The Race for Ethanol

There are now more than 100 ethanol plants nationwide, with the highest concentration in corn-rich Midwestern states. Missouri is home to four plants and at least six others – two in the Ozarks – are in the works.

Ethanol in the Ozarks

A group of investors doing business as Ozark Ethanol LLC received a $300,000 grant from the U.S. Department of Agriculture to build a plant in the Barton County town of Liberal, north of Joplin. The plant, which will produce 50 million gallons of ethanol annually, is still in the development phase, said Jamey Cline, director of value enhancement with the Missouri Corn Growers Association.

The first plant proposed near Springfield has run into opposition.

Last week, Webster County residents filed a lawsuit to block the sale of 252 acres east of Rogersville to Gulfstream Bioflex Energy LLC, a group of Mount Vernon investors. The residents have concerns about groundwater contamination from the plant, which would churn out 1.8 million gallons of ethanol a week.

Gulfstream Bioflex Energy CEO Greg Wilmoth did not return Springfield Business Journal’s telephone call, but he told a group studying the proposed Rogersville plant that he’s working with one of the country’s largest corn brokers to ship in the grain primarily from the Midwest. About 90 percent of the grain would be shipped by rail, and Wilmoth told the group he intends to buy from local farmers, if possible.

University of Missouri agricultural economist Patrick Westhoff said three factors come into play when charting a business plan for an ethanol plant: the price and transportation cost of corn, the demand for ethanol and the demand for dried-distillers grains, the fuel’s value-added byproduct.

“Not very many places have all three of those at the same time, but much of Missouri has two of three,” he said. “In those markets, you build plants wherever you can find a spot for them.”

But demand for ethanol and the grain byproduct were not enough to overcome the high cost of transporting corn for Joplin developer James “Jimmer” Pinjuv, who was contemplating an ethanol plant on land he owns in Jasper County.

Pinjuv scrapped those plans after a $20,000 feasibility study revealed that corn sources in Iowa and Nebraska would charge 40 cents to 50 cents a bushel for shipping.

“For me and my investors, the margins just got way too slim to justify it,” he said.

Ethanol demand benefits state

In response to rising summer gas prices, Gov. Matt Blunt in July signed legislation requiring regular unleaded gas sold in Missouri to contain 10 percent ethanol – known as E10 – by Jan. 1, 2008. The emphasis on ethanol has turned Missouri cornfields into the 21st century oil fields, Blunt said at the time, citing a University of Missouri study on the economic impact of the state’s four ethanol plants.

At full capacity – 350 million gallons of ethanol a year – the plants will contribute $348 million annually in value-added income to the state economy and generate another $726 million annually in economic activity, the study found.

The plants, which are majority-owned by farmers, also have given their respective communities a much-needed economic jolt, said Mike Mills, deputy director of the Missouri Department of Economic Development.

“The reality is that ethanol and renewable fuels hold wonderful promise and have already proven what they can do to local and regional economies in rural Missouri,” he said. “The time is right now to build these plants.”

Driven by incentives

Government incentives and tax breaks are playing a major role in the race to build ethanol plants throughout the Show-Me State.

The Missouri Department of Agriculture pays ethanol producers 20 cents a gallon for the first 12.5 million gallons of fuel produced and 5 cents a gallon for the second 12.5 million gallons. The incentive program, which only applies to companies majority-owned by agriculture producers, is set to expire Dec. 31, 2015.

The companies behind all four of Missouri’s ethanol plants have taken advantage of the program, and those operating the plants in Craig and Macon reached the maximum payback allowed under the program last year, said Fred Ferrell, state agriculture department director.

DED also offers discretionary tax breaks to ethanol production companies owned by a majority of farmers, Mills said. In August, Blunt barred the state from extending the tax breaks to corporately owned ethanol plants, which are expected to complement Missouri’s existing farmer-owned operations in coming years.

Corn growers, who own the majority of Missouri’s ethanol plants, also receive federal subsidies. Almost $1.3 billion in corn subsidies went to Missouri recipients between 1995 and 2004, according to the Environmental Working Group’s farm subsidy database. In 2004 alone, Missouri corn subsidies eclipsed $150 million, according to the database.

That same year, U.S. corn growers produced a record 11.8 billion bushels with an average yield of 160.4 bushels per acre, according to the National Corn Growers Association. The average price of corn in 2004 was $1.95 per bushel, according to the association.

Right now, corn is selling for about $2.15 per bushel, Ferrell said.

Supply and demand

Some experts have expressed reservations about the ability of Missouri corn growers to supply the demand created by additional ethanol plants, which yield about 2.8 gallons of fuel from each bushel of corn.

DED is tracking prospects for 18 plants capable of producing 2 billion gallons of ethanol each year, Mills said.

The combined production capacity of the four existing plants in Macon, Malta Bend, Craig and Laddonia – the newest – is about 156 million gallons of ethanol per year. With two new plants slated for the Bootheel, Missouri’s ethanol production level is expected to reach an estimated 350 million gallons per year, according to the MU study.

“We would have a very interesting situation if all the (proposed) plants came online,” said MU economist Westhoff. “We have a lot more capacity being built than a lot of us think we can support.”

Mills at DED made a similar remark.

“It will be interesting to see the pressure it puts on corn production,” he said.

But Cline at the Missouri Corn Growers Association said producers would rise to the occasion. “Corn producers want to make sure the needs of their customers are met,” he said.

“If they see demand, farmers will continue to increase production.”

Missouri farmers produce almost 300 million bushels of corn annually – ninth in total U.S. corn production.