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Corn+Soybean Digest

Ethanol: To The Bank And Beyond

Profits at most ethanol plants deteriorated rapidly in 2008 as the cost of corn rose considerably early in the year, well beyond the projections of most experts in the ethanol industry. In addition, world oil prices and gasoline prices in the U.S. also dropped extensively in last few months of 2008, as did the price for ethanol. The result was some big financial losses for many ethanol plants in the last half of 2008, and bankruptcy filings by some ethanol corporations, including VeraSun Energy Corporation. Profitability at ethanol plants has improved somewhat since fall 2008, but overall profits in the ethanol industry remain quite tight. Even though the corn prices are close to half of what they were at peak prices in summer 2008, ethanol prices remain quite low, which continues to put strains on profit margins. Ethanol plants that are completely paid for, and are not servicing much debt, have been able to operate at a small profit in recent months.

Future Ethanol Ideas
Recently, confirmation hearings were held for new Secretary of Agriculture Tom Vilsack, and new Energy Secretary Steven Chu. Both were confirmed and are now giving leadership to those federal departments under the Obama administration. Both Sec. Vilsack and Sec. Chu stressed the importance of the U.S. moving more aggressively toward cellulosic ethanol production, in order to meet the targeted 36 billion gallons per year of ethanol production by 2022. Both are also willing to research the possibility of moving toward required ethanol blends that are higher than the current 10% ethanol blends. They also stressed the importance of E-85 type fuels, and working with the automobile industry for further technology advancements on utilizing ethanol.

Cellulosic Ethanol Development
POET Energy started producing cellulosic ethanol from corncobs late in 2008, at the POET Research Center in Scotland, SD, and is now producing ethanol at a rate of 20,000 gal./year using corncobs. This is considered an important step in the development of the commercial-scale Project Liberty cellulosic ethanol plant being developed by POET at Emmetsburg, IA, which is scheduled to begin production in 2011. Through research, POET has been able to reduce the cost of producing the cellulosic ethanol considerably. The cost of producing the cellulosic ethanol is still about $1/gal. more than grain-based ethanol; however, it is hoped that through further research the margin can be cut to 50¢/gal. or less by 2011. POET chose to use corncobs to produce the cellulosic ethanol due to environmental benefits and potential efficiencies of using the cobs as ethanol feedstock. According to the Argonne National Laboratory, there is an 87% reduction in greenhouse gases with cellulosic ethanol compared to gasoline, without having a significant impact on the environment. According to Iowa State University and USDA, corncobs only account for 7.5% of the entire corn plant, and the cobs contain only 2-3% of the measured nutrients in the aboveground corn plant.

POET Energy has invested considerable resources toward the research and development of cellulosic energy for several years, but has greatly expanded those efforts in the past couple of years, as they move toward commercial cellulosic ethanol production at the Emmetsburg, IA plant. Project Liberty will require a $200 million investment by POET and the U.S. Department of Energy. POET Energy currently operates 26 corn-grain-based ethanol plants in several states, including a plants at Lake Crystal, Bingham Lake, Glenville and Preston, MN.

VeraSun Update
The VeraSun Energy Corporation, which filed bankruptcy late in 2008, has been approved by a Delaware Bankruptcy Court to sell off seven of its existing ethanol plants, including the VeraSun plant at Janesville, MN. The ethanol plants will be sold at auction between March 16 and 31, 2009. It is not clear at this point what the impact of these pending sales will have on the 2009 corn contracts that VeraSun has with area farm operators and grain elevators near those ethanol plants. The good news is that many of those plants should begin producing ethanol and buying corn again later in 2009, provided that all details of the plant sale are finalized. The balance of the VeraSun ethanol plants – including the plant at Welcome, MN – are not affected by the recent announcement regarding the ethanol plant sales.

Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at

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