How An Iowa Ethanol Plant Is Trying To Weather Trump’s Storm

Source: By Josh Cook, Starting Line • Posted: Sunday, March 1, 2020

Photo from QCCP

The last two years have tested the farming community, small town agriculture and the biofuels industry.

There has been little stability for commodity markets. With the trade wars, some markets have been effectively erased.

There has been little stability for biofuels markets. The Renewable Fuel Standard was undercut by the EPA, blocking billions of gallons of ethanol from being mixed into the nation’s fuel supply.

Biofuels have also been impacted by the trade war, losing traction in huge markets like Brazil and China.

Farm aid has increased by several billion dollars over the last few years as farmers try to weather the storm and look forward to rebounding markets.

Ethanol producers are in a particularly tough spot, being impacted by all of this, plus dealing with some harsh weather that has interrupted planting and harvesting schedules.

The result? Ethanol plants across the Midwest have scrambled to find ways to keep their business viable. Some have closed their doors temporarily, others indefinitely.

“You talk about a livelihood that is so dependent on chance, and then you throw in a governmental agency that is cutting your legs out from under us,” said Cole Egger, administrative assistant at Quad County Corn Processors. “Some plants very close to us closed down. Throughout the country, there were plants shut down. We were able to stay open thanks to the commitment of our board of directors, management staff, shift personnel, and the wise decisions made managing the company’s assets.”

In Northwest Iowa, Quad County Corn Processors took measures to make sure that, throughout it all, no one on staff lost a paycheck.

Tough Market Conditions

“Corn in our area was very tight last fall,” said commodities manager Adam Todd. “With the low margin environment, we made the decision to conserve the corn we owned by lowering production and extending the fall shutdown.  The alternative would have been paying more for corn and running higher production, but margins didn’t justify it.”

Markets were down. Corn was coming in later than usual because of a colder and wetter season. There was also the back-end challenge of finding a place to sell the ethanol.

“The national supply-demand balance of ethanol has been so challenging, and it has three pieces. First, the small refinery exemptions drastically cut domestic demand. Second, exports that were cut off due to trade war discussions and tariffs, with China at a 70% ethanol tariff and Brazil with a 40% tariff on ethanol,” said CEO Delayne Johnson.

“Those two markets are quite large, and those tariffs have cut the ability of our ethanol industry to export large quantities. The third, because of all of that, the only way to balance supply and demand is to reduce supply. That’s why we’re seeing plants stall, do extended maintenance, or close their doors.”

Quad County reacted to the short corn supply and low margins by reducing production and taking an extended fall maintenance period in 2019.  Margins did not justify buying corn from a distance, so QCCP extended maintenance until harvest began in mid-October.

Ninety percent of the corn processed there comes from within 15 miles of the facility. Getting crops from a distance would have made margins even tighter.

Extended Maintenance

“To be honest, I don’t know that a shutdown was seriously considered here,” explained Josh Droegmiller, chief information officer at Quad County. “First, we knew there was new crop corn coming in, so the basis would change. And, shutting down over the winter is a big deal. You get the plant freezing up and you can’t come back from that, you get pipes breaking and stuff. I don’t know if a shutdown was that realistic. Slowed production, sure, and we took that extended maintenance break.”

Shutting down their factory wasn’t an option unless they were going to do that for quite some time. Looking to just slow production and save resources, Quad County did an “extended maintenance break.”

The plant shuts down for a handful of days every so often for general maintenance. This usually consists of making a list of things to work on and repair, then prioritizing that list to accomplish what needs to be done in a short span.But being in a strained spot, Quad County Corn Processors instead took a three-week maintenance break to address as many issues as they could, while also conserving their corn and balancing that supply and demand. Priorities were discussed, and employees worked diligently to make the transition in and out of the break as seamless as possible.

“We’re a 24/7 operation, so we don’t get many opportunities to address things in the plant. Our shutdown list is often three times as big as what it ends up being,” Droegmiller said. “So, we start with all the things we want to do, and then we say well here’s the amount of time we’ve got and our priority items.”

Maintenance breaks are usually very hectic. This time, it was a mostly methodical approach to getting as much done as possible while it didn’t make sense to produce ethanol at a high rate.

“Usually, we have to hire outside help to get through our list of priorities,” Todd explained. “This extended break allowed us to not have to do that and still get through things we normally wouldn’t have time for.”

Despite all of these tough conditions that made full-tilt production tough to justify, Quad County Corn Processors made sure no one lost a paycheck.

“During normal shutdowns, we have all hands on deck, and we pay out overtime to get enough stuff done,” Droegmiller said. “It didn’t really feel abnormal because there was so much to do — there always is. So yeah, it was a longer break, but nobody was sitting around twiddling their thumbs.”

Agriculture In Rural Communities

Quad County Corn Processors is located in Galva, Iowa, and has been a vital member of the Galva community for almost 20 years. Galva has a population of 418 people, and the plant employs 44 people altogether.

“We did [extended maintenance] because our employees are incredibly important, and they’re well trained,” Johnson said. “It doesn’t make sense to stop people from having a paycheck for a month or so. People have bills to pay and families to feed. We didn’t want to have turnover.”

With all of the jobs they provide to the community, it was important to keep that commitment. After years of business, Quad County and its employees now play a big role in the community.

“A strong ethanol industry is good for rural America. All of us — we live here, we work here, we volunteer, we coach. You know, we touch so many different things,” Droegmiller said. “One thing the ethanol industry does is allow us to raise our families where we want to live, where we want to have our lives.”

But it’s not just the employees that fill voids in the community. After multiple expansions and adding Kernel Fiber Technology, QCCP was able to purchase a church in Galva and renovate it into their administrative office.  They use that space and their resources to support community initiatives.

“Just yesterday we had a food pantry drive. We also host the blood drive for the area, we sponsor the basketball jamborees in Storm Lake, 20 minutes away, and we’re involved in our own basketball teams and music programs,” Eggers said. “So, since it is such a small community, we have a space that we can provide for people with.”

Droegmiller said Quad County Corn Processors’ decisions and pliability make it an asset for the community because of the support they’re able to provide. But he also said that it’s a testament to the people there.

“The resilience and self-reliance that’s built into Midwest people is that, ‘We’re going to do this, with or without you,’ is our mentality,” Droegmiller said. “So, you know, if this support goes away, we’re going to figure out a different way.”

By Josh Cook
Posted 2/26/20

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