Lower Gas Prices; What Will That Do To The Ethanol Industry?

Gateway Ethanol, LLC, Pratt, KS, recently filed for Chapter 11 bankruptcy protection, citing investor debt and insufficient operation funds as reasons for closing the year- old operations, according to Agriculture Online. Reports indicate Gateway, in filing noted that its assets and debts range between $50 million and $100 million.

This bankruptcy may be indicative of the financial woes becoming more widespread than first thought, analysts are saying. Just how each company and ethanol plant is affected by today’s economic downturn depends on a few key factors, according to Midwest Grain Processors board chairman and Iowa farmer Dave Nelson.

“We’re going to see a lot more [plants close], especially plants built in the wrong place. Probably the next batch that is going to have trouble is the newly started plants where they’re going to be undercapitalized,” Nelson said. “Ninety-nine percent of the ethanol plants started in the last 10 years have been undercapitalized. I think today, one fourth of the industry is in deep jeopardy. Some have just plain run out of cash.”

More specific market factors, the tightening of the credit market, the decrease in prices for crude oil and cash corn, are also contributing to the troubled outlook. The decline in the price of crude oil, now down in the $80s after reaching a high of $147 per barrel this past summer, could potentially damage interest in the ethanol industry by U.S. consumers, but potential investors as well. ❖