Just when the corn ethanol business was gasping for relief, with biofuel makers in the heartland going bankrupt, the nation's largest ethanol plant using barley as a feedstock broke ground in Hopewell, Va.
The Osage Bio Energy plant, with a 65-million-gallon annual capacity, opens for business in mid-2010. Its startup, funded by a $300 million equity investment from First Reserve Corporation, is different from those of its Corn Belt brethren.
In 2007, the company was spun off from Osage, Inc., a gasoline and ethanol distributor in the Southeast. Its funding coup might have been the last ethanol plant deal inked before the industry crashed, says Craig Shealy, Osage Bio Energy president and CEO.
Since the mid-Atlantic is not a particularly good corn-producing area and the poultry business already consumes most of the corn produced there, the company investigated other feedstocks. Barley kept turning up as the answer.
"We didn't feel we could build a corn plant in Virginia. So what else can we do? We were not ready to invest in new technologies like cellulosic. We wanted this plant to be evolutionary rather than revolutionary. It became obvious that the answer was barley," Shealy says.
For those accustomed to thinking of barley as a fairly ho-hum crop with little marketing potential other than as malt for beer brewers, the choice might not be quite so obvious. However, Katzen International, Inc., the process design and technology company Osage chose to construct the facility, had already built barley-based ethanol plants in Europe. Those plants were running smoothly.
Osage determined that about 5 million acres in the mid-Atlantic and Southeast regions each year are either fallow or grow noncash cover crops during the winter. Barley, which grows well in that geography, could fill the gap without pulling much acreage from other crops.
Ahead of the Game. In addition, barley could be harvested as much as two weeks earlier than wheat. If soybeans followed barley in a double-crop system, they could produce yields close to those of full-season soybeans. That, com-pany executives reasoned, should appeal to farmers. They were right.
"When we add barley to the mix with double-crop beans, we get the same yield as with full-season beans," says Kevin Engel, a Hanover, Va., farmer who has already grown barley for Osage's startup. "In addition, it gives us an opportunity to spread out our small-grain harvest season and better utilize harvest equipment."
On his farm, the chance to diversify to a second small grain is a real draw. "It has become more challenging to grow wheat consistently without getting docked by the flour mills," Engel says. "And anytime a business moves in next door and will consume 29 or 30 million bushels a year, that's going to be a market that interests us."
Quality Product. Area farmers should have little trouble producing good-quality barley. "Barley works well in our rotation, which is usually corn one year followed by a small grain over the winter, followed by soybeans planted the next June," says Wade Thomason, Virginia Cooperative Extension grain specialist. "In some years, planting soybeans earlier means a yield increase of up to a bushel a day.
"The price of soybeans has a large influence on it, and $10 soybeans make barley look even more attractive," Thomason says.
Another thing: This is not grandpa's barley that farmers are planting today. Breeders have made big genetic improvements in the crop, Thomason says, and some of the nation's most renowned barley geneticists work at Virginia Tech University in Blacksburg.
"It has been a huge part of the breeding program on campus. Our growers in the state are now aver-aging more than 70 bu./acre. When I do barley budgets now, I figure 85 bu./acre if it's on better-drained, sandier land," Thomason says.
Bobby Hutchison, who farms in Cordova, Md., on the Eastern Shore and is participating in the Osage Bio Energy program, has grown large-scale acreages of barley averaging as much as 140 bu./acre. "I could not be any more excited about this program," he says.
Hutchison was part of a group that attempted to build an ethanol plant in the area but had to back off due to funding difficulties. "I have long been a promoter and a believer in ethanol. But this is a corn-deficit area. We just cannot grow good corn here. Barley can be used as a feedstock and without hurting our poultry industry at all," he says.
The Osage Bio Energy project gives Hutchison access to a new market without greatly extending his risk. "They're the ones taking the risk," he says. "They're 150 miles away, so they're not quite as close as I would like, but there's demand for the crop and I do like that.
"We've grown barley before. It grows very well in the mid-Atlantic region, but we lost our market for it," Hutchison explains. "It was being shipped to the Mideast for camel feed, but we had problems with low test weights and that wasn't making the end user happy. And the poultry industry would use barley only when it was really cheap."
Perdue AgriBusiness is sourcing the barley for Osage. Perdue contracts with farmers for the barley and uses its elevator facilities to store it. The contracts are based on a percentage of corn contracts.
If barley fails to be a competitive feedstock, the Osage plant can be easily converted to use other grains. Shealy, however, insists barley will be a winner. "The plants in Europe running on barley are doing well," he says. "It's the No. 4 cereal grain on the planet. We're going to add value by processing it. We're going to end up with an offer for barley that's pretty compelling relative to wheat."
Shealy is so convinced of this that, even before the first gallon of barley-based ethanol has gone through the plant, his company is looking to open two other plants in the mid-Atlantic or Southeast region. "We've looked at 80 to 100 sites for future plants," he says.
Top Producer, December 2009