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Ethanol Report Sees Improved Industry Health

Private review of the industry shows better returns and a healthier balance sheet for the industry.

Published on: Jun 16, 2011

As Congress works on ways to end ethanol subsidies, there's a worry that the industry may not be in strong enough financial health to survive the change. However a new industry report shows that the industry is apparently getting its financial house in order. Prepared by Christianson & Associaties, PLLP this second annual report on the ethanol industry, found several measures showing profitability has increased.

Profitability has increased for the industry on average 8 cents per gallon, with equity to asset ratio up more than 10% and working capital improvements are better with long term debt down about 20 cents per gallon. Changes to the industry, including consolidation and liquidation of excess capacity are key areas leading to some of this profit and operational improvement.

"The data suggests that 2009 and 2010 provided a substantial recovery for the ethanol industry," said John Christianson, Partner, Christianson & Associates, PLLP. "Management was focused on strengthening their balance sheets to prepare their companies for future volatility. Companies want to be in a position to weather the storms that may arise."

The report reviewed the operational and financial performance of more than 60 ethanol plants in five major benchmark areas. They found the financial outlook much improved. A key changes is that many of the plants improved their risk management strategies, an important move given the rising volatility of the corn market.

Christianson has been working with the biofuels industry for more than 17 years and has developed its unique set of benchmark measures that plants can use to gauge their financial health. The major areas measured include: overall ethanol industry analysis, regional ethanol plant analysis, production capacity analysis, plant production efficiency analysis, and balance sheet analysis.

Christianson notes the benchmarking program is unique to the industry because not only does it help define "benchmarks" for the industry to improve upon, it gives ethanol plants the ability to measure their success against their peers.