Energy and food are two industries that tend to be especially susceptible to market swings. So a company such as Green Plains Renewable Energy that makes fuel from corn, is at the intersection of unpredictable business cycles. But that's just where CEO Todd Becker wants to be.
His company produces ethanol from corn -- about 740 million gallons per year. Surprisingly, business is booming. In 2010, net income more than doubled year over year to $48 million.
A basic formula drives the business, Becker explains: You put corn in and get ethanol out. Simple enough, but the business can still be difficult. Food prices are volatile and cyclical, and businesses that bank on crops need to figure out how to cash in during periods of economic feast while holding over during famine.
The key is having a staff with a strong agricultural background. Green Plains takes a data-driven approach to the business, based on complicated models of agricultural risk, says Becker. The company also controls every link in its food-to-fuel chain, from the granaries that store corn to the fuel pump. That gives Green Plains a string of other businesses to fall back on when ethanol margins are weak. It also lets the company literally squeeze more efficiency out of every ear of corn.
"Every extra penny per gallon for us is $7.5 million more in profits," says Becker. "This isn't a business you manage for dollars and quarters; this is a business where every penny makes a difference."
Becker would put Green Plains' efficiency against any other biofuel producer out there. In fact, he's looking forward to a time when Uncle Sam reduces ethanol subsidies, which he says
would prove the strength of the Green Plains business model.