25% of Ethanol Plants Predicted to go Under by the End of January 09
By R. Brown, Web Exclusive Posted Nov. 19, 2008

So says Mark Lakers, President of the Ag and Food Association, an Omaha, Neb. middle market merger and acquisition investment bank during the National Agricultural conference in Des Moines, Iowa November 17th. According to Lakers, about 40 of the nations 150 ethanol plants will file chapter 11 bankruptcy by the end of January 2009. 16 of the 40 ethanol plants in Lakers’ prediction are owned by VeraSun who recently filed for bankruptcy

A big portion of the ethanol producer's problem stems from exorbitant feedstock prices which peaked in the summer as well as price hedge contracts with farmers which now prevent Verasun from taking full advantage of declining corn prices.

Lakers warned farmers to be prudent in their decision making not because of a perceive decline in corn demand but in assigning lines of credits to ethanol plants, 25% of which may be going under by spring 2009. New owners may be unwilling to accept contractual obligations of previous owners and court approved reorganizations may relieve ethanol plants of their contractual obligations.

Lakers also see a buyers market for ethanol producers with good balance sheets and low debt because bankrupt ethanol plants may be selling for as little as 70 to 80% of their construction cost. For example, a 50 million gallon per year (50 MMgy) plant may sell for $1.50 per gallon where on the other hand, it cost about $2.20 per gallon to build such a plant. The most vulnerable plants, according to Lakers, are the newly built ones-ladened with heavy debt and high production cost.

Photo courtesy of USDA