Shares of Green Plains (NASDAQ:GPRE) fell more than 22% last year, according to data from S&P Global Market Intelligence. The business struggled to overcome historically low ethanol prices weighed down by regulatory uncertainty. In fact, ethanol prices averaged their lowest level since before the renewable fuel was required to be blended into the nation's fuel supply in 2005.
It didn't help that reports surfaced showing the federal government gave financial-hardship exemptions to refineries owned by multibillion-dollar oil companies. The exemptions allow refineries to stop purchasing ethanol, which only exacerbated a domestic market swimming in oversupply.
As of Jan. 11, the stock had settled to a 2.8% gain since the beginning of 2019.
Green Plains started the year with optimism, but when that dissipated, it tried to take matters into its own hands. Formerly the third largest ethanol producer in the United States, it sold off several ethanol manufacturing facilities and divested its vinegar business, the world's largest. The proceeds were used to completely pay off long-term debt on the balance sheet. Management said it was a necessary move to operate in the low-margin, commodity-driven ethanol industry.
It might be right: The business coughed up a net loss of $37.6 million in the first nine months of 2018. It managed to eke out a $14.4 million profit in the year-ago period.
From here the business will prioritize efficient ethanol manufacturing and margin-boosting protein production. The latter will be supported by new technology added onto ethanol facilities that allows more corn byproduct to be captured from facilities. On that front, the company recently formed a new partnership in aquaculture, which is a fast-growing protein market. Green Plains also has so far retained its cattle feedlot business, which provides a market for its protein products and diversifies revenue with meat sales.
The new focus on boosting ethanol margins with new protein production technology isn't guaranteed to deliver success. Even if management is proved correct, ethanol market fundamentals might be too much for any business to overcome. Without a significant recovery in ethanol selling prices, Green Plains stock is unlikely to recover in 2019.