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Who will benefit from biofuels distress?

By Staff | Apr 3, 2009

Employees of L&M Ethanol, of Fort Dodge, a contract maintenance company for ethanol plants throughout the region, drape a temporary Valero Renewables sign Thursday over the former VeraSun sign at the Fort Dodge ethanol plant. Valero officially took possession of the local facility, plus six others, on Wednesday.

Answering the question of who will benefit most from the biofuel industry’s distress, a panel of bankruptcy financiers and bankers said it will most likely be Big Ag, and not Big Oil, as most people expect.

A group of 16 Fort Dodge area residents watched a nationwide webinar Thursday at Iowa Central Community College in which panelists said the long-term prospects for biofuels is bullish because of the federal renewable fuels standard.

According to panelist E. Kenneth Pentimonti, a principal at Paladin Capital Group of Washington, D.C., giant ag companies like Monsanto and Cargill are most likely to be the entities to consolidate the ethanol industry. He maintained his view even when reminded that an oil refinery -Valero – had purchased seven VeraSun plants last month in an auction of bankrupt assets that saw Archer Daniels Midlands walk away empty-handed.

Pentimonti said that commodity traders are more experienced and comfortable hedging the price of ethanol with commodity grains than oil companies. Likewise, he said it’s not likely that foreign investors will assume ownership of the U.S. ethanol industry.

When asked if ethanol will continue to have government support if Big Ag gains controlling interest of the industry, panelist Burl Haigwood, of Bethesda, Md., director of program development for Clean Fuels Development Coalition, said it would continue.

“It was the big companies that started ethanol,” Haigwood said. “Regardless who is making it, it’s working. We’re outpacing Iran and Argentina.”

Panelist Jerome Peters, Jr, senior vice president of TD Bank Financial Group, agreed, saying that government support will be more focused based on ethanol’s role in the country’s biofuels future, rather than plant ownership.

Panelist Wayne Weitz, senior managing director for GlassRatner Advisory & Capital Group LLC, of Atlanta, Ga., said the long-term prospects of biofuels in general, and ethanol specifically, “is bullish.”

He said that although there is a surplus of ethanol on the market today, the ever-increasing renewable fuels standard will eventually soak up the excess, making it necessary to put idle ethanol plants back into production. He estimated that may be in 2010 or 2011.

An estimated 2 billion gallons of the country’s ethanol production capability is currently offline.

Greg Burnside, a grain buyer for Ag Partners LLC, in Albert City, said he attended the webinar to hear what was the near-future prospects for the ethanol industry.

Ag Partners was a corn supplier for the ethanol plant in Albert City, formerly owned by VeraSun. He said the cooperative is waiting to hear from new owner Valero if each plant will purchase grain from local sources, or if the seven new plants, including one in Fort Dodge, will be fed from a central supplier.

He said he was encouraged to hear that the future prospects for biofuels is positive.

The webinar was hosted by Iowa Central Community College, James Kersten, associate vice president of ICCC’s external relations and government affairs, said the college had a built-in investment to host the webinar in that it has a biofuels course and is developing a biofuels testing lab.

“We hope we’ve given a good picture of the current biofuels industry,” Kersten said. “We have all of this capacity surrounding us and we want to help educate consumers and engine manufacturers that biofuels work.”

When the discussion turned to ethanol plants needing to develop more diverse byproducts besides livestock feed to become more profitable, Kersten said a plant like Tate & Lyle, in Fort Dodge, “is well-positioned” because of it manufactures a number of products besides wet-milling corn ethanol.

Says ethanol immune from other effects

None of the panelists thought that low carbon fuel standards, which were implemented in 2008 by California, would affect the future of corn ethanol if adopted by other states. They also think ethanol is immune from losing its stature as the fuel stock of choice to cellulosic, sweet sorghum, sugar cane or sugar beets.

PCG’s Pentimonti said that even though the nation appears to be heading in the direction of a low carbon fuel standard, an LCFS will have to work hand-in-hand with ethanol.

“The country,” he said, “has to understand that it’s not just about the environment. It’s also about fuel security.”

TD Bank’s Peters said that corn ethanol will still be needed to meet the RFS requirements, meaning a low carbon fuel standard would have to be set on the shelf. Without ethanol, he said, “how will they meet the RFS?”

Peters also said the development of cellulosic ethanol is at least 10 years from being financially viable. Sweet sorghum and sugar beets are years away from displacing corn “because farmers will be reluctant to grow a crop that might be valuable someday.”

Contact Larry Kershner at (515) 573-2141 or by e-mail at editor@messengernews.net

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