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Ethanol Plant Boosts Bottom Line for Farmers and Revitalizes Community

posted on April 2, 2004

Breaking American dependence on foreign oil has been a long-stated goal of U.S. policymakers. OPEC's decision this week to cut production is another sign of how frustrating that ambition really is. Indeed, the government might have more luck convincing consumers to use alternative forms of energy.

That's a notion welcomed by the nation's corn growers, who see the production of ethanol as not just a way to boost profit margins, but also as an engine for economic growth.

That's certainly the case for a small Iowa venture. In launching a new ethanol plant, it not only bolstered fortunes for the local community, but also fueled hopes for a profitable future. Laurel Bower Burgmaier explains.


Ethanol Plant Boosts Bottom Line for Farmers and Revitalizes Community

Verdell Johnson and his wife farm 900 acres in Cherokee County, Iowa. For years, he has watched the farming economy in his area dwindle. One day while visiting with a friend over coffee, he decided to do something about it.

Verdell Johnson, Cleghorn, IA: "We've raised a lot of corn. We got some figures from Iowa state through the extension and as far as we could determine, we were raising 190 million bushels in an eight county area and we were exporting about 90 million bushels of it. To revitalize Iowa and northwest iowa it's very important that we begin to do the things that retain the money in the area.

In April of 2000, Verdell and other northwest Iowa farmers traveled to Wentworth, South Dakota, to tour an existing ethanol plant. On the way home, the men agreed a similar plant would benefit their community. Immediately, they began plans to build The Little Sioux Corn Processors facility in Marcus, Iowa. In April of 2003, the first loads of corn were ground.

Tim Ohlsen: "At the time we started this project, corn was $1.70 or $1.80 so it wasn't profitable at all. This area has been well known as one of the lowest corn base areas in this part of the state. By doing this, we figured we could raise the price of corn.

According to a 2002 study by Iowa State University Extension, growers living near a locally owned ethanol plant benefit even more. Growers can expect corn prices to improve an estimated 5 cents or more per bushel for all corn sold in the local area. Livestock producers located near the plant also will benefit as the growing supply of competitively priced distiller dried grains, a product of ethanol production, provides a valuable component for feed rations.

Steve Roe, General Manager, Little Sioux Corn Processors Ethanol Plant: "We purchase 1.5 million bushels of corn on a monthly basis from the area. So, we do, the plants do tend to raise the price of corn in the general area about 10 cents a bushel."

According to the renewable fuels association, there are 74 ethanol plants across the country with the capacity to produce more than 3 billion gallons annually. And, the ethanol industry produced more than 2.75 billion gallons in 2003, up from a record production of 2.13 billion gallons in 2002. Sixteen additional plants are under construction. The Iowa Department of Agriculture claims one acre of corn can produce 300 gallons of ethanol. In a 10 percent ethanol blend, that's enough to fuel four cars for a year.

Organizing the Little Sioux Ethanol Plant took a lot of enthusiasm and hard work. Most members of the steering committee make their living in a risky business ... farming. But, they were willing to take a chance and spend countless hours on something they hoped would improve their communities, not to mention their bottom line.

Tim Ohlsen, Meriden, IA: "It took a lot of time. Probably for the first two years, we had at least two meetings a week. And, some of those meetings were during harvest, during the days. But, we were on fire to make this thing work. So, it kind of fueled itself besides the fact of putting our money in at risk. We needed to succeed."

The Little Sioux Corn Processors registered with the Securities Commission of Iowa. The minimum purchase for investors was set at eight shares, 1,000 dollars per share. Prior to that, 30 members invested 10,000 dollars each.

Steve Roe, General Manager, Little Sioux Corn Processors Ethanol Plant: "On average, I would say the return on investment is going to be somewhere around 20 percent, maybe as high as 25 percent. Some years it's going to be higher and like with any business, some years it's going to be lower. Provided we have the ethanol, a strong enough ethanol market, and we do what we're supposed to do here, I would think there will be a dividend of some sort after the end of the fiscal year."

Like most business ventures, raising money was a challenge. The group started selling venture capitol in March of 2001 and were able to raise 20 million dollars. An additional 34 million dollars was borrowed from first national bank in Omaha, Nebraska.

The ethanol plant was organized as a limited liability company, or LLC, to allow any person in the surrounding communities to invest, not just farmers.

Ken Ogren, President & CEO, Farmers State Bank: "From a bank standpoint, we sat back and very much liked what they were doing and the way they were doing it and that's why we went ahead in trying to work with the regional bank and in working with the loan. Everything we've got out here is really agriculture and we get a good crop. They get extra for their corn, soybeans, whatever it is; it's good for agriculture. It's good for our community and that's what it is all about."

According to a 2002 study, a 40 million-gallon ethanol plant will spend more than 56 million annually for goods and services, most of which are purchased locally. As those local dollars circulate in the area, it is estimated they will expand the local economic base by 110 million dollars. The Little Sioux Corn Processors Ethanol Plant was guaranteed to make 40 million gallons of ethanol per year. Right now, the plant reports its making 50 million gallons.

Verdell Johnson, Cleghorn, IA: "It's very exciting to have something like this. Probably, a chance in a lifetime that we ever get to do something like this."

For Market to Market, I'm Laurel Bower Burgmaier.

Tags: agriculture biofuels communities economy ethanol farmers Iowa news renewable fuels