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N.D., MN Lenders Optimistic About Ethanol

VeraSun Energy's bankruptcy isn't the beginning of the end for ethanol says Paul DeBriyn, president and chief executive officer of AgStar Financial Services, Mankato, Minn.

AgStar helped finance 44 ethanol plants, including VeraSun, which declared bankruptcy in late October. The company says it will be able to continue operations and come out of bankruptcy.

DeBriyn says he's optimistic about ethanol for four reasons:

  • Ethanol is "engrained" in U.S. energy policy.
  • There's a need for 14-15 billion gallons of ethanol to replace MTBE as an oxygenate in gasoline annually. That's about as much as existing plants can produce.
  • A significant investment has been made in infrastructure to blend ethanol with gasoline. Those assets will be used, even when it is only possible to breakeven.
  • New technologies could increase ethanol margins. One process extracts corn oil from the kernels before making ethanol. That would give ethanol plants another revenue stream. Another could increase amount of ethanol that can be increased per acre.
    Many groups are working to win the government's approval for higher blends of ethanol, such as E20 or E30, in non-flex fuel vehicles. If okayed, the market for ethanol would double or triple.

"Ethanol is not going to go away," DeBriyn says.

Dave DeVos, vice-president for agribusiness at AgCountry Farm Credit Services, Fargo, N.D., agrees. AgCountry also has loaned money to more than 40 ethanol plants.

There are going to be ups and downs in ethanol because ethanol is a commodity and commodities have market cycles. Some plants will be better able to ride out low prices because they have "strategic and technological advantages that others do not have," he says.

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