Green Plains Inc Sinks Into The Red.. And Maybe The Black

Green Plains tried to stabilize the market in the first quarter, cutting back on production. Their operating capacity in the first quarter was only 56%.

It has worked in the past. But not this time. The company said: “while it may have helped a little bit, it wasn’t like the first couple times that we’ve done that… this time we actually saw that we didn’t have an impact on the overall margin structure because of the oversupply situation.”

If the cash flow statement wasn’t bad enough, Green Plains has cash going out the door by way of volume commitments with their 50% MLP Green Plains Partners.

Green Plains Partners generated $11 million of distributable cash flow in the first quarter. They are consolidated on Green Plains balance sheet. This means the cash flow numbers for the Green Plains parent are closer to -$30 million of outflows for the quarter.

Finally, things could get worse.

How is that possible? Green Plains is buying last year's corn for its feedstock right now. But a slow spring with floods in the Midwest are pushing up futures of fall corn.

Corn is trading at $4 in Iowa right now. September corn is at $4.45. Another 10% hit to margins in the cards unless something changes.

Add it all together and this has all the makings of a perfect short.

Right? Probably, but lets take a look at the risks.

The main fly in the ointment is the Trump administration. In the past the Trump team has made some moves that have hurt ethanol and hurt Green Plains.

 Trump's first EPA head, Scott Pruitt, sent the industry into regulatory turmoil.

Pruitt signed a surge of small-refinery exemption waivers.The waivers are essentially an exemption on blend requirements – with the waiver the refiner doesn’t have to blend ethanol. These waivers were issued to both small and large producers, including to some large and profitable oil companies.

That hurt companies like Green Plains, as it effectively reduced ethanol demand.

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