How you manage and plan your biofuels operation is just as important to ensuring its profitability as the price of the inputs that go into making the green fuels.
“The biofuels industry is like any other company,” explains John Christianson, partner and founding member of Christianson & Associates, a Minnesota firm that specializes in working with farmers and rural businesses, such as ethanol operations. “It’s a company that deals with commodities, so there’s volatility in that company, but all of industry has seen more volatility. So it comes down to management, planning, dictating your future where you want your company to go and plan that future out.”
John says that even last year, when commodity prices were high and margins were very tight, the top producers still were profitable, while average plants at least broke even. But those that were not doing well lost money. The difference in each of those tiers of producers really came down to how effective their management was. Effective management drives all the other factors and how the plant deals with all the variables that can make or break an operation. He also points out that for managers to keep operations profitable, they have to look at reinvesting the profits from the good times as a hedge against when things get more lean. John also urges his clients to look further down the road to manage their risks and look for long-term solutions.
“Any company that’s in business needs to look at not now over the next quarter, you have to look at how you can position your company over the next five years,” John says, taking current operations, reinvestment and how the geographic disadvantages and advantages affect a biodiesel or ethanol plant’s profitability. “How can we extrapolate from those advantages and project forward into those years, whether it’s additional technology we need to invest in [or] additional markets that we need to try to approach, to maximize the advantages and opportunities that are available to our plant.”
John concludes that while they can help ethanol and biodiesel plants look for that long term and stay profitable, just like everyone else in the industry, they’re still hoping for a better crop this year, while still finding ways to deal with last year’s smaller harvest.
“I think everybody’s waiting, and lot of plants and industry are looking at strategies [until] we get to the new crop when hopefully we’re going to have a plentiful supply of corn.”
Listen to Joanna’s interview with John here: John Christianson, Christianson & Associates