleries buy corn on contract, not in the spot market, he added.
Friday, June 27, 2008