Local ethanol plant thriving despite high input costs

Developing professionals in the grain industry tour the One Earth Energy ethanol plant in Gibson City. (Photo by Carrie Muehling/WJBC)

GIBSON CITY – The ethanol industry has changed dramatically since the One Earth Energy plant near Gibson City began manufacturing ethanol just a few years ago.

Young professionals within the grain industry in Illinois toured the plant Friday as a part of a development and leadership day coordinated by the Grain and Feed Association of Illinois.

The group learned about the process of making ethanol in a dry grind plant, where the feedstock is corn, and on any given day corn is ground into flour, which is then converted with enzymes into ethanol and dried distiller’s grains, or DDG. One Earth Energy runs 365 days a year and 24 hours a day, according to Steve Kelly, general manager of the facility.

Kelly said the siting of plant required a good highway system to bring commodities in and a good transportation system to bring products out. It was also important to locate where lots of corn is produced, to cut down on transportation costs. But while a lot of what goes in can come from nearby, the product that goes out does not always stay so close to home.

“A lot of the distiller grain goes out by truck. Ethanol primarily moves out by rail. We’re connected to Norfolk Southern here,” explained Kelly.

Most of the ethanol ships to the East Coast or to Georgia and Florida in the south. The DDG products travel to Joliet to go on the Burlington Northern railroad and then out to the West Coast and on to Asian countries, primarily.

“Some of our fuel does stay here,” said Kelly. “There is some locally purchased, and it goes to Heyworth, Kankakee or Chicago to be blended.”

With regard to the DDG, overseas markets are like domestic markets in that buyers are looking for a low cost feed additive to accomplish the protein and energy it takes to convert meat on an animal. Some of that product is consumed domestically but the majority goes overseas and is fed to hogs and poultry in other countries.

A great deal has changed since the investors in One Earth Energy did a feasibility study as they planned the facility. At that time, the 10-year average price on corn was about $2.40. Last year it averaged about $6. Ethanol was $1.21 at that time and last year it averaged $2.60. DDG values range from $85 a ton to as high as about $230/ton.

“The dollars involved to run these businesses today …  it’s just been a dramatic increase,” said Kelly.

The value of ethanol and DDGs have both risen as the corn price has risen.

“It just all comes to our net back, and as long as we can make money – positive income and positive cash flow – it all seems to be working right now,” Kelly noted.

One change the ethanol industry might see in 2012 is the removal of the Volumetric Ethanol Excise Tax Credit, which is commonly called the blender’s tax. It currently provides 45 cents for every gallon of pure ethanol that is blended into gasoline. Kelly explained that the blender’s tax is for those who seek raw ethanol and blend it down. One Earth Energy is a manufacturer of that ethanol. If the blender’s tax goes away at the end of 2011, it will not directly affect ethanol plants, but they will see some changes.

“Indirectly, it will probably get to where we have fewer blenders to handle our product, which may give us some demand issues down the road, but it’s not coming directly out of our bottom line,” Kelly said.

Kelly believes ethanol plants are seeing some artificial demand as the blenders try to capture this revenue up through Dec. 31, 2011.

As for the future of the ethanol industry, Kelly already sees a consolidation of plants that were built over the last 10 years.  The industry ramped up very quickly and invested almost $10 billion in assets.  Now that it can be considered a mature industry, he believes the ownership of existing plants will get concentrated.

“We believe those that have the staying power in that industry will be able to be a part of the future of the fuel industry,” said Kelly.

Kelly also believes those who do not support the ethanol industry don’t really understand the value that ethanol contributes today and how it helps in the balance of trade.

“In this country, we still need that energy policy to become energy efficient, and we certainly can play a role in that,” said Kelly.

To hear the interview with Steve Kelly, click here:

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Carrie Muehling can be reached at carrie@wjbc.com.