CHS buys ethanol plant, in long-term biofuels bet

The purchase of the medium-sized, 125 million-gallon-a-year plant in Annawan, Illinois, is intended to boost margins for value-added products and is a long-term bet on ethanol, said Gary Anderson, CHS senior vice president of grain marketing and renewable fuels in North America.

"It's about adding value to a bushel of corn," Anderson said in a phone interview. "The ethanol industry is going to continue to evolve and consolidate over time."

The deal to buy the plant, partly owned by REX American Resources Corp, was valued at $196 million in a recent public filing.

CHS, a St. Paul, Minnesota-based cooperative, bought its first ethanol plant, a 133 million-gallon facility in Rochelle, Illinois, last year, according to a company statement. CHS is one of the largest merchandisers of distillers' grains.

The announcement of the purchase comes just days after the U.S. government outlined a plan for biofuels use requirements that were below market expectations, ushering in another wave of heavy lobbying from a ethanol and corn industry seeking to protect a program responsible for a decade of investment.

Patriot Renewable Fuels LLC was built on the back of the policy in 2005, the same year that U.S. lawmakers established a plan for renewable fuels use, encouraging investment.

The ethanol industry has been struggling with high inventories and stagnant demand after record margins last year. Chicago Board of Trade ethanol futures slumped to a two-month low on Monday.

CHS previously handled marketing of ethanol and distillers' grains from the facility. The purchase gives the company a chance to move downstream. CHS plans to supply the plant with corn after completing its current contract with Consolidated Grain and Barge Co, Anderson said.

CHS said it will continue to look at opportunities for other strategic acquisitions in ethanol production. (Additional reporting by Michael Hirtzer in Chicago; Reporting by Chris Prentice)