Weak turnaround this year in Minnesota's ethanol industry

More ethanol producers are making money, but it's not always enough.

The industry, staggered by high corn prices in 2012, is seeing a modest turnaround so far this year, but ethanol plants with high debts still have a rough road. Meanwhile, two of Minnesota's 21 plants remain closed — with one of them going on the auction block.

"The industry has gone through some tough times, so the plants are pinching every penny and looking at every possible way to cut costs," said Paula Emberland, manager of Biofuels Benchmarking, an industry analytics service of the Christianson & Associates accounting firm based in Willmar, Minn.

Three of seven Minnesota-affiliated producers subject to financial disclosure reported modest profits in the latest quarter, up from just two in the previous quarter. Other plants mostly reported smaller losses compared with prior quarters.

One debt-strapped plant, in Heron Lake, Minn., last week asked its mostly local owners to invest more capital. Two other Minnesota-based producers missed payments to lenders.

But Highwater Ethanol of Lamberton, Minn., made a profit for the first time in more than a year.

"We are hopeful it will keep rolling," said Highwater CEO Brian Kletscher, who also is president of the Minnesota Biofuels Association.

Granite Falls Energy, owned by local investors in Granite Falls, Minn., reported $3 million in net income for the period ending in April, its second profitable quarter after two with losses in 2012.

More than 60 U.S. ethanol plants tracked by Biofuels Benchmarking earned, on average, 9 cents per gallon in the first quarter, compared with a 5-cent loss in 2012, according to data presented last week at Christianson's annual financial conference in Bloomington.

Most ethanol makers are privately held and don't disclose financial results. Biofuels Benchmarking privately collects financial data from plants to help them improve their operations. It releases only aggregate data on industry performance.

Emberland said plants not only are cutting costs, but are looking beyond ethanol for profits. In 2009, just over half of ethanol plants were producing industrial corn oil, typically sold to make biodiesel, she said. Today, three of four plants have turned to corn oil production to boost revenue.

"It has become a significant revenue source," Emberland said, and plants are considering other investments such as adding biodiesel refining capacity.

Plants with large debt loads are having the toughest time in Minnesota.

In Buffalo Lake, one of the state's smallest ethanol plants, built in 1997, has been shut down since March, when the owner, Purified Renewable Energy, filed for Chapter 11 bankruptcy protection, listing $26 million in debts. The plant, which reopened last year after a 2 ½-year shutdown, is up for auction, with bids due July 31.

Biofuel Energy Corp's large ethanol plant in Fairmont, Minn., has remained closed since September and the company is exploring strategic alternatives, including the possible sale of the plant and another in Nebraska.

The company, based in Denver, has $170 million in debt, and has missed $12.9 million in debt payments from September through March. It reported a $4.6 million loss for the quarter. It was the fifth losing quarter in a row, but the smallest loss.

Bloomington-based Advanced Bioenergy, which owns ethanol plants in Huron and Aberdeen, S.D., reported a $1.7 million net loss in the three months ending in March, its fourth consecutive quarterly loss. The company sold a Nebraska ethanol plant last year, but still carries $74 million in debt. The company missed a $1.1 million principal payment in the quarter and was discussing with lenders how to address the problem, according to a regulatory filing.

The company last week solicited its 1,100 investors, including many farmers, to raise at least $5 million and possibly up to $12 million in a convertible debt offering, said CFO Mike Mattison.

The plant, 20 miles northeast of Worthington, has continued to operate. Earlier this year its owners voted to sell it to a group of financially stronger producers for $55 million.

But the deal later fell apart, forcing the board to seek fresh capital. Board members already have put up $1.4 million, Mattison said.

Staff writer Patrick Kennedy contributed to this report.

David Shaffer • 612-673-7090