Janesville, Minn. hit hard in the ethanol bust
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Several orange construction cones stand on the road leading into the new ethanol plant on the east side of Janesville. The plant has never produced a drop of ethanol. As traffic rushes by on nearby Hwy. 14, farmer Richard Guse is confident the plant will eventually start making ethanol, but he doesn't know when.
"It looks like they have a little bit of work left on the road here but the way I understand it the plant itself is ready to go and in working condition," said Guse.
The plant was supposed to open several months ago. But when VeraSun went bankrupt last fall, the startup of this plant and the one in Welcome was put on hold.
Farmers like Richard Guse had signed lucrative contracts to deliver corn to the Janesville plant. Those contracts were canceled. Guse estimates his lost revenue at $300,000.
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More than a hundred other Minnesota farmers took similar hits. Nationwide, over a thousand farmers saw $55 million in revenue evaporate when VeraSun canceled the corn contracts.
After several good years for farmers, Guse said the operation he and his brother run is financially strong enough to absorb the hit.
"It's really out of our hands, there's not much we can do," said Guse.
He's eager to see what happens when the Janesville plant and 15 other VeraSun ethanol facilities are auctioned off. Guse hopes the sale will lead to a quick opening at Janesville, giving farmers, at last, another place to sell corn.
As someone who knows firsthand the risks of the grain market, Guse can only shake his head and wonder at the disastrous strategy that ruined VeraSun.
The Sioux Falls based company bet a lot of money that corn prices would continue rising last summer. Instead they plummeted. VeraSun lost hundreds of millions of dollars.
The company was locked into paying two- or even three times the market price of corn.
Right now, and in the foreseeable future according to forward prices, the margins are not profitable for many operators
If the economics of ethanol had been better, the company might have survived. But profit margins industry-wide were shrinking fast as the price of ethanol fell.
Ethanol industry analyst Bill Tierney of LMC International, a consulting firm, said it's been difficult for any ethanol producer to make money since last summer.
"Clearly, if you take a look at the ethanol plants themselves, they're under severe financial stress," said Tierney. "There's multiple indications of that."
VeraSun is the most visible victim, but there are others. Across the U.S. at least 20 ethanol plants are temporarily closed, bankrupt, or both. Ethanol analyst Tierney estimates about one-sixth of U.S. ethanol production capacity is shut down.
"Right now, and in the foreseeable future according to forward prices, the margins are not profitable for many operators," said Tierney.
To reverse the downward slide, ethanol backers want the government to allow more ethanol in gasoline. They believe raising the current 10 percent cap would boost both sales and profits.
Jeff Broin is CEO of the nation's largest ethanol producer, Sioux Falls-based POET. He said unless the limit is raised, the next generation of ethanol--making the fuel from crop waste instead of corn--could die from lack of investment.
"It's imperative that we move that blend wall in order to make room for cellulosic ethanol," said Broin. "It needs to get up to 15 percent to get those plants financed.'
Broin said it's uncertain whether his company's plans for a cellulosic plant in Iowa will move forward unless the cap is raised.
Farmer Richard Guse of Janesville said after the bad experience with VeraSun, farmers may also be reluctant to invest in cellulosic. He said they'd have to buy specialized equipment to gather the crop waste needed to make cellulosic ethanol.
"I personally would have a hard time doing that with what just happened here," said Guse, "to get the equipment without knowing that we're not going to get stabbed in the back again three-four-five years down the road."
Raising doubts about the future of cellulosic ethanol is not the only fallout from the VeraSun auction. At least one oil refiner has entered a bid for VeraSun plants. If the bid succeeds it will signal the petroleum industry's debut in making ethanol, its long-time rival.
