United Ethanol plant ready to stay the courseadmin
MILTON-The president of United Ethanol doesn’t put much credence in projections of doom and gloom for the ethanol industry.
David Cramer is confident that ethanol is here to stay.
While United Ethanol’s $60 million plant nears completion in Milton’s Eastside Industrial Park, a story in the Chicago Tribune questions the future of ethanol and the livelihood of grain farmers who feed the seemingly endless hunger of ethanol operations.
The Tribune story tells of uneven benefits associated with the ethanol industry. It predicts that while farmers gain from ethanol production, many other longtime rural interests lose in a financial struggle to stay solvent.
When local crops are used for ethanol instead of exports, grain elevators, loading equipment and barges used to ship corn down the Mississippi River could become obsolete, the article said.
“There’s change in any type of business,” Cramer said. “There will be change. Some things could come into play and some may not. That’s why we’re in the ethanol business-to try and protect our interests and investments we’ve made in the grain business.”
Plus, about one-third of corn used to produce ethanol leaves a plant as high quality animal feed, Cramer said.
The story also asks what will happen if the ethanol boom goes bust, and oil prices, already down from their summer peak, drop to $20 a barrel?
And what will happen if a cheaper raw ingredient takes the place of grain? the article asks.
“What if the sky falls? What if we have global warming? These are all very hypothetical questions,” Cramer said.
The business of agriculture is accustomed to highs and lows. It’s been that way for years, Cramer said.
The Milton plant has a solid financial framework that was in place long before it was built.
“The business structure is such that the plant should be capable of weathering the highs and lows in the industry,” Cramer said. “Most plants have 45 percent owner equity at start-up, which make them very strong and viable businesses.”
United Ethanol has been in the petroleum business for 50 years and is fully aware of industry trends, Cramer said.
“I think it will be a long time before we see $20-a-barrel oil,” Cramer said.
He isn’t worried, either, that a host of new plants will begin production in 2007 and ’08 and decrease the corn available for livestock.
“I disagree that all of those plants will be built because some aren’t strategically placed in proper locations,” Cramer said. “They don’t have alignments with credible organizations, grain elevators or producer groups to supply the raw product.
“This industry, like any other industry, runs on economics. Some people will be weeded out. Some small, inefficient plants will not survive against the larger operations.”
Cramer does agree with the article’s point that an ethanol plant has to be fed its daily ration of corn.
“That statement is very true,” Cramer said. “It’s important to be on a good rail line and aligned with a farmers group that can supply corn on a day-to-day basis.”
But he scoffs at the idea of a national drought or disease destroying the corn crop, as suggested in the Tribune article.
“When was the last time anyone saw a total crop failure across the United States? Probably not recently,” Cramer said.
As for ethanol rising and falling with a volatile oil market, which determines the price of the product more than anything else, Cramer doesn’t dispute that.
“We’re coming off all-time high profits in the ethanol industry,” Cramer said. “What we’re seeing today is more realistic profits. Plants are still returning over 10 percent on an annual basis to members even at today’s numbers. That’s a pretty good return for agricultural companies.”
For Milton, the ethanol plant is seen as an economic boost. City leaders aren’t concerned about the nay-saying analysis, either.
“As with any potential development, the city was interested in (among other things) the community benefits, facility design, land use, safety features, impact on the local economy and compliance with all local, state and federal regulations,” Administrator Todd Schmidt said.
United Ethanol is responsible for being concerned about the economics and long-term viability of ethanol, Schmidt said.
But the city also has protected its investment.
The city required United Ethanol to sign a “decommissioning clause” in the developer’s agreement.
If ethanol production ceases at the Milton plant, the plan requires that all ethanol-related equipment and facilities be removed from the property, Schmidt said.
This would turn the property back to pre-development conditions or make it ready to retrofit another industry, Schmidt said.
Although the National Corn Growers Association has provided blanket assurances that U.S. farmers can supply all of the ethanol plants on the drawing board, not everyone is convinced, the article said.
Cramer, however, is confident that corn will be available, and he makes a prediction of his own.
“There will be a change in agriculture,” Cramer said. “A lot of guys will be planting corn on corn. There will be a reduction in the soybean acres and other crops to supply the demands of the ethanol industry.
“The business of agriculture is like any other business. It’s all about supply and demand. Wouldn’t it be great if our farmers get a fair return for their labors?”