In about two weeks, US BioEnergy (Nasdaq: USBE) will cease to exist. No, it's not ethanol euthanasia -- the Minnesotan firm is merging with VeraSun Energy (NYSE: VSE). Combined, the corn-fed companies will be positioned to crank out more than 1.6 billion gallons of fuel by the end of the year. In terms of domestic production, that puts them ahead of both Archer Daniels Midland (NYSE: ADM) and privately held POET.
As for US Bio's final standalone quarter, perhaps the most positive thing I can say is that it's over. Essentially flat ethanol prices, combined with higher corn costs, translated to a big profit squeeze. Overall costs per gallon of ethanol ran to $1.98, whereas the fuel itself sold for $1.77. Even factoring in byproduct sales of distillers grains, gross margins still evaporated to 3%, from 19% last quarter.
Non-operating charges made the quarter look even worse than it actually was. First, there was a mark-to-market loss on US BioEnergy's commodity hedges. Thanks to Bear Stearns (NYSE: BSC), we're all becoming experts on mark-to-market, but I'll just note that US Bio's cost of goods sold was negatively affected by this accounting treatment. A separate charge related to the VeraSun merger understated profitability as well.
You know, I do have another positive thing to say. Like VeraSun, US BioEnergy dodged the auction-rate insecurity plaguing competitor Aventine Renewable Energy (NYSE: AVR). With three 110-million-gallon facilities under construction, US BioEnergy cannot afford a liquidity lapse, so I'm glad to see it had the sense to steer clear of the crunch.
Related Foolishness:
- Here's the skinny on biofuels innovation.
- ADM's ethanol margins are mild, but it still looks like a winner to me.
- No one's gushing over this Chinese biodiesel bruiser.
