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After a successful start up last spring, Missouri’s largest ethanol plant is facing a tough economic challenge.
Last week officials with Show Me Ethanol filed a report with the United States Securities and Exchange Commission stating that the company is in danger of defaulting on its $48 million construction loan.
Show Me Ethanol General Manager Greg Thomas did not return phone messages left on Wednesday. Ray-Carroll Grain Growers General Manager Mike Nordwald was out of town and unavailable for comment on Wednesday. Ray-Carroll Grain Growers is the exclusive supplier of corn to Show Me Ethanol and is a stockholder in the company.
The report says that Show Me Ethanol was not in compliance with loan terms as of Sept. 30. The breach is centered around the company’s low equity to total assets ratio. According to the terms, the company must be at a 35 percent ratio and is currently at 32.4 percent.
The report says the company has 30 days to come into compliance, although the company has not been notified by the loan company that they are in default.
The company said in the report that the immediate cause of the breach is its “forward purchase corn contracts that are more expensive than current corn futures contracts for corn delivered at approximately the same time.”
This news comes on the heels of a recent announcement by current State Treasure Sarah Steelman saying that she pulled Show Me Ethanol’s already approved Missouri BIG program loan which also will cost the company millions in funding. The move was viewed as political by Thomas and Nordwald. Steelman said the loan application was pulled because the company had violated ownership conflicts regulations. Thomas said the company would re-apply for the loans once a new administration was in place. In the report, Show Me Ethanol cited the BIG loan as another reason for difficulties.
In the report, Thomas also cited an internal problem that occured at the plant on Sept. 10. The report says that “an employee error caused a malfunction at the comapany’s ethanol plant resulting in the loss of product and a continuing diminution in total plant production.”
The report goes onto say that the plant is only operating at 65 percent capacity, although Thomas also says the company felt like it would be operating below capacity anyway due to economic conditions.
At current fuel prices in Ray County, it costs more to produce ethanol than the price for a gallon of gas.
The report says the company plans on making repairs in the fourth quarter of 2008 that will bring the plant back up to capacity.
Thomas warned of these conditions in a quarterly report filed with the SEC in June. In the report the company said, “We continue to be subject to industry wide factors as well as factors affecting the economy at large.”
The report went on and named corn prices, cost of natural gas and changes in legislation. Some Missouri law makers like Sen. Matt Bartle, R-Lee’s Summit, are proposing the elimination of the 10 percent ethanol blend mandate that Missouri currently has.
The report says the company is considering options to come into compliance with loan terms. The company may conduct a capital call under its existing operating agreement. The agreement would require the participation of 81 percent of membership. The company said it was confident it could secure the call in time.