How The Ethanol Bubble Popped - Sacramento Bee

[hatrack]

The cash crunch at Sacramento's Pacific Ethanol Inc. spotlights the swift decline of an industry battered by too much supply, too-expensive corn and too many increases in plant construction costs. Ethanol – hailed by some as a "green" fuel that would reduce America's dependence on foreign oil – is in a major slump here and nationwide.

Across California, profit margins are vanishing, new plants are being canceled and some existing facilities are struggling. The state's first major plant, opened in Tulare County in 2005, has suspended operations. And now Pacific Ethanol, in a bombshell filing Tuesday with the Securities and Exchange Commission, has revealed big quarterly losses, major construction-cost overruns, defaults on its bank loans and a liquidity squeeze. The company is relying heavily on a $40 million cash infusion from an affiliate of its construction contractor, but that deal hasn't been completed yet.

"There is much less room for error than there was in the past," said Todd Alexander, a New York lawyer who has represented lenders and developers in the ethanol industry, including Pacific Ethanol's banks. "Some of the marginal facilities … are running into liquidity issues."

Investment analyst Eitan Bernstein, who follows Pacific Ethanol and other producers, said demand is increasing but not quickly enough to justify the glut of new facilities. In a business where new plants cost $100 million apiece, smaller companies such as Pacific Ethanol will suffer the most until the industry stabilizes, he said. Deep-pocket producers such as Cargill and Archer Daniels Midland "all say they have their antennae up," said Neil Harl, economics professor emeritus at Iowa State University. "I think what that means is if they can find a distressed plant, they'll pick it up. But they're not going to rush out to save these struggling companies."

EDIT

http://www.sacbee.com/103/story/799508.html

[rucky]

1. Is corn the only thing these plants can process?

There are several other more viable crops to try that yield much higher than corn.

[rainy]

2. The whole idea of growing crops for fuel is ridiculous. nt

[rucky]

3. Check out algae first.

[rainy]

4. I just googled it and so far most info sounds very promising! nt

[Strelnikov_]

5. Dry mill plants

Two products, ethanol and DDGS.

With additional investment in facility, they could have built wet mill plants that yield ethanol and food products (corn meal, corn oil, etc., 70% of food value of original corn), with the market price of said food 'bi-products' running parallel to the price of 'feedstock'.

Looks like more of that legendary American CEO knowhow to me.