Falling stock prices and an almost non-existent ethanol market are hampering The Andersons Inc. during the coronavirus outbreak, but there might be positive news on the horizon.
The current crisis started to take a toll on The Andersons last month. The company announced March 24 it was halting ethanol production at its Colwich, Kan. ELEMENT facility for an "extended maintenance and repair period."
In a news release, Jim Pirolli, president of The Andersons Ethanol Group, acknowledged the move was due to the harsh economic conditions.
"Our primary reason for taking these actions now is the accelerating decline in demand resulting from the coronavirus pandemic," Mr. Pirolli said. "In the case of the ELEMENT plant, The Andersons and ICM will use the time to focus on the remaining steps needed to gain what we anticipate will be an industry-low carbon score."
The company expects to produce ethanol and its coproducts at 50 percent capacity this month and ramp production up to typical levels when demand improves, according to the release. The ELEMENT plant is expected to go back into production late in the second quarter.
The company also suspended operations at four facilities owned by The Andersons Marathon Holdings LLC (TAMH), a joint venture between The Andersons and Marathon Petroleum Corporation.
Andersons spokesman Kate Langenderfer declined to grant an interview request to The Blade.
According to The Andersons' annual report, gross revenue from ethanol totaled $968 million in 2019, up from $747 million in 2018. Tristan Brown, a State University of New York professor who follows The Andersons, said the ethanol business is in a tough spot.
"Their ethanol segment is going to struggle," Mr. Brown said. "It wasn't exactly in a great situation, and that's true for the whole sector. 2019 was a pretty bad year and 2020 made things worse. Ethanol production margins are as bad as they've been since the 2012 drought."
Ethanol demand and price is tied into the oil industry, which is also suffering. The Renewable Fuel Standard mandates transportation fuel to consist of 10 percent renewable fuels.
Nearly all gasoline sold in the U.S. contains about 10 percent of ethanol, but demand for gas has plummeted with most of the country under stay-at-home orders.
Frank Macchiarola, American Petroleum Institute senior vice president of policy, economics, and regulatory affairs, said driving season estimates show an average gasoline price of $1.58 per gallon from April through September.
"That's down from $2.72 [a year ago]," Mr. Macchiarola said. "That's reflective of a real supply and demand imbalance in the oil markets. You can extrapolate from those estimates what is going to happen with respect to ethanol and demand."
Mr. Macchiarola said crude oil demand is down about 20 to 25 million barrels a day from its normal level of 100 million barrels a day, and ethanol production was down last week between 16 and 20 percent. Mr. Brown said ethanol production is down 45 percent from one year ago and 25 percent of the country's ethanol capacity is idle.
The Andersons' other segments include Trade (formerly the Grain Group), Plant Nutrients, and Rail, and the company's exposure to the entire supply chain could be a saving grace. Mr. Brown said there are indicators the other divisions should see growth.
"It looks like this will be a very good corn planting season, so that segment should do well," he said. "We expect it will be a large harvest and there will be demand for storage and rail, which they also operate in. If the current projections hold true, it's going to be a good year. It can offset the negatives from the ethanol."
In 2021, the revised RFS requires a higher amount of biofuels to be blended with gasoline, which experts believe will lead to an increase in ethanol demand.
Andersons stock closed at $33.22 a share on April 29, 2019. The price has steadily dropped over the past year, except for a spike in September. Prices Wednesday afternoon dropped to as low as $15.27.
"I do think if you're investing in ethanol and transportation, The Andersons has enough safety through diversification," Mr. Brown said.
He said a brutal 2019 planting season is to blame for sinking stock value prior to coronavirus. The Midwest experienced an extremely wet spring, causing many farmers to hold off on planting until June. The delay caused a domino effect with harvesting and crop storage, and reduced demand.
Mr. Macchiarola said oil and petroleum companies will likely face economic challenges for the remainder of the year, but believes the long-term outlook is still bright.
"It is the use of oil and gas that is linked to economic growth and standards of living," he said. "As we grow, you'll see increased use to help drive the economy. But in the short term, we're in a very challenging space right now."
First Published April 15, 2020, 7:56 p.m.
