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FEATURE - US Farmers Big Winners in Booming Ethanol Business

Date: 30-Jan-06
Country: USA
Author: Christine Stebbins

They've found themselves at the center of a booming industry, with corn-based ethanol poised to make up 6 percent of US gasoline consumption by 2012, about double the current level.

Much of the growth is tied to the latest US Energy Bill, which mandates use of green fuel. Also, several states have ordered refiners to use ethanol as a clean-burning fuel additive in place of petroleum-based MTBE (or methyl tertiary butyl ether), which is a cancer-causing pollutant.

"For the next four or five years it's going to grow like wildfire, like it is right now, " said Tom Branhan, chief executive of Glacial Lakes Energy LLC, a 50 million-gallon ethanol plant in Watertown, South Dakota.

Currently, there are 95 ethanol plants in the United States and another 31 under construction, with the bulk of the facilities west of the Mississippi River, according to the Renewable Fuels Association.

"You've pretty much saturated South Dakota. Iowa is pretty much saturated, (as are) Nebraska (and) Minnesota. I think where you're going to see the next move toward the east -- Indiana, Ohio, Wisconsin," said Branhan.

Not only are farmers supplying the key ingredient -- corn -- but they are finding new ways to form alliances which allow them to compete head-to-head against international grain conglomerates like Archer Daniels Midland Co. and Cargill Inc.

More than 45 percent of all the ethanol produced in the United States now comes from farmer-owned plants, thanks to enhanced management systems.

Unlike traditional co-ops which were managed by farmers, today's farmer-owned ethanol plants are built and managed by specialists in the fuel industry.

"There has been a lot of organization and management innovations relative to these ethanol plants that allow them to play much bigger than they are," said Peter Goldsmith, economist in agricultural strategy with the University of Illinois.

The farmer-owned ethanol plants are centrally managed which allows better quality-control and cooperative marketing of their fuel additive. The production of 50 million to 100 million-gallon plants is packaged together to meet the volume needed by such refiners and blenders as BP Amoco Chemical Co., Marathon Oil Corp. and Exxon Mobil Corp.

In this movement away from the century-old co-op system, many of these plants are limited liability companies, or LLCs.

"The LLC allows them to specialize. That's the ticket," Goldsmith said.

LLC status means that not only can farmers buy into the plants, but outside investors can as well -- something not possible under the old co-op system.

ADM, CARGILL REKINDLE INTEREST IN ETHANOL

"The growth has really been with the farmer-owned plants but we're going to see some non-farmer entities get back into it big," said Brian Jennings, executive vice president with the American Coalition for Ethanol.

Among big corporations, Cargill and ADM have both announced plans to expand ethanol production capacity.

ADM, still the top US ethanol producer even though its market share has declined to 25 percent from more than 40 percent in 2000, said last fall it was expanding its ethanol capacity by 500 million gallons.

Cargill is taking a two-pronged approach by increasing its own production along with establishing service agreements with independent groups of investors, like ASAlliances and BioFuels Solutions, which build and manage ethanol plants. Cargill's biggest expansion is planned for its corn processing complex in Blair, Nebraska, where construction of a 110 million-gallon-a-year plant is set to begin this spring.

While farmers have competed successfully against the corporate giants over the last five years, the key question is whether they will be able to do so in the future.

"That's the million-dollar question. Time will tell ... but if history is any lesson, farmers have competed with the large companies very well," said Jennings.

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Reuters
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