With debts approaching $1 billion, Hawkeye Energy, Iowa's largest ethanol producer, turned over plants in Iowa Falls and Fairbank in bankruptcy filing on Monday, according to the Des Moines Register.

The bankruptcy shows that parts of the ethanol business continue to suffer from overexpansion observers say, despite improving profits in the industry.

With drivers using less gasoline, demand for ethanol is also falling. Unless the federal government increases the percentage of ethanol in gasoline, producers will face stagnant demand and profits.

"It's a different world today than in 2006," Hawkeye President Bruce Rastetter said. For a while that year, demand was so strong for ethanol that producers saw margins of $2 per gallon or better. They are 30 cents today.

"There was the idea then that profits were virtually guaranteed, which they weren't," said Monte Shaw, the executive director of the Iowa Renewable Fuels Association.

"It has become clear that the debt load was simply too high, given the projected operating profile of the industry," Rastetter said in a letter to employees.

The Iowa Falls and Fairbank plants, each of which employs about 45 people, will continue to operate under the current management without layoffs, Rastetter said.

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Source: Des Moines Register