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Farmer-Owned Ethanol Plants Spur Production

posted on February 18, 2005

There was a time when news of congressional hearings on an energy bill that would boost ethanol production was cause for excitement in farm country. Now it's the stuff of redundancy.

For the fourth straight year, lawmakers are working on a comprehensive energy plan that would double the output of ethanol. But, as in the past, observers say there's sure to be plenty of bipartisan and regional nitpicking to slow the legislative process.

Well, some folks aren't waiting on Congress. In fact, thanks to the growth of farmer-owned capital ventures, the surge in ethanol production already is under way. Dirck Steimel reports.

Farmer-Owned Ethanol Plants Spur Production These are boom times for America's ethanol industry. Spurred by strong consumer demand, abundant corn supplies, and wide profit margins, ethanol plants across the country pumped out an estimated 3.4 billion gallons of the corn-based fuel in 2004. That's up more than 20 percent from the previous year's total and marks the sixth consecutive record year of ethanol production.

By all indications, demand for ethanol will be even stronger in 2005. Fuel distributors want more ethanol to replace MTBE, the petroleum-based additive that has been banned as a pollutant. The U.S. House has again begun work to pass the long-stalled Energy Bill, which likely is to include additional incentives for ethanol use. And lawmakers in several states are considering joining Minnesota and Hawaii in mandating that all gasoline contains at least 10 percent ethanol.

This surge in demand is not being met by the big agribusiness companies that once dominated the industry. Instead, most of the added ethanol production is coming from new plants that are owned by farmers, who have banded together to create an alternative market for corn.

Larry Meints, Pine Lake Corn Processors: "We wanted to add value to our crops that we produce here locally. If we're just growing a commodity, corn and soybeans to be shipped out of the county, and in a lot of cases out of the state, to be processed and we have a lot less farmers, we were concerned as to what was going to happen to our local businesses, our schools, our churches. And we had a strong desire to add value to what we produce locally and to be owners ourselves so the profits that are generated from this value added enterprise would stay in the community."

Meints is the president of Pine Lake Corn Processors LLC, a farmer organization which is just completing a 20-million gallon capacity ethanol plant near Steamboat Rock in north central Iowa.

James Broghammer, Pine Lake Corn Processors: "We have to complete the construction and then we need to go through a checkout procedure where we make sure each valve, each pump, every tank, every agitator is operating properly. So, there is an entire series of procedures we go through to make sure all those tanks are working. And then we start into the process of grinding corn and converting it into ethanol."

For the farmers in the Pine Lake ethanol project, the opportunity to build the plant just made economic sense.

Larry Hansen, Pine Lake Corn Processors: "Well, first of all I just thought, you know, ethanol energy was a good, something good to invest in and I just thought it would be a good way to offset my energy costs that I use on the farm, the diesel fuel, the gasoline, the LP and just thought, you know, as a farmer you're selling ethanol and that when prices of ethanol are high that you'd be able to offset that energy cost that you're buying all the time and producing that crop on the farm."

The 400 farmers in the Pine Lake Corn Processors group have put up about $7.3 million dollars of the approximately $34.5 million required to build the ethanol plant.

The farmer/members also committed to delivering 2,500 bushels of corn a year for each share they own. Those commitments will supply about 40 percent of the corn the 20-million-gallon capacity plant will consume each year. Pine Lake will buy the rest of the grain it needs on the open market.

Mark Seward, Pine Lake Corn Processors: "Oh, there is no doubt it will raise the price of corn, probably ten cents. There is an ethanol plant also in Iowa Falls and with the hog feed that is ground in Iowa Falls there is no doubt it will have an impact."

Farmers in the Pine Lake group also expect to realize dividends from the sale of ethanol and dried distillers grain, a by-product which is used in livestock feed.

When it comes on line, Pine Lake Corn Processors will be the 11th farmer-owned ethanol plant operating in Iowa and one of more than 30 in the country. Several others are either in the construction or planning stages.

With production soaring, there are concerns that farmers eventually could wind up overproducing ethanol, just as they often have overproduced corn.

Experts are cautiously optimistic about sustained demand for ethanol, especially as fuel distributors around the country become more accustomed to using the corn-based additive. Federal and state mandates also could prop up demand. The proposed federal energy bill is expected to include a provision that would require the use of 5 billion gallons of ethanol by 2012. At the state level, lawmakers in Iowa, Wisconsin, Missouri and Montana are considering the so-called E-10 requirements, which mandate a10 percent ethanol content in all gasoline. And a bill in Minnesota would raise the ethanol requirement to 20 percent by 2010, or when at least half the new vehicles sold in the state are warranted to run on the 20 percent ethanol mix.

Even without new mandates, farmers in Pine Lake Corn Processors are optimistic about the continued ethanol demand. Meints has seen more and more customers choose ethanol at the convenience store he and his wife operate in Steamboat Rock.

Larry Meints, Pine Lake Corn Processors: "Now this last year was 83% of our gasoline sales were E10 with the ethanol in it."

With increased demand in mind, the farmers are already planning to double the size of their operation."

James Broghammer, Pine Lake Corn Processors: "We need to get through the startup and some of those problems. There is a considerable advantage to having a plant with a 40-50 million gallon range."

For Market to Market, I'm Dirck Steimel.

Tags: agriculture biofuels corn ethanol news renewable fuels