March 31, 2008

 

Pacific Ethanol loses US$14.4 million on rising corn prices

 

 

Sacramento-based Pacific Ethanol Inc. reported Thursday it lost US$14.4 million in 2007, as falling ethanol prices and rising corn prices cut into its margins despite a big increase in sales volume.

 

The company said it has closed a US$40-million investment from a Fresno-based company, a move that comes one week after the ethanol maker warned it expected to lose money in 2007 and needed new cash to keep operating.

 

The company's 2007 loss dwarfed its 2006 loss of US$100,000, and came despite growth of net sales to US$461.5 million in 2007, up 104 percent from 2006 net sales of US$226.4 million, which the company filed to the US Securities and Exchange Commission.

 

Analysts said that Pacific Ethanol, like ethanol makers across the country, has been hurt by rising corn prices and falling ethanol prices, as the industry's rapid expansion has led to a glut of the biofuel and a spike in the price of the corn from which it is made.

 

As profit margins for ethanol have dipped, investors have fled once-hot ethanol companies, driving down share prices for Pacific Ethanol and other publicly traded producers of the fuel, primarily used as an additive to gasoline.

 

Pacific Ethanol saw average corn prices rise to US$3.61 per bushel in 2007, up 48 percent from US$2.44 per bushel in 2006, the company reported.

 

The company also said that it has significant fixed-price contracts and held inventory balances during a period of declining ethanol prices, both of which reduced margins.

 

Gross profit margin for 2007 fell to 7.1 percent, down from 11 percent in 2006, as corn prices continued to rise and ethanol prices continued to fall through last year.

 

The company operates plants in Madera County and in Boardman, Oregon, both capable of producing about 40 million gallons a year, and is building plants in Burley, Idaho, and Stockton, both of which saw higher-than-anticipated construction costs.

 

In a filing last week in which the company projected the 2007 loss, it also reported that a cash shortfall, as well as defaults on agreements governing a US$250 million secured line of credit meant to finance plant construction, could force the company to delay or abandon its plant expansion programme if additional financing was not secured.

 

However, the US$40 million investment announced Thursday, along with waivers it has received from its lenders for the defaults disclosed last week, resolved those immediate concerns, Neil Koehler, Pacific Ethanol's president and chief executive, said Thursday.