CHICAGO/NEW YORK, (Reuters) — The closure of two ethanol plants last week and proposed sale of a third highlight the growing challenges faced by small producers located far from cheap feedstock supplies in the U.S. corn belt.
Profit margins are shrinking across the U.S. ethanol industry, which produces about 15 billion gallons a year of the biofuel mainly from corn, as oil prices have sunk to the lowest in 6 1/2 years. Fuel use overall is slowing as the busy summer driving season winds down.
The biggest producers such as No. 1 Archer Daniels Midland and Green Plains said they have benefited this summer from better-than-expected fuel demand as low gas prices have boosted driving. And their plants are in the heart of corn country, where they can rely on ample supplies, sometimes delivered straight from farmers’ fields.
But plants such as those in Wyoming (Wyoming Ethanol) and Virginia (Vireol Bio Energy) that suspended operations last week were built in the ethanol boom years of the 2000s when U.S. government blending mandates could justify the cost of having to buy rail cars full of corn from hundreds of miles away. That is no longer the case.
It’s a difficult environment,” said Andrew Clyde, chief executive of Murphy USA, owner Hereford Renewable Energy in Hereford, Texas, which is also up for sale.