Record-high corn prices stemming from a nationwide drought are causing many ethanol plants to cut back production, but area plants are in better shape than most, managers say.
"We are at full production at both of our plants," said Roger Hansen, director of grain commodities at Glacial Lakes Energy with plants in Mina and Watertown. "A lot of our margin has been compressed, but realistically we are cash flowing."
The ethanol plant in Redfield is continuing at full production, said Tom Hitchcock, CEO of Redfield Energy.
"We are taking it one day at a time," he said. "As long as we have corn and the market doesn't get too depressed, we will continue to grind corn."
Ethanol production nationally has dropped by 20 percent since the beginning of the year and is at a two-year low, said Bob Dinneen, CEO of the Renewable Fuels Association, in an Associated Press article.
Some plants in Iowa have slashed production because of a lack of corn availability.
In Nebraska, three of the state's 24 ethanol plants have temporarily halted operations.
Northeast South Dakota has escaped the worst part of the drought. While yields will likely be down because of dry conditions, there should be plenty of corn available in the area, Hitchcock said.
Still the price is very high. On Thursday, Glacial Lakes was paying $7.65 a bushel for corn and December corn futures on the Chicago Board of Trade were at $8.07 a bushel. A week ago, December corn futures hit $8.49, an all-time record, before prices began to recede.
It is difficult to make a profit when plants have to buy raw materials at record prices; however, the price of ethanol has edged up in recent months, Hansen said.
Ethanol is up about 60 cents a gallon since May, and the price of distillers grain, the high protein corn feed remaining after distillation, has also gone up.
"It is not a total disaster," said Hansen. "I wouldn't say we are profitable, but I can say we are running at cash-positive levels."
Cattle producers are feeling the effects of high feed prices and some have begun to reduce their herd sizes.
The price of food is expected to increase, rekindling the old food versus fuel debate.
Livestock and oil industry groups are lobbying Congress to pressure the Environmental Protection Agency to relax its renewable fuel standard, which requires the fuel industry to use about 12 billion gallons of ethanol a year. Oil companies could furnish enough gasoline to replace the ethanol freeing up corn for animal or human consumption, the groups say.
The ethanol industry is opposed to any reduction in the Renewable Fuel Standard.
“Although this year's drought poses challenges for farmers and corn customers, we need to remember it is a one-year problem, and even by today's USDA estimate, the 2012 crop would still be the eighth largest in history, " Jeff Lautt CEO at POET, said in a news release.
“Some in Washington have seized on Americans' fear during this time and used it to try to undermine our country's renewable fuel efforts. It is a lack of rain, not ethanol, that is causing corn prices to rise. Additionally, ethanol's use of corn is often overstated. After factoring in the high-protein animal feed produced at ethanol plants, the industry's net use of last year's corn crop was only 16 percent."
The demand for distillers grain has gone up, Hansen said.
"A lot of the cattle producers are going to ride the wave," he said. "They are buying feed to stock up for the winter. If they can get through the downturn in the market with their herds intact, they will have cattle to sell when the market rebounds."
While many producers in this area have a decent supply of corn, producers from southern South Dakota, Nebraska and Iowa are buying distillers grain from the Glacial Lakes plants, Hansen said.
The ethanol plants that are fairing the best are in areas where rain has kept corn fields growing.
"If any plants have a chance of coming out of this, it is the plants in northern South Dakota, North Dakota and western Minnesota," Hitchcock said. "We have been in the sweet spot as far as weather has been concerned."
