The End Of Ethanol?
thumbnail
Three years ago, cheap corn, easy financing and disruptions in gasoline production fueled a dramatic expansion of the ethanol industry. Plants popped up like mushrooms across the plains. Since then, financing has largely dried up and many operators have declared bankruptcy. With capital tight and investors scarred from the industry's crash, making the expensive transition from corn to some other basic ingredient for ethanol could take a long time.
Frank Morris reports for member station KCUR in Kansas City, Miss.
9(MDAyNzUwMDI2MDEyNTA3MTU5NzcyNTQyNA004))
ALEX COHEN, host:
From NPR News, it's Day to Day. Remember when ethanol was all the rage? Profits from the renewable, clean-burning fuel were huge. Companies planned to build hundreds of new plants. But now, many of those plans have been shelved as the ethanol industry faces a possible bust. Frank Morris of member station KCUR reports.
FRANK MORRIS: Mark Beemer might have avoided the ethanol mess altogether, if only he'd taken a different road to Minneapolis.
Mr. MARK BEEMER (President and CEO, Alternative Energy Sources, Kansas City): I was driving past the ethanol plant. All I'll say, it was in Iowa. I'm not going to say where, because then I know these people.
MORRIS: He saw signs of lax management, rail cars sitting idle, other things. He drove around again.
Mr. BEEMER: I got my cell phone out, and I called a buddy of mine who was also at AVM(ph) at the time. And I just said, this industry is clamoring for people who can do it better and more efficient.
MORRIS: This was almost three years ago. Fuel prices were rising fast; ethanol quickly doubled. The corn to make it was cheap. Profits were great. Investors could pay off a $100 million ethanol plant in just a few months. Beemer started a company and talked his friends and family into going in, to the tune of $2 million. But now Beemer's working from his house in suburban Kansas City, taking care of four kids and the final paperwork from his failed business.
Mr. BEEMER: The party is over.
Dr. CHAD HART (Economics, Bioeconomy Institute, Iowa State University): What we saw, especially if you look back at 2006, we saw a heck of a lot of plants being put on the board. We did a lot of planning; we did a lot of zoning. We didn't do a lot of construction.
MORRIS: That's Chad Hart. He's in his office at Iowa State University, in the middle of corn country. He says investors caught in the rush of 2006 were sometimes trampled by those who got in earlier. A wave of new plants that came online last year flooded the market and drove prices down. Corn, meanwhile, climbed to record highs. Ethanol profits vaporized. Many producers took a loss on every gallon. Several, including VeraSun, the second largest, went bankrupt. Investors like Beemer abandoned plans for more than 200 plants, and banks quit lending to producers.
These days, corn prices are down but still high by historical standards, in part because of the ethanol industry. About a third of the crop will go for ethanol this year, and federal mandates for ethanol ratchet up each of the next 14 years. That raises prices for the livestock and dairy industries, which feed enormous quantities of corn. Colin Woodall, who lobbies for the National Cattlemen's Beef Association, was in Kansas City for a conference recently. He says the mandate, coupled with a hefty government subsidy and a tariff on ethanol imports, set up the current crisis.
Mr. COLIN WOODALL (Executive Director, Legislative Affairs, National Cattlemen's Beef Association): There was the incentives out there to overbill. People saw that as free money from the government. They said, whoa, we need to invest to get these things built. And then when the price went down, where ethanol was not as attractive as it once was, then they were all, kind of, left holding the bag.
MORRIS: Ethanol producers say that bag is still full of potential. They figure the companies left standing after the industry shakeout will thrive, supplying a market all but guaranteed to grow every year. Bob Dinneen runs the Renewable Fuels Association. Mr. BOB DINNEEN (President and CEO, Renewable Fuels Association): Is it harder to do today because of that credit crunch? Yeah. But it's hard to do anything today. You know, we still have 30 plants under construction.
MORRIS: But those plants under construction were all funded with money from the boom era, and there's no guarantee they'll produce anything when they're done. Dinneen admits that several plants finished recently but never operated. They're just sitting out on the prairie, waiting for the economy or the government to give them a reason to start up. And every time the price of oil drops, the price of ethanol, and the political will to support it, falls as well. For NPR News, I'm Frank Morris in Kansas City. Transcript provided by NPR, Copyright National Public Radio.
