Poet Looking to Buy Privately Held Ethanol Plants, CEO Says

By Christopher Martin and Mario Parker

Sept. 26 (Bloomberg) -- Poet LLC, the largest U.S. ethanol producer by capacity, is seeking to buy distilleries as the industry struggles to counter narrowing profit margins, said Jeff Broin, Poet's chief executive officer.

Companies across the Midwest have shut production or canceled plans to build distilleries as the price of corn, the main ingredient of ethanol, climbed 50 percent from a year ago.

``There have been some acquisition opportunities that we're taking a look at,'' Broin said in an interview in New York yesterday. Poet, which has no plans to sell shares in an initial offering, would likely seek privately held producers rather than publicly traded companies, he said.

There are 172 distilleries in the U.S. with capacity to produce 10.4 billion gallons annually, according to the Renewable Fuels Association. Production was running at an annual rate of about 9 billion gallons as of June, according to the latest Energy Department data.

The Energy and Security Act of 2007, which President George W. Bush signed into law in December, requires the U.S. to use 9 billion gallons of renewable fuels such as ethanol in gasoline this year.

On Sept. 16, VeraSun Energy Corp. said it may have a net loss of as much as $103 million in the third quarter because of bad corn hedging bets. The company said two days later that it retained Morgan Stanley to ``act in an advisory capacity to evaluate strategic alternatives.''

Aventine Renewable Holdings Inc. said Sept. 17 that it may have to delay construction of distilleries in Aurora, Nebraska, and Mt. Vernon, Indiana.

Government Support

Under the government's renewable fuels standard, gasoline sold in the U.S. must include 15 billion gallons of ethanol a year by 2015.

The U.S. subsidizes the industry by providing a 51 cent-a- gallon tax incentive for blending the fuel with gasoline, and by imposing a 54 cent-a-gallon tariff on ethanol imported from Brazil.

Profit margins on ethanol production will improve ``as long as government policies support us,'' Broin said.

Eliminating the tariff on imports from Brazil would damage the industry because the U.S. doesn't have the capacity or efficiency to compete today, according to Broin.

``The U.S. needs to follow the Brazil model and protect the industry until it's got enough capacity,'' he said.

Poet, based in Sioux Falls, South Dakota, is the largest ethanol producer by capacity. Brookings, South Dakota-based VeraSun is the second largest.

To contact the reporters on this story: Mario Parker in Chicago at mparker22@bloomberg.net; Christopher Martin in New York at +1- cmartin11@bloomberg.net.