Ethanol plants monitor corn supply

Published 9:45 am Monday, July 23, 2012

By Laura Bird, Mason City Globe Gazette

MASON CITY — Regional ethanol plants are closely monitoring production levels as drought conditions and a tight corn supply continue to drive up corn prices.

“We’re running close to the production we were at this time last year,” said Rick Schwarck, CEO of Absolute Energy, St. Ansgar.

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Poet Biorefining, Hanlontown, has been able to continue to produce at its full rate, said Kelly Hansen, general manager.

At Golden Grain Energy, Mason City, it’s “generally business as usual” but the plant has scaled back about 10 percent, said Walt Wendland, president and CEO.

“We’re trying to be as efficient as possible with the high price of corn,” Wendland said. “It’s not about gallons but how much you can get out a bushel of corn.”

Bill Day, spokesman for Valero Energy Corp., which owns Valero Renewables, Charles City, declined to say what production levels were in Charles City due to competitive reasons but said the plant is still running.

All four businesses noted production levels have not impacted employees.

Production levels have become an important factor as ethanol plants try to balance corn prices and ethanol prices.

“Since the first of June, old crop corn, last year’s crop, is up over 44 percent and new crop corn is up 53 percent,” Schwarck said. “Ethanol is only up 36 percent in that same time frame.”

He said Absolute Energy is still profitable but such margins make it more difficult.

Wendland said that’s why it’s important to make the plant as efficient as possible and use each bushel of corn to the maximum.

“The focus is really to stretch your corn,” he said. “Get as much out of your corn as you can and make it last until new crop.”

Hansen agreed.

“Risk management and optimizing plant production is our priority every day,” he said.

He, Wendland and Schwarck said they have enough corn to make it through harvest. However, other ethanol plants haven’t been as lucky.

“Some of the industry has shut down because they don’t have the corn,” Wendland said.

Day said two of Valero’s 10 ethanol plants have shut down temporarily. They are in Albion, Neb., and Linden, Ind.

Locally conditions are better, though.

“We were in a real good area last year because the corn supply was good in Iowa last year,” Wendland said.

If drought conditions continue and the corn crop is short, then corn prices will continue to climb this fall. That means ethanol prices would need to adjust accordingly, and Schwarck thinks the conditions will allow that to happen.

He said most of the nation’s gasoline needs ethanol to get it to at least an octane of 87 to sell it at the pump, and other options for raising the octane are more expensive than ethanol.

“The replacement costs for ethanol are substantially higher,” Schwarck said. “As the supply of ethanol continues to dwindle you would expect market forces to make it go higher.”

Hansen agreed.

“We’re confident that even though there are ups and downs that ultimately the market conditions will shake out for everyone’s good,” he said.

While most of the ethanol industry has never dealt with a drought before, Hansen is hopeful the recession a few years ago has made the industry strong enough to survive one.

“If you think back, the industry went through a very challenging time in 2008 with very high corn prices and the recession,” Hansen said. “Ethanol went through that period and went onto thrive.

“We actually believe the industry is stronger today than then.”