By Michael Hirtzer
Jan 2 Bunge North America Inc, a division of
Bunge Ltd, has sold its stake in a Mississippi ethanol
plant in what is likely to be the first a spate of industry
deals amid uncertainty over biofuel use in the United States,
analysts said on Thursday.
Ethanol makers are turning big profits now, but the future
is cloudy with the U.S. Environmental Protection agency expected
early this year to reduce the mandate to mix biofuels with
gasoline in what would be the first cut in the 2007 Renewable
Fuel Standard, or RFS.
"In my view, it's a good time to sell and reinforces Bunge's
focus on value creation," said Ann Duigan, an analyst at JP
Morgan Chase. "More deals (are) likely if RFS declines."
Privately held Ergon Inc purchased Bunge's share of what had
been a 2007 joint venture for a 54-million-gallon per year
ethanol plant in Vicksburg, the only facility that produced
corn-based ethanol in Mississippi.
The financial terms were not disclosed, and Ergon did not
say what percentage of the venture Bunge owned.
"This transaction allows us to look at alternative
feedstocks, as well as how the plant may be used for products
beyond traditional ethanol production," Don Davis, president of
Ergon's refining and marketing division, said in a statement.
Spokesmen for Ergon and Bunge North America did not respond
to requests for further comment.
The Mississippi facility has been idled since December 2012
after the worst U.S. drought in 50 years decimated corn
supplies. Industry experts said it could also produce ethanol
with sugar or sorghum.
"The ethanol sector is doing well lately, which is probably
helping deals get done; valuations on plants are pretty high
right now," said Darin Friedrichs, an analyst at AgTraderTalk,
citing ample U.S. corn stocks after a record large 2013 harvest
and a 30 percent drop in corn prices in the past six months.
Margins for U.S. ethanol makers rose to their highest in at
least five years recently as corn prices plunged.
But if the Obama administration moves to cut mandated
biofuel use in the United States, further expansion is unlikely,
even as the industry consolidates, analysts said.
The EPA recommended reducing the biofuels mandate in
November and the proposal now is under final review. For
corn-based ethanol, the agency proposed to cut the mandate to
about 13 billion gallons a year from around 14.4 billion.
With the deal for the Mississippi plant, Bunge North
America's sole holdings in the U.S. biofuel industry is now a
minority stake in a facility in Council Bluffs, Iowa. Bunge
Ltd's chief executive said last year that the company also
planned to shed its Brazilian sugar-ethanol holdings.
Also on Thursday, the owners of a 125-million-gallon per
year plant in Rochelle, Illinois, announced that it was for
sale. The facility in the northern part of Illinois started
production in 2006 and is operated by GTL Resources and Illinois
River Energy, according to a release.