Top of Mind: Here Comes Ethanol

October 6, 2010 04:00 AM

Ethanol momentum is building again as prices for the homegrown fuel have followed corn futures step by step into fall. While painful memories of past experiences exist for some farmers, others think the health of the corn industry still depends on ethanol.

Take Gary Pestorious, who is featured on our cover and in the story on page 15. When I met the Minnesota corn grower at a farm show this summer, he was making the rounds of various equipment manufacturers and seed companies to ask for support for ethanol and E15 (15% blend of ethanol in gasoline). Pestorious believes ethanol is a key factor in keeping demand strong for the increasing corn yields he sees on his farm and around the country. "Without ethanol, I know a lot of farmers who would be in big trouble," he says.

There are plenty of farmers, however, who did get into trouble by betting on ethanol in past years. The sting of ethanol bankruptcies smarts for growers who sold corn to VeraSun Energy Corporation before it went bankrupt in 2008 and who received letters this fall from lawyers demanding repayment of 80% of the amount they sold the corn for. Many of the same farmers lost money when VeraSun filed for bankruptcy and would not honor previous contracts for delivery. These farmers are angry and scared. While nearly every one of them is likely to have a valid defense, it’s important that farmers who receive these letters not ignore them, or litigation could well ensue, says Iowa State University ag law expert Roger McEowen.

Opportunity Now. The flip side of the ethanol industry,having gone through difficult times, is that it has created opportunities for a number of groups and investors to purchase shuttered facilities and reopen them using better technologies and smarter financial management.

In June, for example, petroleum refiner Sunoco, Inc., began operations at the 100-million-gallons-per-year (mgy) former Northeast Biofuels LLC plant near Fulton, N.Y., installing upgrades worth $25 million. That same month, Poet LLC completed the purchase of a 90-mgy plant near Cloverdale, Ind., increasing Poet’s total capacity to 1.7 billion gallons per year. In Morris, Minn., more than 20 new employees have been hired to work at the DENCO II LLC plant as it restarts ethanol production this month. The 24-mgy plant was idle for nearly two years before a group of local investors, many of them farmers, purchased it in late August.

The concern now is whether the ethanol industry can pull itself together and move forward into a profitable, sustainable future without constantly reliving its past.

Top Producer, October 2010

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