U.S. BioEnergy Corporation held a groundbreaking ceremony on June 15 for a new 100 million gallon ethanol plant, located just east of Janesville, MN, in Waseca County. In addition the 100 million gallons of ethanol produced annually, the plant will also produce approximately 320,000 tons of dried distillers grains (DDGs) per year. The plant will employ about 40 people, and will process about 35-40 million bushels of corn per year.
The Janesville ethanol plant is the third ethanol plant to break ground in south central Minnesota in the past year with an estimated annual capacity of 100 million gallons or more. The other ethanol plants are located at Fairmont and Welcome, MN, in Martin County. The three ethanol plants currently under construction join existing ethanol plants in the region at Lake Crystal, Winnebago, Winthrop and Albert Lea, with an annual ethanol production capacity of over 200 million gallons per year. Once the three new ethanol plants are in full operation in 2009, there will be an ethanol production capacity of over 500 million gallons per year in south central Minnesota. These ethanol plants will utilize about 200 million bushels of corn per year.
The added ethanol capacity in South Central Minnesota should be good news for area corn producers. The anticipated ethanol production, combined with the corn that is fed to livestock should make the region close to self-sufficient with regards to corn usage, meaning that most of the corn raised in the region will be utilized in ethanol and livestock production. Currently about half of the corn raised in the region is used to feed hogs, dairy and beef cattle and poultry. The added local demand for corn should help improve the future corn price basis in southern Minnesota, which is the difference between the Chicago Board of Trade (CBOT) corn price and the local cash corn bid prices in the region. In the past year, the corn price basis in southern Minnesota has typically been $.35-.50/bu. below CBOT corn price quotes.
Ethanol Over-Supply?
In the most recent ethanol production data in the U.S., which was for March, 2007, ethanol production was at 11.9 million barrels for the month, while U.S. ethanol demand for March was calculated at 12.8 million barrels. However, most ethanol industry experts agree that ethanol supply will soon exceed demand, possibly by the end of 2007, due to the large number of ethanol plants under construction across the U.S. Currently, there are 120 ethanol plants operating in the U.S., producing approximately 6.2 billion gallons of ethanol annually. There are 85 ethanol plants that are either under construction or adding capacity, which will add an additional 6.4 billion gallons to the U.S. ethanol production capacity by early 2009.
The biggest challenge is that the development of the infrastructure to utilize the ethanol throughout the U.S. is lagging behind the expansion in ethanol production. So, it’s possible that starting later in 2007, the profits at ethanol plants could be quite tight for the short-term due to excessive supplies of ethanol. These profit margins will be especially tight if weather patterns result in a lower than expected U.S. corn production for 2007. Longer-term, demand for ethanol in the U.S. is expected to increase dramatically in the coming years, which should alleviate any potential short-term ethanol over-supply issues that may develop in the next couple of years.
Profits at most ethanol plants are considerably lower in June 2007 than they were a year ago, primarily due to the sharp increase in corn prices since the fall of 2006. Corn prices are at the highest levels since 1996, and are $1.50-2/bu. higher than at this time a year ago. The ethanol price is very similar to this period in 2006; however the price that plants receive for DDGs is higher than a year ago, but has dropped somewhat in recent weeks.
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 kent.thiesse@minnstarbank.com.
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