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Waiting for ‘Big Package’ Fuels Ethanol Frustrations in the Corn Belt
The 2019 growing season has been filled with layers of uncertainty for farmers around the Corn Belt. Iowa Secretary of Agriculture Mike Naig continues to hear frustration from the state’s farmers, particularly over ethanol uncertainty.
It has been nearly a month since President Trump promised a “giant package” for U.S. farmers related to ethanol.
“Weather we obviously can’t control. For the most part, we can’t control whether China comes to the table and wants to do a trade deal. But, we can control, and we do have a say in determining whether USMCA passes and whether we get renewable fuels policy right,” Naig explains. “I think it’s those policy things, that could be changed, could be controlled. When those things aren’t happening, that’s where the frustration comes from.”
In recent weeks, Naig has spent time in northwest Iowa where two ethanol plants have temporarily closed. Farmers there are hurting, he says.
Plymouth Energy, an ethanol plant in Merrill, Iowa, suspended production on July 24. Two months later on September 16, Siouxland Energy Cooperative in Sioux Center, Iowa, announced it was stopping production. According to the Iowa Renewable Fuels Association (IRFA), a total of 18 plants around the country have been idled.
The announcement of 31 small refinery exemption waivers, in early August, was an immediate signal to the market that it destroyed ethanol demand, Naig explains.
Monte Shaw is executive director of the Iowa Renewable Fuels Association and has been in touch with leadership at the shuttered Iowa ethanol plants. He says between losing the Chinese market and what he calls excessive and unjustified waivers, demand for the growing ethanol industry disappeared.
He says the day additional waivers were announced, about 10¢ in ethanol margins went away. “That took the majority of plants from scraping like crazy to keep their nose above water to being underwater,” Shaw explains.
News of plants shutting down or idling back is no surprise, Naig says. “It’s proving out what we said would happen, which is that there would be economic hardship for these plants,” he says. “Margins have been incredibly thin, if not a situation where plants are losing money.”
Shaw says recent estimates from industry analysts indicate that 70% to 75% of ethanol plants are losing money on every gallon they produce. “You can only burn cash for so long, and then it’s gone,” he says. “We’re not crying wolf. This is real out here.”
What Happens if Nothing Changes
Things may get worse before they get better. “The bad news is the clock is ticking on other plants,” Shaw says. “As we sit here and wait, I’m scared that I’ll get a call any minute from another plant saying, ‘Monty, I just want to let you know we’re halting production.’”
Naig adds, “I would not be a bit surprised to see further shutdowns, or at a minimum folks continue to idle back production.”
Rural Community Impact
In the state of Iowa, renewable fuels support more than 48,000 jobs, IRFA reports. “These aren’t just jobs, they’re good paying jobs with benefits, and some require advanced degrees,” says Shaw. When they first started popping up, ethanol plants gave people the chance to move home and raise their families in small towns where job opportunities were harder to come by before.
The plants attract a mix of people who end up engaging locally in other ways, too. From church leaders to charity volunteers, coaches, and school board members, these people have become engrained in their communities, he says.
Naig is quick to point out that it’s not just plant employees who suffer when an ethanol plant shuts down. Harvest is around the corner, and many farmers depend on local ethanol plants to purchase their corn.
A farmer in Minnesota recently told Shaw they were selling corn to the local ethanol plant one week for $4.25. The following week, the plant closed, and the next best price in the area was a dollar less.
Also, ethanol plants are often the big business that attracts more robust utilities and other services to the rural area that benefit other locals. Shaw says he’s fielded calls from industries that serve ethanol plants and are concerned what may happen if the struggles persist.
It goes without saying, ethanol plant shareholders also suffer when a plant is shuttered. Many plants in the state of Iowa are owned by farmers or other local people.
Hope for a Fix
The president’s direct involvement gives Naig hope for a short-term signal to the industry that the gallons that were waived will be restored. “We must have something that sends the right signal immediately to industry to help us repair the damage that’s been done,” he says.
Several other Iowans are also calling on Washington to uphold the Renewable Fuel Standard. “Governor Reynolds is a very, very important voice on this subject, directly to the White House,” Naig explains. Senators Grassley and Ernst have also been outspoken about the need for a fix.
After talking to leaders who recently met with Trump on the topic, Shaw is hopeful the president got a clearer picture of what is happening in the Midwest. “This is people’s lives. I think the president heard that. That’s what everyone walked away with that was in the room that I talked to, but we need to see some action, and we need to see it very soon.”