Ethanol producers bullish despite 2012

Source: By Bryan Lund, The Post-Bulletin, Rochester MN • Posted: Monday, November 12, 2012

Despite a challenging 2012, Minnesota’s ethanol producers are optimistic about the industry’s future, fueled by a new state Department of Agriculture report showing the industry’s strength.

U.S. ethanol production is headed to drop for the first time in 16 years this year, as it’s caught between high prices for the corn it buys and low prices for the ethanol it sells. The Energy Department says output is down 14 percent this year.

The problem is an imbalance between supply and demand, according to Richard Eichstadt, of Preston, general manager for the POET Bio-refining ethanol plant in Preston.

“Right now the demand for ethanol is pretty even to what the supply of ethanol is,” says Eichstadt, “Hence, the prices for ethanol are a little bit lower and the cost of corn was higher this year, so that’s a relationship that is not as good as if the price were very high for ethanol and the cost is very low for corn.”

He says price fluctuations are an expected part of the industry, one that producers prepare for. His company, POET, is investing heavily in capitol projects like corn-oil and upgrades to their fermenters to ensure that they are ready for when the market takes a more agreeable tone.

Aside from market fluctuations, a tax credit for ethanol ended during the summer of 2011, which caused some concern within the industry. Eichstadt sees no reason to panic over it, though. He highlights a slew of positive developments that may alleviate any negative fallout from the lost tax credit.

“I think that going forward here, the thing that is very important to the ethanol industry and, quite frankly, to the rural parts of the country, to the farmers, is the renewable fuel standard,” he said, which requires a certain amount of ethanol be blended in with gasoline.

Opponents of that mandate are seeking a waiver from it, which Eichstadt believes could prove detrimental to both the ethanol industry and farmers.

Another positive development is the EPA’s approval of E15 for some vehicles, Eichstadt said. E15 is a gas-ethanol blend that uses 15 percent ethanol as opposed to the present ratio of 10 percent. An increase of vehicles approved to use the E15 blend would increase the demand for ethanol, says Eichstadt.

More demand means more money for Minnesota, which is the 5th largest producer of ethanol in the nation.

According to the MDA’s study, between 2000 and 2011 the average added value per bushel of corn processed into ethanol is $2.10. This leads the report to conclude that, despite its fluctuations, the practice of turning corn into ethanol is a highly valuable aspect of Minnesota’s economy.

The study shows that in 2011, Minnesota farmers harvested more than 1.2 billion bushels of corn. 440 million of those went toward the production of ethanol.

Each bushel of corn processed into ethanol in 2011 received $2.07 in added value, says the report. That totals out to $912 million added value overall for 2011 in the state.

Minnesota’s 21 ethanol plants produced 1.1 billion gallons of ethanol in 2011. The study reports that Minnesota consumed just 21 percent, or 237 million gallons, of the ethanol, while exporting 880 million gallons, or 79 percent.

In addition to creating a profitable export, the ethanol production industry supports over 12,600 jobs in the state, according to the MDA’s study.

Of the state’s 21 plants, 10 are farmer-owned co-operatives, which means that the economic benefits of ethanol impact those farms and their communities directly.

The MDA’s said Minnesota’s ethanol production grew by 439 percent from 2000 to 2011.

“The growth of the industry has just been phenomenal,” says Eichstadt, a 14-year ethanol production veteran.

People in the industry, he says, “have a passion for this. We believe that it’s just the right thing to do, for the country.”