U.S. ethanol woes spur new animal food focus for Green Plains -CEO

CHICAGO, Feb 11 (Reuters) - Green Plains Inc, one of the biggest U.S. ethanol producers, is planning to flip its business model upside down to survive a crash in prices for the corn-based fuel.

The company will invest some $400 million in the next two to three years at its 13 plants to make high-protein, corn-based animal feeds its new flagship product, relegating ethanol to a low-margin byproduct.

The plan upends the company’s years-long strategy of pumping out the fuel and selling off the remnants as a low-quality feed known as distillers dried grains (DDGS) for cows and pigs.

“We will start to transform, with ethanol as a co- or byproduct,” Green Plains Chief Executive Todd Becker said in a recent interview. “We think that is the only way to thrive long term in an industry like this.”

The strategy reflects a devastating ethanol market outlook as U.S. demand for motor fuels is projected to fall and the Trump administration waives biofuel blending requirements for more and more oil refiners.

But demand for high-protein animal feed remains strong. A large U.S. cattle and near-record hog herd are gobbling up feeds. And global demand for meat is surging as the deadly African swine fever culls herds in China, Southeast Asia and parts of Europe.

“We believe this will be our main commodity, main revenue stream and main profit stream,” Becker said. “The ethanol today is an industry that is oversupplied and undisciplined.”

Green Plains’ ethanol revenue fell 19.8% to $1.701 billion in 2019, its annual report released on Monday showed, the lowest since 2010. It will hold a call to discuss the report on Tuesday.

Green Plains will start production of its new feed in February at a plant in Shenandoah, Iowa, following a $35 million investment.

The feed produced there will contain 50% protein, allowing it to charge a premium to the ethanol industry’s typical DDGS with around 30% protein. The new feed, targeted at aquaculture producers and pet food companies, contains even more protein than soymeal.

Soymeal sells for about double the price of DDGs, according to the U.S. Grains Council.

Green Plains, which partnered with Novozymes A/S to boost the protein content of the feed through enzymes and microbial technologies, has already formed a joint venture with Optimal Fish Food to produce their aquaculture feed.

The feed, which could run as high as 60% protein content in the coming years, is insulated from the political headwinds that have devastated the ethanol market, Becker said. (Reporting by Mark Weinraub; Editing by Richard Chang)