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Tough times have hit the ethanol business again.

Profit margins have plunged. Producers big and small are getting squeezed and rock-bottom gasoline prices are mostly to blame.

One of Minnesota's 21 ethanol plants, in Buffalo Lake, has shut down amid losses. Archer Daniels Midland Co. (ADM), the nation's largest ethanol producer, is studying "strategic options," which could mean the sale of plants, though not the one in Marshall, Minn.

"The margins are bad — the margins just aren't there," said Jed Latkin, chief financial officer of Buffalo Lake Advanced Biofuels, an ethanol plant 80 miles west of the Twin Cities that survived a 2012 bankruptcy only to close at least temporarily in January.

The downturn in the ethanol industry isn't as bad as four years ago, when the price of corn spiked as high as $8 per bushel. Corn, the key ingredient in U.S. ethanol, costs less than half that today. But ethanol, which is blended at 10 percent to 15 percent rates at the pump, is selling into a U.S. gasoline market where prices recently hit a seven-year low thanks to the worldwide crude oil glut.

With low prices and a stronger economy, fuel consumption, including ethanol, rose 1.4 percent in 2015. Ethanol plants kept producing as prices dropped. Preliminary data analyzed by University of Illinois economist Darrel Good indicates 2015 was a record year for U.S. ethanol production — up 3.5 percent over 2014.

Yet profits worsened as 2015 wore on. In the fourth quarter, Minnesota-affiliated producers that disclose financial results reported a 76 percent to 89 percent drop in operating income compared with the period in 2014, a Star Tribune analysis shows. Two reported losses.

Conditions haven't improved. In January, a typical ethanol plant's return over operating costs was negative, according to an Iowa State University financial model.

"It is hard to see the ethanol production industry getting much breathing room," said Good, professor emeritus at the Illinois University Department of Agricultural and Consumer Economics in Urbana, Ill. "With low gas prices, the margins are going to remain razor thin."

Ethanol usually is priced less than wholesale gasoline, but lately has sold at a slight premium, a shift that Good expects to persist. Even so, ethanol retains a place in the U.S. fuel market because of federal blending requirements and its role in boosting gasoline's octane rating to prevent engine knocking.

Some U.S. ethanol plants have begun to slow down production. By fermenting corn mash longer, plants get more fuel per bushel, boosting margins while reducing output.

"Most plants are operating, but not at full capacity," said Brian Kletscher, CEO for Highwater Ethanol, a Lamberton, Minn., plant owned by farmers and local investors.

Kletscher, who is president of the Minnesota Biofuels Association, compared the downturn to 2012's weak market, but said many plants are in a better financial position today because solid industrywide profits in 2014 allowed them to reduce debt.

At industry-leading ADM, fourth-quarter ethanol operating income fell to $24 million, down 89 percent from a year ago. CEO Juan Luciano said the positive cash flow shows "there is no need to panic," but the company launched a long-range review of its three dry-mill ethanol plants in Columbus, Neb., Cedar Rapids, Iowa, and Peoria, Ill.

Dry-mill plants primarily produce ethanol. ADM also has five wet-mill plants, like the one in Marshall, Minn., that can switch from producing fuel to other products, like corn syrup, based on market conditions.

"We just want to be prepared to look at the [ethanol] industry long-term and see can this industry present the returns that we expect and what are the options to maximize our return for ADM?" Luciano told analysts on Feb. 2.

ADM's announcement surprised industry officials. But Scott McDermott, chief operating officer of Ascendant Partners, a financial advisory firm, said it likely reveals more about that company's direction — toward food products — than about the ethanol industry's future.

"There are still a lot of people very interested in acquiring assets," said McDermott, whose Denver-based firm advises companies on ethanol plant transactions.

Even as the industry "hunkers down," he said, plants are investing in new technologies like corn fiber extraction to get more ethanol from previously untapped parts of the corn kernel. "A lot of plants are still spending money to improve their competitiveness," McDermott added.

Omaha-based Green Plains Inc., the nation's fourth-largest ethanol maker with 14 plants, including in Fergus Falls and Fairmont, had an operating loss of $2.6 million for the quarter ending in December, compared with an $83 million gain a year ago. Higher taxes in the quarter figured in the loss, the company said.

Green Plains Chief Executive Todd Becker acknowledged tough market conditions, but remained upbeat on a conference call with Wall Street analysts. The company acquired two ethanol plants, in Virginia and Texas, for $112 million in the quarter, and says it's still looking to grow.

"[T]he long-term fundamentals for the ethanol industry remain in place, yet the industry is producing too much at this point vs. current demand," said Becker, who reduced Green Plains' production to 90 percent of capacity in February. " … A small decrease in production could lead to a much better margin environment if the industry can show some discipline."

Exports also remain a target for Green Plains, which sold 18 percent of its production offshore last year. Only 5 percent of all U.S. production was exported in 2015, Good's analysis found. Green Plains shipped about one in five of the U.S. export gallons, and Becker reported strong orders this year — to destinations ranging from Oman to China.

David Shaffer • 612-673-7090 • @ShafferStrib