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Chin Up and Keep a Stiff Upper Lip

By Mike Bryan | December 06, 2012

First, let me say Happy New Year! I do hope that the coming year for each of you is very rewarding, both on a personal level and a business level.

The coming year will, of course, bring lots of new challenges for the ethanol industry, but, as we have in the past, I suspect we will prevail. I’m not sure if 2012 was our toughest year ever, but it has to rank right up there in the top two or three. But with the U.S. EPA’s decision not to grant a waiver to the renewable fuels standard (RFS), it at least ended on a bit of a high note.

So, we press on, moving into the coming year with some trepidation, but at the same time, confident that we remain on the right side of the issue. There will no doubt be new challenges that will test our mettle, along with new opportunities to demonstrate the viability and importance of renewable energy.

Hopefully, Congress is a bit more coordinated and supportive in 2013 than it was in 2012 on the issue of ethanol and renewable fuels in general. Of course, only time will tell whether the Obama administration will accomplish more with a still-divided Congress than in his first term or face the same recalcitrant challenges. As with all forms of energy, whether fossil or renewable, public policy is a crucial element in its success or failure. The elimination of the oil subsidies would be a good first step, to begin the process of leveling the playing field.

We speak of high corn prices like it’s a bad thing. One of the original premises of the ethanol industry was to provide a mechanism that would support commodity prices while providing a cleaner and safer environment. That certainly has been accomplished. Unfortunately, anyone who knows agriculture, knows that the current high corn price rarely makes its way to the average corn farmer—a good price on the farm, perhaps, but $7.50 a bushel, likely not.  So these high corn prices that directly affect the profitability of the ethanol industry, generally are not finding their way to the growers. Who actually gets the $7.50 per bushel? I’ll leave that for another column.

So as we move into 2013 with corn prices close to an all-time high and oil prices at their lowest level in some time, it looks as though we are still in for a few months of tough sledding. Plants that have a high debt load are generally the first to fail or temporarily shut down, those with lower debt and cash reserves can ride out the market fluctuations. But isn’t that true for most industries? When times are tough, low debt and cash on hand rule the day. Often, it’s a matter of timing more than bad financial planning. Timing in terms of when the plant was built, how quickly the debt could be paid down, whether the plant was under-capitalized and if there were unanticipated shifts in markets.

So, as they say in merry old England, “chin up and keep a stiff upper lip.” 2013 will be interesting ride.

That’s the way I see it.

Author: Mike Bryan
Chairman, BBI International
mbryan@bbiinternational.com

 

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