by JEFF NATALIE-LEES, firstname.lastname@example.org
12:05 AM AKDT, July 6, 2012
An oversupply of ethanol and skyrocketing corn prices are causing many ethanol plants to cut back production.
Valero Energy Corp., a major petroleum company that also operates 10 ethanol plants, has temporarily shut down two plants, because the cost of making ethanol was more than its selling price. The plants are in Albion, Neb., and Linden, Ind.
South Dakota ethanol plants are feeling the pinch, but those near Aberdeen are maintaining their production levels.
"There have been pretty tough margins in the ethanol industry the last six months, but we are not considering cutting back production," said Tom Hitchcock, CEO at Redfield Energy.
The plant makes about 55 million gallons of ethanol a year.
Redfield Energy may be in better shape then some ethanol plants, he said.
"Each facility has its own set of circumstances and those that are shutting down temporarily probably have poor plant economics or have a lack of corn in their area, Hitchcock said.
The Glacial Lakes Energy ethanol plants in Mina and Watertown have considered cutting back production, but have not done so yet.
"We have looked at that possibility a number of times," said Jim Seurer Glacial Lakes CEO. "But so far we have not done it."
One plan is to cut production by 20 percent, he said. Glacial Lakes also has the capability of idling one of its two 50-million gallon capacity plants in Watertown while letting the other Watertown plant and the Mina plant maintain full production.
"Right now it is too early to say if we will need to do any of that," Seurer said. "We are monitoring the situation."
Representatives from the Poet Biorefining Plant in Groton said that the company does not discuss production amounts.
Kelly Kjelden, general manager at Groton, said Poet has diversified its product line by making corn oil at many of its plants, including Groton, and continues to sell its dried distiller's grain. The company is strong and can weather changing market conditions, he said.
The biggest concern right now is that drought in parts of the corn belt will further drive up commodity prices.
Corn futures on the Chicago Board of Trade have gone up nearly $1.50 a bushel in the last two weeks, Hitchcock said.
Drought conditions in Indiana, Illinois and parts of Iowa will likely decrease overall corn production in the country. As of Tuesday corn futures on the Chicago Board of Trade were $6.66 a bushel. Some analysts are predicting corn will go up to $7.25 a bushel.
While that is good news for farmers that can harvest a crop, it increases costs for the 95 percent of ethanol plants that use corn for making bio-fuel.
Wholesale ethanol prices have not kept pace with increased corn costs.
Continued uneasiness about the world economy and less driving by American consumers have decreased demand for ethanol. Companies that buy ethanol have a good supply on hand. Many of them went on a spending spree in 2011 before the blender ethanol tax credit expired Jan. 1. They are still working off those inventories.
"When you compare the market dynamics to last year, we are in a much different situation," Hitchcock said. "Ethanol prices are down and corn prices are up."
The wholesale ethanol price is $2.34 a gallon, 28 cents less per gallon than it was in November.
Corn is up 39 cents compared to its November price.
The export market has also weakened.
A year ago the Glacial Lakes plant in Mina was exporting its ethanol to Brazil because its sugar cane crop had failed. The Mina plant discontinued exporting to Brazil two months ago.
"We had a good run of exports to Brazil, about 120 to 130 million gallons, but demand there has softened," Seurer said. "It would be good news for us if we could export again."
Demand for ethanol remains stagnant because of an Environmental Protection Agency rule allowing only a 10 percent blend of ethanol in fuel for older vehicles. While the EPA has approved a 15 percent blend for models built between 2001 and 2012, it has not approved it for older models. Gas stations are reluctant to change from E-10 to E-15 until all models are approved.
When ethanol plants - like those owned by Valero - go off-line it helps equalize supply and demand.
The 55 million gallons of ethanol produced by the Redfield will someday no longer be counted in the nationwide supply.
The plant is scheduled to undergo a major retro-fit that will allow it to produce isobutanol, a fuel with more diverse uses than ethanol. Construction is expected to begin in the fall or early winter, Hitchcock said.
Companies in the ethanol industry continue to look for ways to compete in a changing marketplace.
The best thing that could happen for the industry would be for EPA to support E-15 use in all vehicles, Seurer said. That would potentially increase demand 50 percent, he said.
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