With the ethanol industry still facing difficult market conditions, Sacramento's Pacific Ethanol Inc. reported a $54.9 million quarterly loss Monday.

About half the loss was a non-cash expense, the write-down of its investment in a mothballed plant in the Imperial Valley. But the company experienced significant cash losses, too. The main culprit was wild fluctuations in the price of ethanol and the chief ingredient used to make it, corn. Similar problems have bedeviled others in the industry.

During the third quarter, Pacific Ethanol sold more ethanol at higher prices than a year ago. But the hefty increase in revenue was overwhelmed by high corn prices, said Chief Financial Officer Joseph Hansen. Corn soared well above $6 a bushel during the quarter, the company said.

The immediate road ahead isn't easier. The price of corn has recently plunged, but so has ethanol, a fuel additive, which tends to fall with the price of gasoline, said investment analyst Joseph Gomes of Oppenheimer & Co. in New York.

Ethanol prices have fallen from an average of $2.45 a gallon during the third quarter to about $1.80.

"Another difficult quarter," Gomes said. "It's a difficult industry to be in right now."

Another potential "headwind" for Pacific Ethanol, he said, is a $30 million loan that it might have trouble repaying.

But Neil Koehler, the company's president and chief executive, said Pacific Ethanol is in discussions with the lender to restructure the loan. The lender, Lyles United of Fresno, is Pacific Ethanol's building contractor and a shareholder.

"They believe in us and believe in the business," Koehler said.

Gomes said Pacific Ethanol is like a lot of ethanol producers, struggling to hang on as the federal government steps up its mandates requiring the use of biofuels. Nationwide use of ethanol, as mandated by the U.S. government, will jump 17 percent next year and 14 percent in 2010.

At the same time, some of Pacific Ethanol's rivals appear to be falling by the wayside, which could take some supply out of the market. A major ethanol producer, VeraSun Energy of Sioux Falls, S.D., filed for Chapter 11 bankruptcy protection in late October.

Market conditions could "tighten considerably over the next 12 months," Koehler said.

And over the long haul, President-elect Barack Obama's commitment to ethanol and other renewable fuels will help the company, he said.

"The new Obama administration, we believe, will continue to support the rapid growth of the biofuels industry," he said.

Yet corn prices could shoot back up, in part because high fertilizer costs might keep crop acreage down. "We're sort of in a no-man's-land," said Joel Karlin, market analyst at major San Joaquin Valley grain broker Western Milling.

For now, Pacific Ethanol is attempting to conserve cash. Koehler said Pacific Ethanol, which recently completed construction of its newest facility, in Stockton, is throttling back production companywide by about 10 percent until profit margins improve.

All ethanol producers have faltered over the past two years, as a supply boom led to a price decline. Then came the record-high price of corn.

With profit margins shrinking, Pacific Ethanol suspended construction last December on its Imperial Valley plant. It also endured a cash crunch in March, caused in part by construction cost overruns, and had to raise $40 million through a private stock sale.

The latest results show its problems haven't ended. The quarterly loss of $54.9 million came to 98 cents a share and compared with a $4.8 million loss a year earlier. Revenue increased to $184 million from $118.1 million.

The big problem was its cost of corn, which jumped 54 percent to an average of $6.99 a bushel during the quarter.

The company chose not to make extensive use of hedging instruments that would have locked in the price of corn. Hansen defended the move, noting that VeraSun locked in the price of corn at high prices – and filed for bankruptcy protection when the price collapsed, leaving it saddled with costly raw materials.

Pacific Ethanol shares, which have lost 90 percent of their value over the past year, closed Monday at 91 cents, down 17 cents, on the Nasdaq market. However, it picked up 10 cents a share in after-hours trading.

Call The Bee's Dale Kasler, (916) 321-1066.