West central Minn. ethanol producers enjoy benefits of local supply, efficient plants amid high corn prices
ATWATER -- Ethanol producers in west central Minnesota are coping with corn prices that are squeezing margins and have no plans to reduce production.
"We've certainly seen throughout this year different challenges, pressures on that margin,'' said Mike Jerke, general manager of the Chippewa Valley Ethanol Company in Benson.
But he also expressed views shared by his colleagues at Bushmills Ethanol, of Atwater, and Granite Falls Energy, of Granite Falls. Ethanol production in this region should remain on track.
"We are going to continue as currently, (with) no plans to cut back,'' said Steve Christensen, general manager of Granite Falls Energy.
The drought in the Midwest has brought a lot of attention to corn prices and how they are affecting the ethanol industry. The Agri-Energy plant in Garnett, Kan., announced plans to suspend production in late August, as has the smaller Central Valley Ethanol Co-op in Little Falls, Minn.
Bio-refineries across the country are responding to market signals and have throttled back on production to some degree, according to Tim Rudnicki, executive director of the Minnesota Biofuels Association.
The first to reduce production are destination plants, where all of the corn must be shipped from a distance, and smaller, less efficient plants, noted Cliff Larson, president of the board of directors with Bushmills Ethanol.
In contrast, the west central Minnesota plants enjoy the advantage of being located in an area of the country where the corn harvest is expected to be good, despite the dry conditions. The local plants are also among the more efficient in the nation.
"Fortunately, one of the things the board has focused on is being the low-cost producer,'' said Christensen of the Granite Energy facility.
Current corn prices over $7 a bushel may be getting lots of attention, but Larson noted that today's price is only 20 cents higher than was the case last August.
Margins were tighter -- and more often negative -- for ethanol producers in the first half of the year than is currently the case. The ethanol industry was producing at a rate that would have poured 14 billion gallons on the market. Yet the market -- based on a 10 percent blend of total gasoline consumption -- warranted a level of 13 billion gallons. The oversupply lowered the price for ethanol and reduced margins, Larson pointed out.
Calls by some livestock producers to temporarily suspend the Renewable Fuel Standard that requires the 10 percent ethanol blend are challenged by ethanol producers.
There's flexibility built into the standards to respond to current changes, said Rudnicki. Many blenders have credits banked from earlier ethanol purchases, and are able to reduce their demand for ethanol in response to prices.
Recent studies also show that suspending the Renewable Fuel Standard would not lower corn prices to the extent that livestock producers want to see, said Rudnicki. And about one-third of the corn going to ethanol plants also ends up as animal feed in the form of dried distillers grains.
Equally important, Rudnicki noted that ethanol is "working." It is creating economic opportunities in rural Minnesota, suppressing gasoline prices and reducing reliance on imported oil. He cited one recent study that showed ethanol suppresses gasoline prices by as much as $1.69 per gallon in the Midwest.
If the 13 billion gallons of ethanol now produced in the U.S. were taken out of the supply chain, gasoline prices would rise significantly, he said.
Even were the Renewable Fuel Standard to be suspended, Larson said there are lots of reasons to believe the demand for ethanol by petroleum refineries would remain at current levels. The refineries are relying on ethanol to bring the refined petroleum to the desired octane levels and provide other attributes needed in the fuel sold at the pumps. Ethanol appears to be most economical means of achieving those needs, he explained.
He is also among those cautioning against overreacting to current corn prices. Despite the drought, the nation's overall corn harvest is expected to be average. And until the combines bring the crop in, no one knows how much corn is there and what that ultimately means for prices.