POET idles ethanol plants; Corn farmers lose home for 110 million bushels
DES MOINES, Iowa -- POET, Inc., the world’s largest ethanol producer, will idle production at its bio-processing facilities in Ashton and Coon Rapids, Iowa, and in Chancellor, South Dakota, and delay the start of its new plant in Shelbyville, Indiana.
In an exclusive telephone interview with Successful Farming, POET President and Chief Operating Officer Jeff Lautt said none of POET’s other 23 ethanol-producing plants have been idled. However, he added, the company has significantly slowed production at some of its other plants and has stopped buying corn at seven plants.
POET is headquartered in Sioux Falls, South Dakota, and operates 27 ethanol plants and an ethanol research center in seven states. Its plants’ total annual production capacity is 2 billion gallons of ethanol, 10 billion pounds of distillers’ dried grains, and 600 million pounds of corn oil.
On an annualized basis, these operational changes at the four plants are expected to reduce corn demand by 110 million bushels, freezing 330 million gallons of ethanol production across the four facilities, according to POET.
The economic hardship caused by the novel coronavirus and the resulting cutback in the demand for gasoline could eventually result in an 8-billion-gallon drop in ethanol production in the U.S., Lautt noted, which would result in a reduction of 2.7 billion bushels of corn used to make that ethanol. The poor economics of ethanol production because of the pandemic caused by the novel coronavirus and the global slump in oil prices has been compounded by a decline in export demand for U.S. ethanol, Lautt noted. “It’s been a challenging past two years,” he remarked. “Everybody is trying to adjust to the current demand situation.”
Lautt said corn bins at POET’s plants are full and its storage tanks of ethanol also are topped off as the company tries to adjust its production to match the current market for ethanol.
With its corn storage bins full, POET will defer accepting deliveries of corn and work with its farmer-customers in the coming months, Lautt stated. “We communicated with farmers a few weeks back. We were pretty pro-active that we were going to adjust our production levels.”
Lautt said it is difficult to predict what will happen to corn prices in the coming months because the demand for making ethanol has dried up. “We could end up with a 4-billion-bushel (corn) carryout, which will be devastating for farmers,” he stated. “Absolutely, this will cause some hardships for farmers as all of these ethanol plants shut down. It’s going to be devastating.”
The Chancellor plant has the capacity to produce 125 million gallons of ethanol a year; Ashton has an annual capacity of 65 million gallons, and Coon Rapids can produce 60 million gallons a year. The Shelbyville plant is designed to produce 80 million gallons of ethanol a year from 28 million bushels of corn and would have paid annual wages of more than $2 million. Lautt said that the new plant was due to start grinding corn in March, when concerns over the spread of the novel coronavirus began. “Shelbyville is ready to go and, as soon as conditions permit, it will open,” he stated. An opening date has not been set and POET managers are monitoring the situation day-to-day and week-to-week.
In order to start the plant, POET would have had to send a team of employees to Indiana. “Our primary concern was for the safety of our team members,” Lautt said. “We decided the prudent thing was to wait until market conditions settle down and we can get team members back out in the field.”
One of the markets that the Chancellor plant serves in California, Lautt said. California has been particularly hard hit by restrictions because of the novel coronavirus.
Also, southeastern South Dakota, where the Chancellor plant is located, was hit hard by flooding last year so the company had no other option than closing the plant, he noted.
The plant shut-downs will mean that 130 employees will be furloughed temporarily at the four facilities, Lautt said. Employees who are being temporarily furloughed will be told today, when the plant closures are announced. “Our employees are aware of the fact that there has been a massive impact on the business and the entire economy because of coronavirus,” Lautt commented. The furloughs will be made over a number of weeks as the existing corn inventory is processed into ethanol. Some staff will be retained at the four locations to complete processing and carry out some projects while the plants are idled.
In a news release today, POET Founder and CEO Jeff Broin said, “Unfortunately, plummeting fuel demand amid the coronavirus pandemic has overwhelmed markets already suffering from continued trade barriers, a foreign price war over oil and regulatory uncertainty here at home. In South Dakota, the crisis has been compounded by one of the worst growing seasons in memory. As a result, POET is taking the difficult step of idling production at our bio-refineries in Chancellor, Ashton, and Coon Rapids and delaying the start-up of Shelbyville.
“Across the board, biofuel producers and our partners in the farm community face an unprecedented challenge. From day one of this crisis, we have placed the highest priority on protecting the health and welfare of our workers, partners and farm suppliers. At the same time, we are working hard to ensure that every bio-refinery remains well-positioned to support a strong and swift recovery once daily life returns to normal. That means responding dynamically to shifting conditions and optimizing production, market by market, as the situation evolves over the next few months.
READ MORE: Ethanol: A rollercoaster year in review
Lautt said he remains optimistic that political leaders will move swiftly to shore up the rural economy and deliver relief for families struggling financially during the economic downturn.
There have been a lot of conversations in Washington about improving market access for ethanol by upholding the Renewable Fuel Standard’s provisions, Lautt said.
That includes cutting back on the small refinery exemptions (SREs) that have been granted by the Trump Administration’s Environmental Protection Agency. “There is no market that has a bigger impact on corn prices than biofuels,” Lautt stated. If the ethanol industry is granted financial relief, it can lift the rural economy.
The ethanol industry enjoys bipartisan support in Congress, Lautt noted. Congressional leaders in both parties understand how important ethanol is for their constituents.
One future market for ethanol plants might be providing alcohol for the hand-sanitizing market. “We are continuing to evaluate how we can supply ethanol for hand sanitizer to help solve the shortage problem with the pandemic and provide an additional market for our product,” Lautt commented.
Although these are difficult times, Lautt added, he feels confident that POET and the ethanol industry can survive the tough economic environment. “We’re confident,” he stated. “We’ve been doing this for 33 years and our team members are talented and have great attitudes. I feel really good about our team members being unified and coming out of this stronger. There will be a little bit of pain felt, but our company is strong and can weather the storm.”
POET’s trade association in Washington, Growth Energy, says the industry is facing a crisis beyond anything it has seen before.
Growth Energy CEO Emily Skor, says that biofuel producers and our farm partners are confronting an economic crisis beyond anything rural America has seen before.
“Fuel demand has cratered, foreign nations have flooded the market with crude oil, and U.S. ethanol producers are bleeding cash after one of the toughest years in memory,” Skor stated in a press release Tuesday.
The list of plants that have cut or halted production continues to grow, with examples across the U.S., including California, Iowa, Idaho, Illinois, Indiana, Kansas, Michigan, Minnesota, Nebraska, Ohio, Oregon, and South Dakota.
“At this rate, nearly half of America’s biofuel production could soon be offline. These plants support hundreds of thousands of jobs, including a highly-skilled manufacturing workforce that rural America cannot afford to lose. Protecting these biofuel and farm jobs at the heart of our rural economy will be vital to ensuring that we are positioned to reinvest and rebuild in the months to come,” Skor stated.
Skor added, “We urge policymakers to act swiftly to expand markets for higher biofuel blends, lift regulatory barriers to vital markets, and ensure that financial assistance is available to farmers, workers, and rural businesses hit hardest by the crisis.”