Evansville plant mirroring national problem
It’s happening at ethanol and biodiesel plants all over the world, industry analysts say.
“Feed stock prices are having a huge affect on the bottom line for both ethanol and biodiesel facilities,” said Walter Wendland, president of the board of directors of Iowa Renewable Fuels Association.
Most biodiesel facilities projected soy oil at 20 to 25 cents per pound, but now it’s selling for about 45 cents, said Wendland, who also is the chief executive officer of Golden Grain Energy, which operates an ethanol plant in Mason City, Iowa.
His plant just completed an expansion to produce up to 140 million gallons of ethanol a year.
Construction on some ethanol and biodiesel plants across the country has halted because of the increased cost of raw materials, said John Sheehy, board president of North Prairie Productions.
Some have dipped deeply enough into construction loans that they must push ahead and begin generating income, he said.
“They can’t stop like we can,” he said.
North Prairie informed its more than 900 shareholders last week that its board had unanimously decided to temporarily suspend construction on the biodiesel plant on County M in Evansville because of high commodity prices.
The price of soy oil has more than doubled since the project started, but the sale price of biodiesel hasn’t increased as much, Sheehy said.
“That’s where the math starts to not work,” he said.
Jeff Pieterick, vice president of North Prairie and pres ident of the Wisconsin Biodiesel Association, attributes the problem to growing pains for a new industry.
“It’s going to take a while for the markets to sort that out,” he said.
With additional concerns about the overall economy—the mortgage lending crisis and potential recession—it makes sense to proceed slowly, he said.
So when will construction resume in Evansville?
It all depends on the market.
North Prairie can’t say for sure that it will finish the project, Sheehy said, but the company is committed to making it work.
“We can sit tight as long as we need to without getting ourselves behind the eight ball,” he said. “We want to protect this project, we want to see it succeed, and we’re taking all the measures to succeed.”
If the project falls through, North Prairie would liquidate its assets, and shareholders would receive money back, Sheehy said,
“It wouldn’t be a 100 percent return,” he said, “but it’s not 20 percent, either.”
North Prairie’s commitment letter from its bank still is valid, though the bank is having a hard time getting other banks to participate based on the commodity numbers, he said.
“Once that corrects, I really believe that side—the debt side—will correct,” he said.
Until then, the shareholder equity is protected and drawing interest while the company lowers its overhead as much as possible, he said. North Prairie’s board will meet monthly and update the city of Evansville.
City leaders have rallied behind the project from the start, offering incentives to ensure the plant located there. But the city is protected through its development agreement, and it’s early enough in the project that “not a whole lot” has been spent, Mayor Sandy Decker said.
The city has spent about $470,000 of the $2.3 million it allocated as incentives for the project, she said. About $330,000 of those expenses were for improvements to County M, while $80,000 was for electrical service and a transformer, she said. The remaining $60,000 was spent on legal, engineering and other costs for the development agreement.
Guarantees in the development agreement, however, state that the $330,000 could still be levied as a special assessment against the property, so if the property were sold, the assessment would transfer as well, she said.
Plans will move forward for a proposed soybean crushing plant to be built next to the biodiesel site, said John Blaska, board president of Landmark Services Cooperative, which is proposing the crush plant.
A crush plant today is a better investment than a biodiesel plant because the crush is on the other side of the commodity market—selling the oil at a higher price, Sheehy said.
Landmark is adjusting its feasibility study based on the market changes and discussing with the state about requirements for a $4 million grant designated for the project, Blaska said.
Blaska said he fully supports North Prairie’s decision.
“It really doesn’t affect Landmark’s intentions,” he said.