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On Friday, it was temporarily mothballed, demonstrating what's gone wrong with the ethanol business.
Sacramento-based Pacific Ethanol announced it was temporarily halting production at the Madera plant, the first facility it built. The company blamed "unfavorable market conditions" and said it doesn't know when production will resume. The shutdown begins Monday.
"We look forward to reopening the plant when conditions allow," said spokesman Tim Raphael. The company owns three other plants, including one in Stockton, and a share of a fourth.
Pacific Ethanol began curtailing production at its facilities last fall, but the Madera decision marked the first time it had shut down an entire plant.
Rick Kment, an analyst for commodities-news service DTN, said producers are getting squeezed by slumping ethanol prices and the stubbornly high cost of corn, the main ingredient in ethanol. One of the major players, VeraSun Energy of Sioux Falls, S.D., filed for bankruptcy protection in October.
Used as a fuel additive, ethanol tracks the price of gasoline, which has plunged since last summer. The price of ethanol has fallen from $2.90 a gallon in June to under $1.70 a gallon this week, according to DTN.
"It's really tied to the demand for gasoline," Kment said. "We've seen a lot less driving activity due to a significantly weak economy."
Corn fell from more than $7.50 per bushel last summer to just under $3 in early December. But lately it's bumped back over $4, increasing the pressure on ethanol producers.
"There's been a lot of tumult in commodity markets," Raphael said.
Pacific Ethanol has been feeling its share of the tumult. It avoided a major cash crunch last spring when it was able to arrange a private stock sale, but its problems have continued.
It lost $69.2 million in the third quarter; more than half the loss was tied to a non-cash write-down of its investment in a plant in the Imperial Valley. It stopped building the plant in 2007.
The company has been in talks to restructure a $30 million loan due this quarter.
Pacific Ethanol shares, which once traded above $40, closed Friday at 56 cents, down 4 cents, on the Nasdaq market.
Pacific Ethanol built the Madera plant just as the state's ethanol boom was taking off. The fledgling company had just received a huge vote of confidence: an $84 million investment by Microsoft Corp., co-founder Bill Gates' investment firm. Gates obtained a 20 percent stake in Pacific Ethanol.
As boom turned to bust, and the company struggled, Gates has sold most of his shares. He has trimmed his stake to about 5 percent, according to Securities and Exchange Commission filings.
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Call The Bee's Dale Kasler at (916)321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/blogs.
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