Farmer-owners of Corn Plus ethanol plant double down on their investment

WINNEBAGO, Minn. – Farmers who own one of Minnesota's oldest, problem-plagued ethanol plants are making a fresh bet on the future of fuel from corn. ¶ An uprising by hundreds of farmer-investors in the Corn Plus Cooperative killed a deal to sell the plant, which led to the ouster of top managers last year. Now, investors have put up more capital, arranged financing for equipment upgrades and hired leading industry experts to revive the 20-year-old operation in this southern Minnesota town. ¶ "We want to maintain the ownership for farmers and have this

plant do what it was meant to do — add value to corn," said Bill Drager, a Mapleton, Minn., farmer who led a breakaway group of shareholders that successfully opposed the sale last August. He later became president of a reconstituted board of directors.

It is the latest sign that many farmers still see benefits in owning ethanol plants, even as the industry has consolidated. In Minnesota, where the ethanol business sprouted in the early 1990s, more than half of the 21 ethanol plants still have farmer or local owners.

When farmers opened the Corn Plus plant in 1994, it was one of two farmer-owned ethanol producers in Minnesota, and it quickly became a success story — proof that farmers facing cyclical low prices for corn could profitably turn it into fuel and animal feed.

Over the years, Corn Plus expanded to 42 million gallons of yearly output. It replaced some equipment but couldn't keep pace with newer, larger, more-efficient producers. It had unplanned outages in 2013 and 2014, and profits lagged. The plant repeatedly broke environmental laws, resulting in $1.1 million in fines since 2009 and a rare felony ­conviction.

Against that backdrop last August, the more than 600 shareholders got a letter from the co-op announcing a deal to sell the plant to an Iowa-based ethanol cooperative. It would be close to a fire sale price, about 34 cents per gallon of annual capacity, or nearly $14 million. That's far below the median price of $1.10 to $1.20 per gallon of annual capacity, said ethanol consultant Larry Johnson of Cologne, who was not involved in the deal.

"It was a real big surprise," Don De Langhe, a Marshall, Minn., farmer who owns shares in Corn Plus and two other ethanol plants, said of the proposed sale.

"They voted it down almost 2 to 1," said Drager, who campaigned with De Langhe against the deal. "It says a lot about the way farmers in this area felt about this investment way back when. They made a lot of money over the years, and they didn't want to see it go out in this fashion."

After the sale was rejected, five of nine board members resigned, eventually replaced by directors including Drager and De Langhe. CEO Mark Drake was ousted, and the board began looking for new leadership — and fresh capital.

That's when ICM Inc. of Colwich, Kan., entered the picture. ICM is an ethanol-focused technology and engineering company that designed most of the nation's ethanol plants, though not Corn Plus. Five years ago, ICM created a new unit, Energy Management Solutions, to revive and manage underperforming ethanol plants, starting with one in Casselton, N.D.

Corn Plus' board approached ICM to run the Winnebago plant late last year. ICM CEO Dave Vander Griend made a visit, and agreed to do it. ICM bought 25 percent of Corn Plus for $4 million — the first time it has taken a stake in a distressed ethanol operation.

"I saw it as a diamond in the rough," Vander Griend said in an interview. "The plant is in rough shape but it is a good location. It is a good market area. The plant needed some money spent on it. It needed some working capital, and we said we'll come in and put a stake into the plant because it will be a good investment."

He also is tackling environmental issues. State and federal pollution regulators have cracked down on the plant three times since 2009, leveling $1.1 million in fines. The biggest case, related to faking emissions data, resulted in a felony conviction for the co-op in 2011. Regulators announced the most recent violation, related to air emissions equipment, in December just before Serie became CEO.

Serie said that in his first meeting with regulators this year "we basically told them that not being in compliance is unacceptable to us. This plant will never be out of compliance again."

To recapitalize Corn Plus, $7 million was raised from shareholders, including ICM, in a convertible debt offering. That set the stage for farm-sector lenders AgStar Financial Services and Farm Credit Services to close on a revolving loan agreement in late May.

"Plants of this size can absolutely make money if they have good management," said Ron Monson, AgStar vice president of agribusiness capital, who helped put the financing together.

Just outside the plant sits a pile of new equipment to be installed during a $5.7 million upgrade. Serie said the front end of the plant, where corn is ground in the first stage of making ethanol, will be torn out and replaced with ICM's patented Selective Milling Technology. The goal is to improve the margin on every gallon of fuel.

ICM's Vander Griend said his privately held company is "definitely interested" in investment and management relationships with other ethanol plants. That's long been the business model of Poet Inc., the Sioux Falls-based ethanol company that built, partly owns and manages many ethanol plants, including four farmer-owned operations in Minnesota.

For plants like Corn Plus, the relationship offers access to industry expertise. For ICM, it offers the potential to introduce new ethanol technologies. One of them is ICM's Generation 1.5, a way to produce ethanol from fibrous parts of the corn kernel, like the shell, whose starch is untouched in the traditional fermenting process.

"It opens the door to do these technologies at plants where you have some influence," Vander Griend said.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib