Siouxland ethanol industry reeling from oil refinery exemptions, trade wars

Source: By Mason Dockter, • Posted: Monday, October 21, 2019

GALVA, Iowa – A scheduled maintenance shutdown of the Quad-County Corn Processors plant went on two weeks longer than originally planned during the first half of October.

The reason? The margins for operating the corn-based ethanol plant were so tight that it didn’t make financial sense to restart it right away, said Quad-County CEO Delayne Johnson. What’s more, the plant had difficulty getting corn “at a price that makes sense for us to crush at full capacity,” he said.

The farmers-owned plant on the outskirts of the small town of Galva is now in the process of rebooting. But some other biofuel plants in corn-rich Northwest Iowa have been less fortunate.

In the face of challenging market conditions, two area plants — Siouxland Energy Cooperative in Sioux Center and Plymouth Energy in Merrill, Iowa — have temporarily shut down, while some others have cut production. Johnson said plants are making “smart decisions for their assets” by slashing or idling production.

Like their counterparts across the country, ethanol producers throughout Siouxland are feeling the pinch of federal Renewable Fuel Standard waivers to oil refineries and trade policies that critics say have shut them out of international markets.

“It’s been a tough 18 months for us,” Johnson said.

In some cases, idling a plant is the only option left in a market where supply capacity outstrips demand, a situation ag officials blame largely on the Trump administration’s loose interpretation of the federal Renewable Fuel Standard and on continued trade hostilities with other countries.

“The ethanol industry is able to produce about 17 billion gallons of ethanol per year; the domestic market, based on the way the EPA has been wrongly interpreting the Renewable Fuels Standard, is locking the domestic market down to, just a little over 14 billion gallons,” Johnson said. “And the trade tariffs with China and Brazil, at 70 percent and 40 percent, respectively, are locking us out of many of the large export markets.

Little Sioux Corn Processors ethanol
Lab manager Heide Reetz works Friday at the Little Sioux Corn Processors ethanol plant in Marcus, Iowa.  Tim Hynds, Sioux City Journal

“With that, the only way for the supply and demand to balance is for the market to shut ethanol production down, because we have to fill the gap between 17 and 14 billion gallons.”

Northwest Iowa boasts the state’s largest cluster of ethanol plants. There are a total of nine plants in the Journal’s circulation area, stretching from Ashton in the north to Albert City to the east to Denison to the south. Two more plants operate just across the state’s border in Jackson, Nebraska and Hudson, South Dakota.

Iowa ethanol production is thought to have been cut by 40 to 50 percent in recent months in response to the U.S. Environmental Protection Agency granting “small refinery exemptions” to oil refineries that claim a financial hardship caused by having to comply with the RFS.

The Trump administration granted as many as 31 such waivers during August alone; waivers were issued to numerous refineries during the Obama and Trump administrations, but Trump administration has granted far more: a total of 85 over the course of his presidency.

Trump, who is running for re-election next year, is under pressure from farm constituents to remedy the situation.

Daryl Haack, a Primghar, Iowa, farmer and a board member of the Little Sioux Processors plant in Marcus, Iowa, said during a media call last month that his board all voted for Trump three years ago; but as of August, “they probably weren’t going to do that.”

Ethanol prices cratered in the days after Aug. 9, when that batch of oil refinery waivers was made public.

On Oct. 3, Trump boasted told ethanol industry officials that the federal government would restore millions of gallons of ethanol lost through the refinery exemptions to the RFS. The number of lost gallons was to be calculated by a three-year average of granted waivers.

But ethanol industry officials were enraged last week when the EPA’s proposal based the number of restored gallons on a three-year average of relief recommended by the federal Department of Energy. The industry wanted the deal originally proposed by the administration.

Little Sioux Corn Processors ethanol
The Little Sioux Corn Processors ethanol plant in Marcus, Iowa, is shown Friday. The Cherokee County plant continues to operate at full capacity but two other plants in Northwest Iowa have temporarily shut down in the wake of trade wars and federal Renewable Fuel Standard waivers to oil refineries. Tim Hynds, Sioux City Journal