Local ethanol plants push production while others trimming

Farm Forum

While ethanol plants in other parts of the country are cutting production or shutting down because of a down market, local plants are pushing production to their limits.

It is not that the strategy is producing big profits, but it is allowing plants to minimize losses, said Thomas Hitchcock, CEO of Redfield Energy, and Jim Seurer , CEO of Glacial Lakes Energy.

“We are producing more than our nameplate capacity,” said Hitchcock. “We have got the pedal to the metal.”

The Glacial Lakes Ethanol plants in Mina and Watertown are operating at about 20 percent above capacity, said Seurer.

The Mina and Watertown plants have a combined nameplate (rated or installed) capacity of 200 million gallons a year, but are producing 240 million gallons a year, he said.

The increased production locally is in contrast to national trends. High corn prices, which peaked at $8.50 a bushel in August during the drought and continue to average more than $7 a bushel, have decreased ethanol profitability.

Last week two Abengoa Bioenergy ethanol plants, one in York, Neb., and one in Ravenna, Neb., were temporarily shut down, rather than continue to lose money. At least three other Nebraska ethanol plants shut down months ago, according to the Lincoln (Neb.)

Poet announced on Jan. 25 that it

was temporarily suspending plant operations at its Macon, Mo., plant effective Feb. 1, primarily because of a lack of local corn.

The Poet plant in Groton will continue to make ethanol as usual, said Matt Merritt, public relations manager.

“There are no plans to shut down Groton or any other Poet plant,” he said. “The issue in Macon was corn availability. That area was hit hard by the drought, and we were not able to bring in corn from the outside at a competitive price.”

It is not known how much ethanol the Groton plant is producing because Poet does not reveal production numbers.

Nationwide the plants shutting down or cutting production are mostly in areas where the drought was most severe, Seurer said. This part of the country is in better shape, he said.

Ethanol plants make money on the margin between the cost of corn and the wholesale price of ethanol. For much of the past year, the corn price has been high and the ethanol price low.

Glacial Lakes Energy lost money for most of 2012, Seurer said. After a solid early start, the cooperative has lost about $2 million in the last nine months.

The company has enough in reserve to handle the losses, he said.

Redfield Energy also lost money during 2012, said Thomas Hitchcock, CEO.

“In only one month did we have a profit,” he said. “Right now, we are at the point where the margin is such that we are making some cash. But we don’t have a positive net for the bottom line. After taking out depreciation, we show a loss.”

Glacial Lakes has considered reducing production or a temporary shutdown, but has decided it is better for it to ride out the downturn by operating its plant more efficiently, said Seurer. In addition to adjusting its production process to make more ethanol, the plant installed corn oil extracting equipment in October, Seurer said. That adds a revenue stream.

Dried distillers grain, a high-protein livestock feed produced from the corn, has also been a bright spot for the cooperative, he said. Distillers grain prices are strong, especially during the winter, he said.

Glacial Lakes also added to its cash flow this month by selling property near Vermillion, which was going to be used for another ethanol plant, Seurer said. The cooperative had purchased the 350 acres in 2007, but had not begun construction because of a nationwide downturn in the ethanol market in 2008.

Redfield Energy added corn oil extraction equipment in January. It is also benefiting from a strong distillers grain market, said Hitchcock.

The shutdown of other plants in the country will help local plants. It reduces the ethanol supply, which will drive up the price of ethanol slightly, Seurer said.

“The margins for ethanol should improve a little in 2013,” Hitchcock said. “The big trump card is the amount of rain we will receive. The weather is going to make a big difference. If we get rain, the corn price will ease down a bit. If it looks like another drought, then corn will go higher.”

Redfield Energy had planned to convert to making isobutanol from corn, but the change-over was delayed when Gevo, the company making the conversion, announced it was refining its processes. Redfield Energy still plans to switch from ethanol to isobutanol production, but that would not happen until 2014 at the earliest, Hitchcock said.

Seurer said the ethanol industry has cycles of high profitability and times of loss.

“We are like farmers,” he said. “This is not foreign to us. You have good years and bad years. You have to build up some working capital, which helps pull you through.”

See MARGINS, Page 6F