Major ethanol company undergoes huge transformation
Green Plains, Inc., one of the largest ethanol producers in the U.S., is rolling out a new, high-protein animal and fish feed product.
Todd Becker, president and chief executive officer for Green Plains, told Successful Farming magazine on Wednesday that the move into the high-protein animal feed market is part of an effort to move the company toward a more predictable cash-flow pattern and away from the volatile ups and downs of the ethanol market.
The Transformation Plan
The transformative effort aims to remake Green Plains into what Becker calls Green Plains Generation 2.0. “We are now embarking on a total transformation plan,” Becker stated. “We’ve always made a lot of distillers’ grains. Now, we have the technology to isolate and create a new, high-protein product from the corn kernel. We think this is a good time to start the transition to more predictable cash flows. This is the real deal. We can’t wait any longer. It really transforms what we do because the (high-protein feed) product is so unique and so valuable. It’s not something that we’ve seen in our (ethanol) industry.”
According to the company’s fourth quarter and 2019 earnings report, Green Plains sold 857 million gallons of ethanol, 2.2 million tons of distillers’ grains, and 212 million pounds of corn oil last year. The company consumed 298 million bushels of corn in 2019.
Becker said Green Plains’ ethanol production and corn consumption won’t change because of the new focus on high-protein animal feed.
Green Plains’ annual ethanol production capacity at its 13 plants is approximately 1.1 billion gallons a year, according to the company. The 13 plants have the capacity to produce approximately 3.1 million tons of distillers’ grains annually. The corn oil recovered from Green Plains’ plants is sold to biodiesel manufacturers and to feedlot and poultry markets.
In the interview with Successful Farming magazine, Becker noted that the U.S. ethanol industry continues to be challenged by an oversupply of ethanol. Last week, the U.S. Energy Information Administration reported that U.S. ethanol supplies reached their highest levels since July 2019.
“The ethanol industry is still struggling,” Becker stated. “Either you innovate or you die.”
Not Just Ethanol
In recent years, Becker has steered Green Plains on a course away from financial dependence on the ups and downs of the ethanol industry. He has turned Green Plains into a vertically integrated operation to diversify the company’s income streams.
It is part owner of a master limited partnership, Green Plains Partners LP, a fee-based, limited partnership formed by Green Plains, Inc. to provide ethanol and fuel storage terminal and transportation services by owning, operating, developing, and acquiring ethanol and fuel storage tanks, terminals, transportation assets, and other related assets and businesses.
Green Plains provides grain storage through its subsidiary, Green Plains Grain, which has a grain storage capacity of approximately 46 million bushels, which includes on-site storage sites at the 13 ethanol plants.
It also is part of a joint venture called BioProcess Algae, which seeks to commercialize algae production technology being developed at its research lab in York, Nebraska.
“The project was just awarded a patent for its novel process of using thin stillage from an ethanol plant to produce algae oil in protein-rich biomass,” Becker stated in an earnings call, “which we have been quietly and successfully scaling in the York, Nebraska, pilot and research facility, which is now in full trials for use in aquaculture feeds.”
The company also has sold off parts or all of some other joint ventures as part of what Becker calls its “portfolio optimization plan,” which the company started two years ago. “All told, we have sold approximately $780 million in assets and paid off or deconsolidated nearly $1 billion of debt,” Becker said.
On December 11, 2019, the company completed the sale of its 50% joint venture interest in JGP Energy Partners LLC to the company’s partner, Jefferson Energy Holdings LLC, a subsidiary of Fortress Transportation and Infrastructure Investors LLC for $29 million plus estimated working capital. The joint venture was formed in 2016 to create an intermodal export and import distribution hub for ethanol and other liquids on an existing site in Beaumont, Texas, near Houston.
On September 1, 2019, the company formed a joint venture with TGAM Agribusiness Fund Holdings-B LP and StepStone Atlantic Fund, L.P. to own and operate Green Plains Cattle Company LLC, according to its fourth quarter and year-end earnings report. “As a part of the joint venture, these investment funds purchased 50% of the membership interests of Green Plains Cattle Company from Green Plains Inc. for approximately $77 million plus closing adjustments,” the report stated.
In 2018, Green Plains sold three ethanol plants to Valero Renewable Fuels Company LLC for $319 million in cash, including net working capital and other adjustments.
The sale included ethanol plants located in Bluffton, Indiana; Lakota, Iowa; and Riga, Michigan. The three plants produced approximately 20% of Green Plains’ reported ethanol production capacity.
Also in November 2019, the company sold the Fleischmann’s Vinegar Co., Inc. to the Kerry Group for $353.9 million in cash, including net working capital and other adjustments.
Becker said the sales allowed Green Plains to pay down debt and raise capital for investments in other ventures, such as the high-protein feed operation, and to improve the efficiency of some of its less-efficient ethanol plants.
The first of these retrofits was completed in November 2019, when the Wood River, Nebraska, ethanol facility was upgraded. The other 12 ethanol plants will be renovated as part of the company’s Project 24.
Green Plains has $270 million in cash on its balance sheet, Becker stated. “We’re in a strong financial position because of what we’ve done, relatively speaking, compared with others in the industry,” he told Successful Farming magazine. “We’re in pretty good shape today, even with the terrible margins in the ethanol industry. What’s holding us back is the volatility caused by a lack of discipline by the ethanol industry. We have to wait for demand to catch up with supplies.”
There’s Money In High Protein
Moving into the high-protein market will be a lucrative business for Green Plains, Becker noted. The global market for high-protein products totals 325 million tons a year and is growing at a rate of 12 tons a year. “We will make about 800,000 tons of high-protein feed when we roll the technology out to the whole company,” he stated. Even if all of the plants in the ethanol industry made a high-protein product, their total production would be 8 to 9 million tons, Becker remarked, which is not enough to meet the global demand.
Of the 15 pounds of distillers’ grains produced from each bushel of corn, Becker said, only 3 pounds will be isolated for the high-protein animal feed, leaving 12 pounds of distillers’ grains at the traditional protein content of 28% to 30%. The high-protein animal feed that Green Plains intends to produce is above 50% protein, approaching 60%.
The technology to make the high-protein feed is being commissioned at Green Plains’ ethanol plant in Shenandoah, Iowa, where Green Plains has made a $35 million investment to produce the high-protein feed. The company has an offtake agreement for all of the Shenandoah high-protein production, Becker said, which will begin soon.
Producing the high-protein feed starts with technology from Fluid Quip Technology of Cedar Rapids, Iowa, Becker explained. The Fluid Quip equipment produces a product with 50% protein content.
After that, technology from an exclusive partnership and commercialization agreement between Green Plains and enzyme-maker Novozymes will take over and boost the protein content to as high as 60%, Becker said.
The animal feed produced by the partnership will be aimed at the aquaculture, pet food, and novel ingredients global protein markets.
Green Plains’ interest in producing aquaculture feed isn’t new. In December 2018, Green Plains and Optimal Fish Food, LLC formed a 50-50 joint venture called Optimal Aquafeed with the intent to produce high-quality aquaculture feeds.
At the time the Green Plains-Novozymes partnership was announced on December 16, 2019, the companies said, “the biological solutions of Novozymes will be combined with Green Plains’ first high-protein production facility and Optimal Aquafeed’s aquaculture laboratory in Shenandoah, Iowa, with the intention to create one of the leading end-to-end innovation platforms in the world for aquaculture nutrition.”
Becker told Successful Farming magazine in the telephone interview that the effort goes beyond producing high-protein animal feed. “We’re putting together the whole supply chain from corn to pet food and aquaculture,” he said. “We need consistency and quality control to meet the demands of our customers.”
Engineering for the second and third high-protein production locations has begun, Becker said in the fourth quarter and yearly earnings call on Tuesday, adding that he expects one more high-protein unit to be fully constructed before the end of this year.
“We are discussing offtake agreements for our second and third facilities, as well,” he said. “We will make the final decisions on the locations and announce that shortly…This technology is another step in the transformation of Green Plains to a world-class protein provider.”