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Pro-Corn plans expansion

Fri, Feb 9th, 2001
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Ethanol plant will double in output By John TorgrimsonMonday, February 12, 2001

Editors note: The Pro-Corn Ethanol Plant in Preston is planning to expand its plant operations from its present production capacity of 23 million gallons to nearly 50 million gallons of ethanol per year. It would also increase the amount of distillers grain, produced as a byproduct of ethanol, from 60,000 tons per year to 167,875 tons. Journal Editor, John Torgrimson, sat down to discuss this expansion with Pro-Corn LLC General Manager Richard Eichstad. A summary of their conversation follows:

Could you give our readers some background about the ethanol plant, how its developed and where its presently at?

Eichstad: This plant started in August 1998, a little over two years ago. I joined the operation in April 1998, and as I understand it, there was a group of people who had been working on organizing the plant for at least two or even three years before that.

The last two and a half years have been very good for us productivity wise and performance wise; it has been good for this facility and very good for the farmer-owners.

The ethanol plant has raised the price of corn in this area anywhere from a nickel to a dime a bushel. I think the plant has been good for all of the farmers in this area and I hope that its been of value to the whole community.

Its my understanding that the plant is presently producing above its original specifications?

The original engineers guarantee on this plant was to produce 12 million gallons annually. Right now we are producing close to 23 million gallons per year. The reason for this is due to improvements in technology. We have made some very small capital investments that have led to improvements in the biological technology. The people here do a great job in running the plant.

According to the Minnesota Pollution Control Agency (MPCA), youre going to increase production from 22.5 million to 50 million gallons of ethanol per year and from 60,000 to 167,875 tons of distillers grain per year.

The engineering guarantee for this plant is 36 or 37 million gallons per year; but were hoping that we would be producing somewhere in the low 40s. The MPCA has set the air permit at 50 million gallons to allow for technical improvements and increased productivity.

How does that kind of expansion translate in terms of manpower and physical size?

We will be staying within the original 17 acres that we have here. We will not be going beyond the perimeter. Well be increasing the size of the building by about 20% and adding a 400,000 bushel corn bin. There will also be a silo for distillers grain and a large tank for ethanol. Those are the things that will be more visible to everyone.

We do not intend to hire too many more employees because this is a highly automated process. Well see more people handling the grains. Instead of 22,000 bushels per day, well have 40,000 bushels per day. There will be more traffic coming in, more activity. Well probably need to hire about five more people.

What kind of capital costs are we talking about.

In the area of $17 million. We are looking at a range of financing from a variety of loan institutions and a number of different banks. We havent got any information on any additional TIF (Tax Increment Financing). We are not planning on selling anymore stock. We want to finance it all ourselves.

Does this mean that you will be buying corn on the open market instead of through shareholders.

Yes. How we procure the corn remains to be determined. It will certainly increase demand. Many of our 160 shareholders in the coop (Southeast Minnesota Ethenal Cooperative) probably already have a lot of their corn committed. I dont feel that we can go to them and say we want you to double your commitment in corn. The expansion will certainly increase the amount that we will be taking.

From a business planning standpoint, for the last couple of years you have had low prices for corn and rising gas prices. Thats a pretty bullish market for ethanol, do you see that trend continuing?

The first year we were in operation, we had low corn prices and low ethanol prices and financially the performance was still pretty good. Last year the corn prices went up a little bit, they were still low, and ethanol prices increased a great deal. So, the financial performance was extremely good. It was probably one of the best ethanol markets in the history of the ethanol industry. But it was a very unusual year and I dont think that is going to be reflective of going forward.

We think that the industry will grow and demand will continue to grow for ethanol. MTBE (gasoline additive) is being phased out of California and there are other states that are passing legislation where they wont use any MTBE.

One of the main issues I hear from a lot of people is the problem of smell.

We will be putting in a different scrubber that we havent had before. The smoke stack will be increased from 100 feet to 175 feet for better disbursement. But, will that eliminate the odor? No, I would never say that because that is a subjective thing. What I can say is that we will be in compliance with all the quantifiable things that are regulated by the Environmental Protection Agency (EPA) and the MPCA. Odor is not a regulated thing, its not a measurable thing; and it is subjective. But we will be putting in scrubbers. We are sensitive to that. We will do what we can to make it (smell) as minimal as possible.

What kind of draw down on water will there be?

Well certainly be using more water, but we are on city water. We have met with city people and the engineering firm representing the city, they do not anticipate any issues with water.

What kind of timetable are you looking at?

We would like to start construction late summer, early autumn, and be operational within a year; between 10 to 12 months.

How is the market for distillers grain?

The people that are selling that for us, CSC out of the Twin Cities, say that they do not anticipate any difficulty handling the increased tonage. Right now it is being used mainly for cattle, but some inroads are being made in using it with poultry and hogs.

Can producing ethanol be sustainable without subsidies?

When we look at the costs of producing ethanol, all the costs, including the environmental costs, it is very attractive compared to other energy. The costs of those other energy sources are not readily apparent, so thats why you have public policy to support these things.

Now, the subsidies that are available for the ethanol industry as producer payments have a sunset law in ten years (Minnesota). That was used to get the plants going. Each plant is subsidized up to the first 15 million gallons.

You do that for a lot of industries, in that they are believed to be beneficial to the public as a whole. No subsidies will be used to finance the plant expansion.

The other thing you have is the federal tax incentive to the blenders that buy ethanol. That too has a sunset in 2007. That was put there to create a demand for the product in the marketplace.

On the other hand, the petroleum incentives (oil industry) will continue for a long, long time. There are no sunsets on those.

Any final thoughts?
Ethanol is a renewable resource. As these plants develop, they improve the price for corn. That hopefully makes the farmer less dependent on other farm subsidies too.

The state department of agriculture says that it is getting more money back from ethanol

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