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Weather, market hits continue for biofuels business

Agriculture.com Staff 06/27/2008 @ 12:33pm

Biofuel-makers are facing some rough times these days in the Midwest. First, tough market conditions in both the grain and fuels sectors squeezed margins down to nubs. Then, along came some of the worst flooding in a century. Add up those two, and it's spelling a not-so-great scenario for the ethanol industry in the last few weeks.

This week, officials with VeraSun Energy Corp. said the company would delay the opening of another of its ethanol plants because of market conditions. The Hankinson, North Dakota, facility joins VeraSun's Welcome, Minnesota, and Hartley, Iowa, plants in putting off production because of the crude oil market, says CEO Don Endres.

"Given the current volatility in the market, we believe that delaying all three of these startups is the prudent decision for the long-term benefit of our company and shareholders," Endres said this week. "Ethanol is currently being sold at a deep discount to unleaded gasoline, which has caused us to delay the start-up of these facilities until the outlook for ethanol selling prices and overall margins improve."

Similar steps have been taken because of increasingly negative economic factors, says Iowa Renewable Fuels Association (IRFA) director Monte Shaw, with biodiesel plants in his state.

"While some biodiesel refiners in Iowa remain offline due to negative economics, IRFA is unaware of any biodiesel production being disrupted due to flooding," Shaw said this week.

Though dollars and cents haven't closed shutters in some facilities in Iowa, Mother Nature has. Two facilities in the Cedar Rapids area, where flooding wiped out more than 4,000 homes and did millions of dollars in damage to the city's downtown and infrastructure, have been closed because of the high waters and subsequent damage they caused.

"Penford Products had completed work on a new 45 million gallon per year ethanol wet mill just prior to the flood. Due to flood related issues at their facility, Penford has stated they anticipate 'that the facility will not be in position to manufacture significant product volumes prior to the end of this August,'" Shaw says. "The ADM (Cedar Rapids) ethanol wet mill did not sustain damage from the flood. However, production had been suspended due to interruption of water supplies from the city. Now the plant 'is operating at partial capacity due to local water use constraints' and ADM 'will increase operating capacity as circumstances permit.'"

Infrastructure interruptions similar to the water supply interruptions in Cedar Rapids have caused temporary closures or scaled-back production at plants elsewhere in the state, Shaw adds.

"Another ethanol plant in Iowa was running at a reduced rate of production due to lack of rail access and the need to truck ethanol to end markets. With limited rail access restored in addition to truck capabilities, the plant has returned to full production," he says. "Although road and bridge closures have caused challenges, no ethanol or biodiesel refinery has reported a disruption of feedstock supply that will impact operations. Logistics constraints continue to ease."

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