By Derrick Gingery, Greater Fort Wayne Business Weekly
Ethanol plants are becoming popular investments for farmers, but they are not without risk.
A proposed ethanol plant for Wells County has area farmers and other potential investors considering the potential upside of such a facility in their community.
“If there was less risk there would be New York Stock Exchange money in it,” said Mick Henderson, general manager of an ethanol plant in Hopkinsville, Ky. “There would be big oil money in it. Big companies are not willing to invest in this right now.”
Discussions about possible state assistance to help build an ethanol plant in Wells County began recently. Garry Jones, chief executive officer of the Wells County Chamber of Commerce, said discussions are just beginning and the group hopes to meet with officials at the Indiana Economic Development Corp. again soon.
The Wells County plant would produce 100 million gallons of ethanol a year and create about 50 to 60 jobs. Twelve people already pledged $120,000 in at-risk capital for the project.
Ethanol plants are becoming more popular as the price of gasoline increases and farmers look to add another market for their corn.
Ethanol is made from corn and soy products and can be used with or instead of gasoline to reduce carbon monoxide emissions. But while demand is increasing, there is no guarantee of making money. Michael Ladisch, Purdue University professor of agriculture and biological engineering, said transportation problems already have created an oversupply of ethanol in the Midwest, but that should be worked out relatively quickly.
“It really does make a lot more sense than 10 years ago,” Ladisch said. “This is not risk-free or a no-brainer.”
The $125 million ethanol plant would be the largest industrial project in Wells County history. Officials have a conditional letter of intent from a plant builder, Fagen Inc., all but indicating it will move forward with the project if Wells County comes up with $20 million to $25 million.
Fagen Inc. built the ethanol plant in Hopkinsville, Ky., to produce about 20 million gallons a year. The plant, run by Commonwealth Agri-Energy LLC, opened in February 2004 and has been successful, according to Henderson. Earnings for its first fiscal year will be released in August.
That plant was funded by more than 2,300 farmers who are part of the Hopkinsville Elevator Company Inc. and Kentucky Corn Growers Association. Henderson said farmers like the idea because each person only puts up a relatively small amount, like $20,000.
Henderson said the ethanol production business still is risky. He said the price has been down 30 percent in about the last four months. But Henderson said for farmers it can provide a much better return than selling corn in other markets.
Ethanol plants can be successful near major metropolitan areas, where federal regulations mandate gasoline be blended with ethanol or another product to reduce harmful emissions, Henderson said. Lake and Porter counties in northwest Indiana, as well as Chicago and its surrounding areas that require blended gasoline, likely would be the closest to the Fort Wayne area.
Jimmy Doss, general manager of Hopkinsville Elevator Company, which has a 94 percent stake in the plant, said business has been good enough that there are plans to expand production capabilities to 30 million gallons a year. Doss said the plant has done better than expectations, but he said the investors have learned to expect price fluctuations.
“It’s just like any kind of business at all,” Doss said. “There’s going to be peaks and valleys. So many plants are being built now that ethanol is going to be cheap even though (the price of) gas is high.”
There are 81 ethanol manufacturing plants that have an annual capacity of about 3.6 billion gallons, according to research released by the Renewable Fuels Association in January. An additional 16 plants were under construction along with two plant expansions that would add another 754 million gallons of capacity. Total ethanol production for 2005 is estimated at about 3.9 billion gallons.
Ladisch said there likely is a demand for the ethanol being produced. He said there will be a need at some point for ethanol plant officials to explore exporting their product out of state or to another country. But he said long-term, ethanol will remain a viable business.
“If every 10 counties had a plant there would be a glut in the market,” Ladisch said. “But that is not going to happen overnight.”
Copyright 2005, KPC Media Group Inc.