Tired of Waiting on Washington, Ethanol CEO Bets on Animal Feed

(Bloomberg) -- Green Plains Inc. Chief Executive Officer Todd Becker is getting closer to his goal of never having to worry about U.S. ethanol policy again.

Instead of awaiting Washington’s next move in the industry’s battle with Big Oil for share of gasoline tanks, Becker is working to transform Green Plains into an agricultural technology company focused on extracting more oil and high-value proteins from corn, with ethanol merely a byproduct.

Last week, the company joined with asset management firm Ospraie Management LLC to buy a majority stake in Fluid Quip Technologies as part of Green Plains’ push to make protein-dense ingredients used in products like animal feed. Investors so far approve, with Green Plains’ stock rising 37% since Jan. 4, the day before the deal was announced.

“The world is protein-short,” Becker said in an interview. “Demand is insatiable.”

Ethanol now generates roughly 70% of the company’s revenue, and has led its profit losses in the last few years, partly due to plummeting demand during the pandemic and the U.S.-China trade war.

The high-protein market has a “demand tailwind that unfortunately ethanol doesn’t have,” Ospraie founder Dwight Anderson said. Ospraie says the value of companies in its ag-tech portfolio exceeds $1 billion.

High-protein ingredients for pet food and growing markets such as aquaculture will become among Green Plains’ lead products, Becker said.

Opening Doors

Fluid Quip’s technology, which Green Plains has already started using, enables dry-mill plants that typically sell ethanol byproducts for animal feed to extract more protein from corn. That opens the door to a raft of products and markets previously accessible only to wet-mill facilities, such as those of biofuels pioneer Archer-Daniels-Midland Co.

As global incomes rise and more people start eating “higher quality meat,” such as fish, poultry and pork, animals need to be fed a better protein diet, Becker said.

Aquaculture, or commercial fish harvesting, is a “$20 billion market opportunity that fishmeal will not be able to fill,” said Michael Franko, managing director at Fluid Quip Technologies.

Fluid Quip’s technology also allows Green Plains to nearly double the oil extracted from corn, which can be sold to a renewable diesel industry that’s seeing a shortage in vegetable and soybean oils, Becker said.

Ospraie’s Anderson said another “really exciting” part of Fluid Quip is clean-sugar technology, which can produce renewable chemicals used in consumer products from nutrition to packaging to make them more sustainable, or “green.”

Crush Spreads

Green Plains’ revamp is expected to be complete in 2023 and initially boost margins by as much as 20 cents a gallon, Becker said.

The stock touched a two-year high $19.22 last week.

“The market right now is showing that the push into protein and other products is the right move to make,” said Truist Securities analyst Jordan Levy, who has a “buy” rating on Green Plains stock and $24 12-month price target.

In four years through 2020, ethanol futures on the Chicago Board of Trade fell 2.1%, while corn futures jumped 38%. Ethanol crush spreads, or the profit that can be made from turning a bushel of corn into ethanol, are back near cyclical lows while protein prices “basically across the slate are pushing multiyear highs,” Levy said.