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ETHANOL once appeared to be the product line that would propel The Andersons Inc. of Maumee into the stratosphere.

During the height of the “dot-corn bubble,” investors — many who learned about the local company from TV stock guru Jim Cramer— sent the firm’s share price soaring to $122 in mid-2006. Just two years earlier, it had traded at $20.

But, with prices for the fuel additive and gasoline alternative falling along with pump prices and concerns rising about the diversion of feed corn from livestock to transportation, the bloom is off corn-based ethanol. The industry has been hit with a wave of bankruptcies and shutdowns.

At The Andersons, where plans for up to six ethanol plants were ultimately pared to an ownership stake in three plants, executives concede tough days are ahead for its ethanol division.

“We look for the next 18 to 24 months to be a difficult time,” Hal Reed, president of the grain and ethanol group, said in an interview.

Michael Anderson, chief executive of the agribusiness and retailing concern, told financial analysts recently that ethanol was a key factor in the company’s decision to lower its 2008 profit guidance to a range of $3.50 to $4 a share from a range of $5 to $5.40 a share.

“The economics of the ethanol industry … have continued to worsen,” he said in a conference call after release of a company earnings report for the third quarter.

Executives said the ethanol group lost $2 million in the three-month period after having produced $20 million in gains in prior quarters starting in 2006. The share price of the firm, which trades on the Nasdaq market under the symbol ANDE, has slipped 45 percent to $17.58 since Oct. 3.

The Maumee firm is diversified, with interests in grain sales, fertilizer production, rail-car leasing, and retailing. Ethanol services, which dramatically shaped its soaring stock price, brought in $272 million, or 11 percent of the firm’s $2.4 billion sales in 2007. Even with the ethanol decline, executives say the company will have strong profits this year.

However, partly in response to the ethanol situation, one financial analyst lowered his rating on the stock last week to hold from buy.

It is unclear if the incoming Obama administration will try to reduce a 51-cent a gallon subsidy to ethanol producers or ease tariffs on ethanol made in Brazil from sugar cane, said analyst Charles Rentschler, of Wall Street Access in New York.

Although President-elect Barack Obama has voiced support for ethanol use, there is opposition from beef and chicken processors who are unhappy because ethanol factories helped drive up corn prices to $5 a bushel this summer, the analyst said. Ethanol producers use up to a third of the nation’s corn crop.

Corn prices have since retreated to $3.50, but fears persist that they could climb next year, especially if yields fall. The situation has been blamed for helping drive up food prices.

Officials of The Andersons, which started out as a large grain merchant, don’t deny the challenges ahead. But they are confident that the company will not be among the victims in an anticipated wave of ethanol plant closures and consolidations.

Even in 2006, when ethanol was touted as the antidote to feverish gasoline prices, the firm took a cautious approach.

It owns less than 50 percent of the plants in which it is involved: In Clymers, Ind., Albion, Mich., and Greenville, Ohio. That spreads out profits — as well as losses — among joint-venture partners, including Marathon Oil Co. and the Japanese firm Mitsui USA.

Additionally, the suburban Toledo firm generates funds from the ethanol operations for providing management services, marketing aid for which it receives a portion of every gallon sold, and help developing strategies to shield the operations from the impact of fluctuations in prices for ethanol and raw material used to make it.

And The Andersons has an income stream from wholesale trading in ethanol through its 50 percent stake in Lansing Trading Group of Overland Park, Kan.

Contributing to the decline in ethanol income was an explosion at the Michigan plant, near Battle Creek, late in the second quarter that halted operations for a month, officials said.

Additionally, the Ohio plant, which is north of Dayton near the Indiana border, has failed to reach peak efficiency levels in its first nine months.

Ethanol yields from a bushel of corn are about 5 percent below yields at other plants the company operates.

Even without those problems, industry officials concede that ethanol plants are having trouble staying profitable as prices of the fuel additive/alternative have fallen to a range of $1.75 to $1.80 a gallon.

Standard gasoline contains 10 percent ethanol. Some newer vehicle can run on a mix of up to 85 percent ethanol, but fuel economy is poorer.

Mr. Anderson, in the conference call with financial analysts, predicted that more ethanol plants will get into trouble and that some will fold. He didn’t rule out purchase of failed plants, but added: “Our focus is to operate the plants we have well.”

Already, VeraSun Energy Corp., Sioux Falls, S.D., the nation’s the second-largest ethanol producer, filed for bankruptcy protection Oct. 31, blaming swings in corn prices. Also seeking Chapter 11 protection last month was Gateway Ethanol LLC, of Pratt, Kan., and Lima’s Greater Ohio Ethanol LLC. The firm listed $129 million in assets and $123 million in debts in a petition filed last month in U.S. Bankruptcy Court in Toledo.

The action came just five months after the plant opened. Managers blamed construction-cost overruns and production problems.

As a result, Greater Ohio Ethanol was unable to meet a commitment to supply its sole customer, BP Products North America Inc., with 49 million gallons of ethanol a year.

Ethanol has been criticized for hurting the environment. Because of that and the alleged impact of ethanol production on food prices, several groups have called for relaxation of federal ethanol mandates.

Those mandates call for use of 9 billion gallons of ethanol this year and 15 billion gallons by 2015.

Ethanol producers oppose any pullback from the quotas.

They acknowledge that the number of vehicles able to run on fuel that is 85 percent ethanol has not grown as rapidly as hoped for.

Still, the Renewable Fuels Association contends that most vehicles now on the road could efficiently run on a mix of 13 percent to 20 percent ethanol versus the current 10 percent mix.

“We think there is a place above 10 percent,” said Matt Hartwig, association spokesman.

Since the start of the year, the number of production facilities nationwide has risen to 179 plants able to make 11 billion gallons annually from 139 plants with a capacity of 7.9 billion gallons, he added.

Although many plants have run into trouble because of high corn prices, falling oil prices, and difficulty obtaining credit, the industry’s vulnerability has been exaggerated, he said. “Long term, the fundamentals of this industry are strong,” Mr. Hartwig said.

Officials of The Andersons don’t regret their decision to get involved in ethanol.

“We’ve had a couple of good years at Albion and a great start at Clymers,” Mr. Reed, president of the ethanol group, said. “We earned fees to develop projects and ongoing management fees. We know the next 18 to 24 months is going to be difficult on ethanol. We have to position ourselves to be part of the survivors.”

Contact Gary Pakulski at:gpakulski@theblade.com or 419-724-6082.

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