Minnesota ethanol plant casualty of increasing stress on biofuel industry

The Corn Plus ethanol plant in southern Minnesota this week became a casualty of increasing economic duress in the biofuel industry in the state and across the Midwest.

Corn Plus, a farmer-owned co-op in Winnebago, suspended operations and began mothballing its plant, which had been losing about $100,000 a week.

"We can't go on like that," said Lawrence Sukalski, Corn Plus' board president. "If it can become profitable again, we can get it opened back up."

The plant, employer of 37 and an economic anchor in Winnebago, is the first ethanol operation to close in several years in Minnesota, the nation's fourth largest ethanol-producing state.

Corn Plus and the rest of the ethanol industry is being battered by a combination of adverse federal regulatory action — waivers on ethanol use by small oil refineries — and the U.S. trade war with China.

"It's been one thing after another," said Thom Petersen, commissioner of the ­Minnesota Department of Agriculture.

An increase in U.S. ethanol production capacity over the past few years has not helped, as demand essentially hasn't kept up with growing supply. Ethanol prices are at multiyear lows.

Others are reducing production, including Poet, one of the nation's largest biofuel producers and owner of four of Minnesota's 19 ethanol plants. In August, Sioux Falls-based Poet said it would close a plant in Indiana and cut production at half of its biofuel operations.

The largest cuts are in Iowa and Ohio. But "numerous jobs will be consolidated across Poet's 28 biorefineries and corn processing will drop by an additional 100 million bushels" across several states, including Minnesota, the company said in a statement.

Poet declined to elaborate further on impacts in Minnesota. The company's announcement "has really freaked out" the state's ethanol industry and Minnesota farmers, Petersen said.

The ethanol industry consumes about one-third of the state's corn crop. Lost ethanol production just adds to the strain Minnesota farmers are already feeling. Prices for corn and soybeans — many farmers grow both — are depressed. And bad weather this spring led to late planting, raising the risk of reduced crop yields.

The Corn Plus plant shows the problem in a microcosm. The plant took in about 40 semitrailer-truckloads of corn a day. Now, the plant's roughly 600 farmer-members will be looking for other buyers in a weak market.

Many of Corn Plus' farmers live around Winnebago, a town of just over 1,400 in Faribault County. The ethanol plant is one of the top three employers in town, said Jake Skluzacek, Winnebago's city administrator. Corn Plus also is a significant source of revenue for the town's sewer and water system.

"It's important to the community," Skluzacek said. "It's a farming co-op, and this is a farming community."

Corn Plus opened in 1994, one of the state's first ethanol plants. With an annual production capacity of 48 million gallons, Corn Plus is nowadays a small to midsize plant.

Corn Plus repeatedly broke environmental laws over the years, resulting in fines of $1.1 million and a rare felony conviction. In 2015, though, Corn Plus shareholders raised about $7 million to make several plant improvements.

"It's never been running more efficiently than the day we shut down," Sukalski said.

Highwater Ethanol in Lamberton posted a $5.3 million net loss in the first six months of its current fiscal year, compared with a $382,000 profit the same time a year ago, federal securities filings show. Granite Falls Energy lost almost $7 million during the first six months of its fiscal year, compared with a $3.7 million profit a year ago.

Bloomington-based Advanced BioEnergy said last month it plans to sell its two ethanol plants in South Dakota and then liquidate.

Meanwhile, one of the nation's largest ethanol producers, Chicago-based ADM, is looking to unload its biofuel business, which has been dragging down its profits. ADM operates an ethanol plant in Marshall.

The ethanol industry blames many of its problems on the U.S. Environmental Protection Agency (EPA) under President Donald Trump and its increasing use of "waivers" on ethanol blending.

The federal Renewable Fuel Standard adopted in the mid-2000s mandates the use of ethanol by U.S. gasoline producers. But the regulation included a waiver on ethanol blending for small oil refineries that could suffer a "disproportionate hardship."

Earlier this week, Minnesota DFL Gov. Tim Walz and South Dakota Republican Gov. Kristi Noem sent a letter urging Trump to reverse the damage caused by the waivers. "We are extremely concerned about your administration's actions to continue to grant small refinery hardship waivers," the governors wrote.

The escalating trade war with China also has hurt U.S. ethanol producers.

Ethanol exports to China surged in 2016 and jumped again in early 2018 before China raised its tariff on U.S. ethanol from 30% to 45%. In July 2018, China upped the levy to 70%. No U.S. ethanol has been shipped to China since March 2018, according to federal data.

"Opening China would make an absolute, positive impact on the U.S. ethanol industry," said Craig Willis, senior vice president of global markets at the trade group Growth Energy.

Scott Irwin, an agricultural economics professor at the University of Illinois, said that while China has not been a consistently large buyer of U.S. ethanol, "we have clearly given up a major opportunity" because of the tariffs.

A key cause of the ethanol industry's woes is overcapacity, he said. Federal data show that more than 2 billion gallons of production capacity has been added over the past five years.

"The ethanol industry between 2014 and 2019 overbuilt relative to the domestic and export markets," Irwin said.

Staff writer Jim Spencer contributed to this report.