Ethanol maker not worried about outlook

By Tom Hintgen (Contact) | The Daily Journal

Published Thursday, June 14, 2007

Even though energy analysts see a temporary oversupply of ethanol for several months and are raising concerns about profit margins, Fergus Falls-based Otter Tail Ag Enterprises said that Minnesota ethanol producers and farmers are in better position that in other areas of the nation.

Researchers at Iowa State University say that corn prices, driven by ethanol, have risen from $3 per bushel last summer to close to $4 per bushel in recent weeks.

“The $4 estimate is based on the Chicago futures market but in our area, come October, it’s predicted that corn prices will be about $3.50 per bushel,” Otter Tail Ag CEO Kelly Longtin said. “That will lessen concerns about profit margins in our area.”

A bigger issue, Longtin said, is getting Midwest-produced ethanol to coastal markets.

“That’s because ethanol has to be moved by train or trucks, and pipelines don’t exist,” he said. “This scenario also affects ethanol supplies. Building pipelines is a long process — five years out to be exact. You have the permit processes and other hurdles.”

Another issue, Longtin said, is that more terminals need to be in place for blending of ethanol and gasoline.

“Minnesota, with its mandate of 10 percent blend, is far ahead of other states — even Iowa,” Longtin said. “We also need many more E-85 pumps and E-85 vehicles here in the Midwest and certainly throughout the United States.”

Minnesota represents 28 percent of all E-85 sales on a nationwide basis. Iowa, the largest ethanol-producing state, only represents 2.1 percent of E-85 sales.

The Otter Tail Ag ethanol plant, under construction northwest of Fergus Falls, is expected to come on line the first quarter of 2008.

“It’s going to be a little bit of a bumpy ride for ethanol producers, but in the long run we’re bullish on renewable fuels,” Inver Grove Heights-based US BioEnergy CEO Gordon Ommen said to the Associated Press. “I believe that ethanol is going to be a part of our domestic fuel stream for a long time to come.”

Ommen’s view is shared by Geoff Cooper who runs ethanol programs for the National Corn Growers Association.

“I agree that ethanol oversupply is only temporary,” he said, “and I hesitate to call it a glut like some analysts do.”

Ethanol now makes up about 4.5 percent of the nation’s gasoline mix, depending on location. That’s expected to rise to 10 percent like what’s presently in place in Minnesota.

“Price for the consumer will certainly be a deciding factor when people pull up to an E-85 pump,” Otter Tail Ag CEO Longtin said. “If someone has the option to purchase E-85, at say $2.60 per gallon versus $3 per gallon for regular unleaded, it’s a no-brainer,” he said.

“There’s going to be bumps in the road,” BioEnergy CEO Ommen said. “Those bumps will produce opportunities for well-positioned producers.”

Longtin said that’s his position as well — with Otter Tail Ag Energy and the ethanol plant near Fergus Falls having a bright future.