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By Humeyra Pamuk and Jarrett Renshaw
MEAD, Neb./NEW YORK, March 22 (Reuters) - Massive flooding in the U.S. Midwest has knocked out roughly 13 percent of the nation’s ethanol production capacity, as plants in Nebraska, Iowa and South Dakota have been forced to shut down or scale back production following the devastation.
Production facilities owned by large companies like Archer Daniels Midland Co and Green Plains Inc were still operating despite days of snowstorms followed by rains that sent record floods into the Farm Belt.
However, with rail lines are washed out, and corn in storage flooded, production is dropping off, sending prices spiking in markets that buy the corn-based fuel.
The U.S. has some 200 ethanol plants capable of producing 1.06 million barrels per day, and about 100,000 to 140,000 bpd of capacity has been taken off line due to the floods, according to three traders who track operations.
Crop damage exceeds $400 million in Nebraska alone, according to Nebraska officials.
The disruption comes as the ethanol industry is in the midst of a historic downswing due to the ongoing trade conflict with China and sluggish domestic demand growth that has led to high inventories and weak margins. The floods will boost margins for those still operating but could be punishing for firms digging out from the water.
Ethanol plants use rail cars to deliver products to the Gulf Coast, East Coast and West Coast markets. Ethanol delivered in the Gulf Coast is trading at 15 to 17 cents per gallon above Chicago's benchmark price, about double the average gap for this time of year, traders said.
“It’s only to get worse. I think we are looking at a three to four week situation. Typically, exports would help fill the void, but we are being told that Brazil doesn’t have any excess supplies,” said one trader.
Among the plants that have scaled back are ADM's plant in Columbus, Nebraska, the largest in the United States, due to flooding of a small rail line serving the plant, said Chris Cuddy, president of Carbohydrate Solutions at ADM.
The company said on Thursday that production is still limited without providing specific details, but traders said the plant's production has been minimal. The plant can produce 413 million gallons annually, according to the Nebraska Energy Office.
In Arlington, Nebraska, a rail line was overrun by water, forcing its closure; contractors in the town said the line transports agricultural products like corn to other facilities. Roads to that line were also closed, and workers using diggers could be seen pulling out debris and using heavy rocks to fill holes.
“Transportation is definitely affected. All rail cars were put on hold since last Friday and they were not allowed to be sent out. We are not sure when it will be back to normal operations," said Scott Tingelhoff, general manager at AltEn, an ethanol processor in Mead, Nebraska, which produces about 24 million gallons of ethanol a year.
Mike Jerke, chief executive of Southwest Iowa Renewable Energy LLC, which runs a 120 million-gallon-a-year ethanol production plant in Council Bluffs, on the border of Iowa and Nebraska, said he has had to cut production.
Corn farmers who provide feedstock are still digging out from the flooding, and some have already determined some of their supplies are unsuitable.
“Since this weekend, our rates have been day-to-day as we manage the supply chain issues,” Jerke said.
Omaha-based Green Plains, which has a market value of $700 million, said its five Nebraska plants are dry, but they are facing rail challenges around their Atkinson, Ord & Central City, Nebraska plants. The company is looking for ways to work around the flooding, such as unusual trucking routes, said company spokesman Jim Stark.
“It may take a couple of weeks to understand the total impact of the flooding,” Stark said. (Reporting by Humeyra Pamuk in Mead, Nebraska, and Jarrett Renshaw in New York; Editing by David Gaffen and Marguerita Choy)