Archived Story

High corn prices idle ethanol plants

Published 10:04am Tuesday, September 4, 2012 Updated 12:07pm Tuesday, September 4, 2012

By Conrad Wilson

MPR News — 91.5 FM

LITTLE FALLS —Outside the Central Minnesota Ethanol Co-Op in Little Falls, it’s clear there’s not a lot going on.

The pungent smell of fermentation that typically hangs in the air near ethanol plants is absent. Trucks hauling corn are nowhere to be seen.

Across the nation, spiking corn prices and limited supply are forcing a growing number of ethanol plants, including the one here, to temporarily close – yet another symptom of the worst drought in half a century.

Central Minnesota Ethanol Co-op officials declined to comment in detail, but confirmed the plant is idle in part because of high corn prices. They said it didn’t make economic sense to keep the plant running.

It’s not clear when it might reopen.

“Most of the industry is just breaking even in terms of profitability or actually running at slightly negative margins,” said Geoff Cooper, vice president of research and analysis at the Renewable Fuels Association, a Washington-based industry group.

Cooper said since the start of the summer at least seven ethanol plants have idled in Nebraska, Minnesota, Indiana, Kansas and other states. Of those still operating, many are running at 75 or 80 percent of their production capacity.

The nation’s corn crop won’t meet expectations. Some say it will be two-thirds the size of what farmers planted during the spring. It’s that anticipated shortfall that’s driving up corn prices.

Though representatives at Fergus Falls ethanol plant parent company Green Plains Renewable Energy have said the local plant is doing fine, Otter Tail County corn producers are not immune to the weather problems that have plagued farmers nationwide.

“We’ve been dry and hot for an extended period of time in 2012,” said Doug Holen, local educator with the University of Minnesota Extension. That weather can dehydrate crops, and the lack of rain has also invited corn-munching insects to descend on fields.

However, due in part to not as severe weather and a very early planting season, Holen said local farmers won’t likely take as much of a hit as many other corn growers.

“I certainly expect almost all if not all of our acres that were planted to be harvested,” he said.

The difference will be found in the corn yields of bushels per acre. Though Otter Tail County has consistently seen slightly lower yields than the state average, farmers have been blessed with more productive yields in the last few years. From 2008 to 2011, the county average bushels per acre yields have been around 146, 136, 158, and 133. In the 10 years prior to 2008, the average yield in the county was 129.

While 2012’s yield might not be as much as in the last few years, “it still looks to be a decent crop,” Holen said. He attributed much of that success to the early planting this year, which will allow farmers to harvest their corn before any weather problems can hit on the back end of the harvesting season.

Though a less dire corn forecast locally could pass benefits to a few local beneficiaries (like the ethanol plant), Holen said the price of corn farmed in Otter Tail County is still pretty similar to statewide and national trends.

“We’re a very small component in the overall state production,” he noted, adding, “If one moves, they all move.”

When asked if he had any rough predictions for how close 2012’s yield would come to those of recent years, Holen only chuckled.

“You can only look ridiculous by trying to predict yield,” he said.

Many ethanol producers are sandwiched between the rising price of corn and fuel prices that are increasing, but not enough to keep profitable margins, Stacey Hudson, senior research associate for energy for the financial services firm Raymond James & Associates.

“With corn at about $8 a bushel these ethanol producers are looking at cash margins of about .8 cents per gallon, which is, ya know, pretty weak,” she said.

On top of its effects on the ethanol industry, the high price and limited supply of corn has renewed a debate about whether the crop should be used to produce fuel or food.

This year the federal government says producers should make 13.2 billion gallons of biofuel. Most of that comes from corn.

In a series of letters this month, governors and members of Congress petitioned the Environmental Protection Agency to suspend or lower the Renewable Fuel Standard, to ease costs for agriculture and food producers.

Jason Hill, a professor of bioproducts and biosystems engineering at the University of Minnesota, said about 40 to 50 percent of nation’s corn supply this year will go to producing ethanol. But he said the ethanol will only make up between five and six percent of the nation’s fuel consumption.

Using corn that way, Hill, said, results in a “very large impact on our corn market. A very small impact on our fuel market.”

Many farmers are having a difficult time affording the feed for their livestock. Earlier this month President Obama announced the government would buy up to $170 million in surplus meat, as many producers are being forced to sell off their herds to the slaughterhouse.

At the Centra Sota feed co-op in Little Falls, which sells feed for dairy cattle, chickens and other livestock, the effect of the drought and ethanol plant shut down is mixed.

Manager Lon Johnson said the price of the 50-pound bag of cattle feed is up from $13 last year to about $17 this year.

“This already reflects the high prices,” he said. “Everything’s been kinda going up.”

Well, not everything. Since the ethanol plant shut down, the price Johnson pays for corn has dropped by 15 to 20 cents per bushel. But he said it ends up being of a wash.

Johnson explains that he uses a by-product from the ethanol plant for feed. Instead of going down the road, Johnson now must drive 80 miles to the next plant to buy the partially used corn he mixes into feed.

“It doesn’t make it any easier for us because maybe we can buy our corn 20 cents a bushel cheaper, but it costs me 20 bucks more because we bought corn distillers from the ethanol plant,” he said. “That’s one of the things people a lot of times keep forgetting with an ethanol plant. Even though they’re using a lot of corn they’re still putting a lot of feed back into the market … Food versus fuel? I think we need ’em both.”

The Renewable Fuels Association expects more plants to go off-line if corn prices stay high and the price for ethanol stays relatively low. For now, those businesses tied to corn are waiting for the fall harvest to bring a little certainty — that and maybe a little rain.

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