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Early Move On Ethanol Pays Off For Distributor Of Farm Produce
By Mr Ethanol | March 14, 2008
CNNMoney:
When the ethanol boom started two years ago, ethanol startups began sprouting almost as fast as dot-coms in the ’90s. But in the end, the old-timers seem to be winning.
One venerable player is 61-year-old The Andersons ANDE. The company was long established in storing and merchandising grain and had diversified into several other farm-related industries. Ethanol, then, seemed like a natural add-on.
Andersons opened its first plant in Albion, Mich., in August 2006. It opened another in Clymers, Ind., in April last year and a third in Maumee, Ohio, in February. Andersons built and owns the plants in partnership with Marathon Oil (NYSE:MRO) MRO, which needs ethanol to fulfill the new renewable-fuel laws.
Grain And Ethanol
All this helped the firm’s Grain & Ethanol Group - which includes both ethanol and grain storage - nearly double its revenue in 2007 and more than double its operating income. The group accounts for about 60% of Andersons’ business.
Analysts say the diversity of its business helps Andersons avoid the pitfalls of other ethanol producers. Pure-play producers have gotten killed by rising corn prices, which hit a record $5.615 a bushel at the beginning of March. But Andersons plays it both ways.
“Its grain storage business and fertilizer business benefit from higher corn prices,” said analyst Heather Jones of BB&T (NYSE:BBT) Capital. “The higher (prices) are, the more likely farmers are to plant acreage.”
It also helps that the firm has negotiated contracts covering 70% of its ethanol plants’ corn demands for this year, meaning corn is locked in at a lower price. And, adds analyst Charlie Rentschler of Wall Street Access, “If anybody knows how to hedge, it’s The Andersons.”
Topics: Agriculture, Ethanol, Money |
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