Cargill puts off plans for new ethanol plant

In a sign of continued slowdown in the ethanol industry, Cargill subsidiary Emerald Renewable Energy Tuesday announced plans to suspend construction of a new plant in Topeka, Kan.

Blame Chicago: Corn futures hovered near $5.30 a bushel in trading on the Chicago Board of Trade Tuesday, a 50 percent gain since October.

"Everything's on hold," said Cargill spokesman Bill Brady, adding that the company had begun seeking permits for the project but had not yet broken ground.

Early last year the company announced plans to build four 100-million-gallon ethanol plants, one each in Topeka, Kan., Rockport, Mo., and Tuscola, Ill., and a fourth location to be determined. Corn futures at the time were selling near $4 a bushel. Brady said there was no news about the other three plants.

Several months ago, VeraSun Energy Corp., of Brookings, S.D., one of the nation's largest ethanol producers, halted construction of a 110-million-gallon-a-year plant in Reynolds, Ind. The third-largest ethanol producer in the country, US BioEnergy, based in Inver Grove Heights, said three months ago that it was holding off on new projects.

Knocking the industry off its red-hot growth have been skyrocketing land values, soaring corn prices and even the upcoming summer Olympics, said Brian Hoops, a commodity analyst and president of Midwest Market Solutions, a commodity brokerage based in Yankton, S.D.

"With China gearing up for the Olympics, they have had to import a lot of raw materials, and that has increased the cost of those materials in the United States that go into building plants .... They've had to readjust the profitability of a lot of these plants," he said.

New federal mandates require gasoline refiners and blenders to use 36 billion gallons of renewable fuels by 2022, including 15 billion gallons of ethanol made from corn.

The nation's farmers grew 13.2 billion bushels of corn last year, a 25 percent increase over the year before, according to the U.S. Department of Agriculture.

"I think it's a question of too much, too fast," said Todd Taylor, a lawyer and energy expert at the Minneapolis law firm of Fredrikson & Byron. The industry quickly used up the prime sites for ethanol facilities, ones located near abundant sources of corn, he said. "Now it's just a question of looking around and saying 'What's worth it?'" he said.

An industry spokesman said the ethanol boom is far from over.

"I wouldn't read too much into Cargill's decision," said Matt Hartwig, a spokesman for the Renewable Fuels Association, a Washington, D.C., trade association for the U.S. ethanol industry. "There are a lot of plants that have put plans on the board to go ahead and build and then decide it's not right for them at the time."

He spoke Tuesday while attending the National Ethanol Conference in Orlando, Fla., where thousands of industry representatives, bankers, investors, farmers and others were meeting to discuss the industry and make deals.

Cargill, though a giant in agribusiness, has played a smaller role in ethanol production. Its priorities for ethanol were spelled out two years ago by previous CEO Warren Staley, who said agricultural land should be valued first for food, then for feed, and last for fuel.

The company has two plants, with a capacity for 35 million gallons a year at Eddyville, Iowa, and 85 million gallons in Blair, Neb. An expansion adding 110 million gallons of capacity to the Nebraska plant goes online this fall, Brady said.