Delaying the opening of nearly completed ethanol plants is unprecedented, analysts at Credit Suisse said Wednesday. They expect more plant closings to come across the industry as producers move to tighten supplies, and they forecasted lower profits for ethanol companies this year.
Shares of most ethanol producers fell in morning trading, with VeraSun Energy down 4% to $4.04 each, Pacific Ethanol down 6.8% to $2.32 each, Aventine down 4.8% to $4.36 each and BioFuel Energy Corp. (BIOF) down 3.6% to $2.96 each.
Representatives of Pacific Ethanol, Aventine Renewable and BioFuel Energy weren`t immediately available to comment.
VeraSun delayed the opening of ethanol plants in Welcome, Minn. and Hartley, Iowa, because of the unfavorable spread between corn and ethanol prices, spokesman Mike Lockrem said. He said the company remains optimistic that it will be able to open the plants once the market conditions for ethanol production improve.
The Credit Suisse analysts said they don`t expect the fundamentals for ethanol to improve until next year, and that ethanol producers face a difficult economic situation until then.
"We expect further plant delays and curtailments due to a very challenging margin outlook," the Credit Suisse analysts led by Mark Flannery said. The analysts lowered their year-end capacity forecast to 9.5 billion gallons from 10 billion.
Lockrem said the two ethanol plants each would`ve produced 110 million gallons of ethanol per year. VeraSun currently has 11 plants in operation that produce just over 1 billion gallons a year, and has three plants under construction in North Dakota, Minnesota and Iowa. Lockrem said VeraSun hasn`t made any decision to cut production at its existing plants or to delay the plants currently under construction.
The crisis facing ethanol producers was triggered by massive flooding across the central Midwest last week, which damaged crops and caused corn prices to spike.
July corn futures closed Tuesday on the Chicago Board of Trade at $7.42 a bushel, up about 25% from under $6 a bushel early this month before the flooding, while July ethanol futures closed at $2.89 a gallon, up about 20% from around $2.40 a barrel before the flooding.
The Credit Suisse analysts said that though the economic picture was bleak for ethanol producers, "there is a chance of a turnaround for those who can make it through the end of 2008." Cutting production should help tighten the ethanol- market balance as well as raise prices on ethanol and improve earnings and cash flow. Ethanol is trading at about a $1 discount per gallon to gasoline.
The analysts see VeraSun breaking even this year, instead of posting a profit of 35 cents a share. They expect Pacific Ethanol Inc. (PEIX) to post a loss of 41 cents a share, widened from their earlier estimate of a 29 cent per share loss, and they cut their view of Aventine Renewable Energy Holdings Inc.`s (AVR) profit to 10 cents a share from 21 cents.
Last week, an analyst at Citigroup swung his buy recommendations on VeraSun and BioFuel Energy to sell because of the flooding and cut agricultural giant Archer Daniels Midland Co. (ADM) to neutral due to its ethanol exposure, and said many small to midsize producers wouldn`t survive the tightening in corn supplies following the flooding.ÂÂ
© 2008 Dow Jones & Company, Inc.
Source: Dow Jones Newswires,ÂÂ
www.djnewswires.com 
