Newsletter | April 2020

APRIL 2020

General Manager’s Report

Spring has arrived! Most years, spring brings a feeling of renewal, growth and optimism. In 2020, spring has brought COVID-19 and a tremendous amount of upheaval and uncertainty world-wide. What a start to a new decade!

Financially, Show Me Ethanol’s Q1 results were near our expectations. We posted a net loss, normal for the first three months of the year when driving is less due to winter weather. However, due to the COVID-19 stay-at-home and social distancing efforts nationwide, gasoline demand fell to levels not seen since 1995, dragging ethanol production and price down with it. By mid-April, we have reduced ethanol production by nearly 50%, and are still setting records for high inventory levels.

While the current news is not good, remember that Show Me Ethanol is in a strong financial position. We have no debt and ample cash reserves. The Board of Managers has increased meeting frequency to help us manage through this situation, and is being proactive to protect the health of the company.

We wish you the best success during these unprecedented times, and look forward to better and brighter days ahead!

Brian Pasbrig

Please check out our website for updates on how we are working to keep our employees and customers safe during COVID-19.

Did you know?

That even at our current reduced run rate, SME is still grinding over 42,000 bushels of corn each and everyday.  Producing more than 13 truck loads of ethanol daily Creating an average of 12 loads of feed to supply local, regional and international feed customers, via truck, container or barge.  Extracting roughly one load of corn oil a day to be used in the feed and biofuels market.

Hand Sanitizer Sales

One bright spot has been our ability to rapidly adjust our processes and procedures to help provide ethanol for hand sanitiz-er use. The staff has done an excellent job shifting production to make hand sanitizer, implementing the production changes along with the quality control and safety protocols to supply this important market. Our first customers were DogMaster Distillery in Columbia, MO, StilL 630 in St. Louis, MO, and Missouri Ridge Distillery in Branson, MO. Those three small businesses were able to shift their production, re-hire their employees, and begin mixing and bottling Show Me Ethanol’s alcohol into hand sanitizer. We are proud of these efforts and will continue through the 2nd quarter.

Financial Results for First Quarter Ended March 31, 2020

Total Sales were made up of $15.1 million of Ethanol, $4.7 million of Distiller Grains and $1.0 million of Corn Oil.

Total Expenses include Corn costs in the amount of $16.8 million. Net Income for the first quarter of 2020 was $(2.2) mil-lion loss.

2020 Annual Meeting

On Monday, March 16, Show Me Ethanol held its annual meeting at the Rupe Center in Carrollton. There were approximately 50 members in attendance, along with board members, management and several Show Me Ethanol employees. Attendance was down from previous years; however, at the time of the meeting the COVID-19 pandemic was gaining momentum and recommendations to stay home were starting to emerge. With the safety of our members and staff in mind, we decided to serve the meal this year. The caterer and four Show Me Ethanol employees stepped up to make this happen. After the meal was served, David Durham began the meeting and announced the board of managers recommendation to re-elect Ben Beetsma and Robert Quinn to the board as their terms were expiring. Mr. Beetsma and Mr. Quinn were re-elected with the member’s approval to another 2-year term. David Durham then introduced General Manager, Brian Pasbrig. Mr. Pasbrig, who was named General Manager in August 2019, introduced himself to members and provided some background information on himself and his time in the ethanol industry. He proceeded with a presentation on the financial results and manufacturing results for 2019 also touching on what happened in 2019 that impacted the business. The impacts to business in 2019 included: flooding and crop issues, small refinery exemptions to the Renewable Fuels Standard and ethanol industry oversupply. Mr. Pasbrig also provided his outlook for 2020 and explained the obstacles we face in the ethanol industry going forward such as increasing ethanol demand, limiting small refinery exemptions and campaigning in the political arena demonstrating our importance and support of the agricultural community. He wrapped up his presentation by fielding questions from attendees.

March 2020 Shutdown

This shutdown went well despite the challenges that were faced. With the ever-changing environment in the fight against Covid-19, SME opted not to put personnel or the community at risk by deciding to limit the number of contractors we had on site. The team worked diligently to adapt to the change by revising the schedule and performing as much of the work as we could in house. With the exception of a few large projects and a few less critical smaller ones we were able to get all criti-cal work completed. We did not have our cleaning crew on site but we were able to clean all the critical areas to make sure that we could run efficiently. A total of 214 tasks were completed during the outage with no injuries or incidents.

The pictures below is one challenge that was overcome. This is our Air to Air preheater that has 309 tubes that are 11 feet long. It was estimated that roughly 90% of these tubes were fouled. Normally a professional high pressure cleaning crew would address this area during shut down. Instead, the SME team fabricated a boring tool and were able to get this unit back to full capacity to ensure efficient operation of the energy center.

Co-Products Prices Skyrocket

Markets around the world have seen huge swings in prices, due to recent events and the distillers market was no exception. What was an exception, was that most of the DDGS market could accurately predict the pattern of how it was going to play out, given the circumstanc-es. It all starts with understanding that DDGS are a feed ingredient. Much like corn, soybean meal, wheat, and a long list of other ingredi-ents that can be fed to animals. The COVID-19 pandemic changed many things in a short period of time, but one thing it did not change is the ample supply of feed ingredients around the world. The pandemic effected the transportation and availability but not the amount of feed available. With plenty of feed around, the old saying “what goes up must come down” was inevitable, the only question was when? Here is how supply and demand played out with DDGS over the past couple months.

COVID -19 forced the US to stop driving and therefore the demand for ethanol plummeted, we started to see plants shut down and oth-ers drastically reducing rates, herby limiting the amount of DDGS in the market. The news of this sent DDGS prices skyrocketing and the rollercoaster began. Traders and feed suppliers were scared that they were not going to be able to fill customer orders, driving prices through the roof. We traded 176% the value of corn locally, some 50% more than normal values and in some areas of the Midwest traded even higher. Now back to the predictability part of the market, DDGS is a feed ingredient and can be substituted for many other feed ingredients when prices suddenly changed in relation to other feeds. During this period most other feed ingredients were down along with corn and soybeans creating a large price imbalance. Once the initial shock subsided, the entire feed market eliminated or massively re-duced inclusion rates of distillers in feed rations and replaced it with cheaper ingredients. Once contracts were filled and demand was all but dried up the rollercoaster turned down and started gaining speed and prices fell.

This is where we are now. Currently DDGS are around 130% the value of corn and starting to stabilize. Historically DDGS out of Car-rollton are 120% the value of corn, so we are getting back to normal. We are starting to see DDGS working back into the rations that it was just kicked out of 30 to 60 days ago. This cycle will continue as values change and DDGS prices compared to other ingredients get back in line. Typically, we see export demand pick up this time of year and domestic demand fall in a seasonal pattern. Signs of this are starting to show up but may be limited due to not having the excess amount of DDGS in the market that we have seen in recent years. We loaded our first two DDGS barges of the season in April and that is a touch earlier than normal and are looking for more opportuni-ties as we get into the summer months.

If you thought DDGS price were high a month ago make sure you check again they will look a lot different today, one might even expect them to be a little cheap relative to other feeds in the short term. Only time will tell. For more information on DDGS prices and availabil-ity please feel free to give Anthony a call.

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