Fuel Farming

Missouri farmers harvest bumper crop
of ethanol, raising spirits and cash

By Dan Campbell, editor

s he guides his combine across fields of ripe corn near Marshall, Mo., Brian Miles doesn’t look anything like a Texas oil tycoon. Nor do Randy Britt of nearby Kaseyville or Dale Samp of Cairo, Mo., as they tend their crops and livestock.

But a new breed of home-grown ‘oil baron’ is sprouting on farms like this all across America. J.R. Ewing (of “Dallas” fame) has nothing on these farmers and others like them, some of whom are making more profit these days from their investments in ethanol than from other farm income. Indeed, J.R.’s oil fields probably went dry years ago, but these “fields of renewable energy” should never run dry, barring severe drought.

Much of their crop will be trucked just a few miles away to be processed into ethanol. Better still, the corn will be processed at bio-refineries that Miles, Britt, Samp and hundreds of their fellow Missouri producers own and operate.

Inside the cab of his combine, Miles glances at the corn stalks bowing down and disappearing beneath him, then at a yield monitor that displays his per-acre haul and the average moisture content of the corn. As he drives, the GSP-enabled monitor creates an electronic map of his fields that will later be used to fine-tune everything from his fertilizer and seed applications to where he will lay new drainage tiles.

“This technology helps us practice precision agriculture, so we only apply what the crop needs,” he says over the rumble of the machine. “We treat the land with respect, because I want my kids and their kids to be able to farm this land as well,” says the young father of three. The increased returns the farm nets from its ethanol investment may also help ensure that farming remains economically viable enough to keep his children in farming, should they so choose.

In addition to the economic benefits of biofuel, producers also cite patriotic and homeland security incentives as adding to a sense of urgency for renewable fuels development.

“We are showing the nation that we do not have to be so dependent on foreign oil, and that we should not allow ourselves to be held hostage to Middle East oil,” says John Eggleston, president of Northeast Missouri Grain Processors Inc., a cooperative which is majority owner of Northeast Missouri Grain LLC (NEMO) in Macon, Mo., the state’s first ethanol plant. “We still have a long way to go, but farmers are helping to change the energy picture. We feed the world, and we can help fuel it too.”

Co-ops unite producers
Miles is one of 700-plus farmers of Mid-Missouri Farmers Energy (MidMo), a newgeneration cooperative that operates a 50-million-gallon-per-year ethanol plant near the small village of Malta Bend, about 12 miles northwest of Marshall. This new-generation co-op plans to begin an expansion project next year which will double the plant capacity to 100 million gallons of annual production. Samp and Britt are among the 311 members of NEMO, which produces about 45 million gallons of ethanol annually in Macon.

Producers who invested in the ethanol plants have reaped dividends “beyond our wildest expectations,” says Ryland Utlaut, president of MidMo and former president of the National Corn Growers Association. “We couldn’t have picked a better time for our plant to come on line,” he says, noting that the start-up 19 months ago coincided with a tremendous run-up in ethanol prices.

From top:Brian Miles used ethanol dividends to buy some rental acreage;
Dale Samp's ethanol dividends helped with costs of building a new home
on his farm; The Mid-Missouri Energy plant; Randy Britt says ethanol
has provided an alternative market for corn, helping to boost prices;
The Northeast Missouri Grain ethanol plant;
USDA photos by Dan Campbell
Ethanol profits climbed steadily as oil prices soared from $40 to more than $75 a barrel last summer. The phase-out of MTB as an oxygenator for gasoline and the hurricanes that battered Gulf Coast oil refineries also combined to push the price up.

Some producers report that their stock values in co-op ethanol plants have increased 5 to 10 times since the initial purchase (although virtually no one is selling stock, so such claims are hard to verify). MidMo paid members a 31- percent dividend on its first partial year of operation, and will pay an even higher dividend this year. NEMO has also paid sizable dividends for several years running.

In addition to returns from their ethanol plants, producers have also benefited from corn prices that have been boosted from 10 to 20 cents per bushel in the plants’ procurement areas. “That doesn’t just help co-op members, it helps all farmers,” says Eggleston.

Good uses for ethanol dividends
On the Miles’ farm, those ethanol dividends helped to buy an additional 140 acres that the family had been renting for more than 30 years. For Samp, ethanol dividends provided additional funds for the custom home he built on his farm. Britt says he’s used his ethanol returns in a number of ways to improve his grain and cattle operation.

Miles credits NEMO and the Golden Triangle Energy Cooperative in Craig, Mo., for “paving the way for our success.” The success of MidMo is similarly inspiring more biofuel projects. Three or four of his fellow MidMo directors are on boards of co-ops or LLCs that are building biodiesel plants around the state, including one slated to open this fall in Mexico, Mo.

Miles, who grew up in Marshall and graduated from the University of Missouri in Columbia, says the town’s economy had been fairly stagnant for many years. But the ethanol plant has been a jolt in the right direction. “The addition of 35 or 40 good jobs at the plant — and that doesn’t count other spin-off jobs it created — is a huge plus for a rural town like ours.”

“The impact has been tremendous,” agrees Matt Staley, vice president and branch manager for the Farm Credit Services (FCS) of Missouri office in Marshall. FCS helped many producers finance their stock purchases in MidMo. “It’s not only the dollars the plant has generated, but its success has also been a great source of community pride. And it has inspired other fledgling co-ops and LLCs that are now riding their coat tails.”

Macon County Presiding Commissioner Craig Jones says the NEMO plant is “pulling grain from 100 miles away and has been the most productive new business venture the county has seen in years. And it’s virtually all new money,” he stresses, adding that its spin-off benefits have “mushroomed” throughout the county.

NEMO has created 42 full-time and seven part-time jobs. Pay and benefits are good, and that doesn’t count related jobs in trucking, rail and all the other “ripple-effect” jobs, Jones adds. He thinks NEMO’s success may even have helped inspire voters to approve a special tax needed to four-lane a highway through the county, which in turn should help attract other new businesses.

“Ethanol has been the best thing to happen in Missouri in a long time,” says Britt while driving his pickup truck across a pasture of tall grass where some of his 400 Black Angus cattle are grazing. “Returns have been much better than anyone could have reasonably expected, and it has strengthened the corn market. Our choices used to be to feed corn to our cattle, haul it to the river terminals or ship it south to turkey growers. Now we keep it close to home and get and extra 10-15 cents a bushel for it.”

With the production of so much dried distillers grain (DDG) at the ethanol plants, which is sold for livestock feed, Britt says ethanol may even help bring back some of the cattle-feeding industry, which moved west years ago.

Opening the door
When Eggleston and his fellow producers first discussed building an ethanol plant in the late 1990s, Missouri had no ethanol facilities and no new-generation co-ops. So raising equity investments from producers and lending institutions proved challenging. “It seemed this plant was never meant to be built,” Eggleston recalls.

“It was almost like pulling teeth,” agrees Dale Samp, Eggleston’s co-director on both the NEMO co-op and LLC boards. “A lot of the producers were already highly leveraged and were reluctant to take on more risk.” In his own case, Samp says one factor that influenced his decision to join was attending a meeting where Jeff Broin, CEO of the Broin Companies, made a strong case for producers to invest in ethanol as a hedge against low corn prices.

While enjoying the high dividends of recent years, Samp says the ethanol market will have to drop back to earth again at some point. But he expects the operation to continue to be profitable, especially with China and India now soaking up more world oil supplies.

NEMO’s initial plan had been to build a 30-million-gallon plant. But the reluctance of growers to invest in it meant the co-op had to keep reducing the scale of the project, eventually settling for a 15-million-gallon plant. The co-op had hoped to own the plant outright, but it formed an LLC to facilitate raising additional funds.

The co-op wound up owning 81 percent of the LLC and holds five of the seven seats on the LLC board. Broin and Associates., which built the plant and provides operational management under contract to the LLC, holds one board seat, and Corn Energy LLC holds the seventh seat. Other investors include Ralls Electric Cooperative and the Missouri Corn Merchandising Council.

It took about 100 producer meetings to raise the $6 million in equity needed to build the plant. The minimum investment was five shares at $2,500 each. Ralls Electric Cooperative stepped in at a crucial point in the planning with assistance when the fledgling co-op was low on money, and the co-op was also able to tap into a state economic development fund.

Missouri recognized that the state and rural communities would gain much more from local, producer ownership than from outside ownership. So it established a 20-cent-per-gallon subsidy for the first 12.5 million gallons of ethanol produced and 5 cents per gallon for the next 12.5 million gallons, but only if producers own at least 51 percent of the plant.

clockwise from upper left: Ethanol and corn samples are tested in the lab at the
NEMO plant; MidMo plans to double production capacity to 100 million gallons;
Ryland Utlaut, (center) in the receiving room at MidMo; the MiMo plant; NEMO
Plant Manager Steve Burnett checks on the CO2 plant, which supplies a brewery
and other beverage customers. USDA photos by Dan Campbell
NEMO’s plant capacity was doubled about three years ago, to 36 million gallons, and it is actually producing at a 45-million-gallon clip, which Eggleston says is a tribute to manager Steve Burnett and the staff. The expansion timing was good, as ethanol prices were climbing just as the work was completed.

In the early days, it was hard to find local buyers for the plant’s DDG, so most of it was shipped to Arizona and California. But now most is shipped by truck to cattle, poultry and hog producers in-state.

In addition to ethanol and DDG sales, NEMO has invested in a food-grade carbon dioxide facility and the company that markets and trucks the pressurized CO2 to beverage companies, a brewery, a municipal water plant and some food and meat processors. A truck terminal was built to handle the CO2 traffic, which employs another 15 full-time drivers and mechanics. The co-op leases the facility to a subcontractor.

Investing in other ventures
Another plant expansion isn’t really feasible for NEMO at this time, but members wanted to expand their presence in the ethanol market, so it instead purchased a 30-percent interest in a new, 45-million-gallon ethanol plant opening this fall in Ladonia, Mo. NEMO has also invested in Mo- Biofuels, a new biodiesel plant in Mexico, Mo.

It has also purchased an interest in some non-biofuel projects, including Mo-Farm Dairies, a 1,250-head dairy in the southwest corner of the state, and it contracts with Favored Grain, which procures non-GMO grain from producers for feeding to cattle raised to supply meat to high-end restaurants.

When the plant capacity was expanded, NEMO also entered into a joint venture with the city of Macon on a 10- megawatt turbine generator. Under the arrangement, the city gets the electricity and NEMO gets the waste exhaust heat from the large jet engine that powers the generator. The waste heat is fed through a large boiler which, in turn, generates more than half of the steam requirements of the ethanol plant.

NEMO’s plant is located on a 1/2-mile-long rail spur, but the majority of its ethanol goes out on trucks. Still, Eggleston says it would have been a mistake to build without rail access. In the early months of operation, when NEMO was having a hard time selling DDG, “we would have drowned in DDG if we hadn’t been able to ship it out on railcars,” Eggleston says. DDG sales now account for 15 to 25 percent of the plant’s annual revenue. “We call DDG and CO2 co-products, not byproducts, to emphasize how critical they are to our success,” he adds.

MidMo 100 percent farmer owned
MidMo was formed through the merger of two different groups pursuing ethanol plants; one effort was centered in Marshall, the other at Carrollton, Mo. Patty Kinder, now assistant plant manager at MidMo, was at that time an economic development officer in Carrollton. Utlaut credits her for bringing the two groups together and for making the call to the Fagan Group that resulted in an initial ethanol feasibility survey of the area.

By 2001, the combined group had a business plan in hand. The new co-op then launched its equity drive, which it hoped would raise just over $12 million of the $24 million in equity needed, which would give the co-op 51 percent control. Shares were $10,000 each, with a minimum of two shares required for membership. Only producers were eligible to join. Average investment per member was $33,000. The co-op signed up members in 43 Missouri counties and five other states.

After 82 meetings, the co-op had commitments for more than $17 million. “We felt that we were so close to having it all that we decided to keep pushing to raise the entire $24 million,” Utlaut recalls. Another 20 or so meetings later, they had it. The other $35 million needed was borrowed from AgStar, a Farm Credit System bank based in Minnesota.

A $500,000 Value-Added Producer Grant from USDA Rural Development was awarded in June 2004 — a crucial time when the co-op was low on operating funds and badly needed a cash infusion to buy corn and enzymes. “Not only was the money a great help, but it really helped our credibility by showing that we had the support of USDA, as well as the state of Missouri,” Utlaut says.

The plant was running at full capacity within five days of start-up, and although rated as a 45-million-gallon plant, it has been averaging 53 million gallons. Utlaut credits plant Manger Billy Gualtney, who has a degree in chemical engineering and who formerly worked for Cargill, and his team for maximizing the plant’s output. Having most of the key employees on site for two months before operations began was also well worth the extra cost, Utlaut stresses.

The plant has one mile of Union Pacific rail frontage, and 50 percent of its ethanol is shipped out by rail. The ethanol is sold through the Renewable Products Marketing Group, a cooperative of a dozen or so ethanol plants.

Perfect timing
MidMo’s feasibility study estimated the early return on investment (ROI) would be about 15 percent annually. But with the opening coinciding with the run-up in ethanol prices, ROI for the first seven months was 31 percent. It will be even better this year, Utlaut says.

It’s not hard to understand why the co-op board recently voted to double plant capacity. The board looked at several builders, but ultimately decided to hire Fagan again, even though it meant waiting until mid-2007 before the project could commence. The co-op will largely self-finance the expansion, using profits from the plant operations, which should continue unabated during the construction.

MFA Oil in Columbia, Mo., another farmer-owned cooperative, is working in partnership with MidMo to promote ethanol (see sidebar, page 8). Tom May, MFA marketing director, thinks the industry is still in its infancy. “We’re just at the front gate. There has not always been a lot of good news for Rural America in recent years, but biofuel is good news.”

Back on his combine outside Marshall, Brian Miles has no doubt of what May says. “We just bought this combine last year, and the list price [over $250,000] had gone up 25 percent since we bought the last one four or five years ago. The corn head was another $48,000 and the platform [for soybean harvesting] was $25,000. Our production costs just keep climbing. Yet corn prices still hover around $2 a bushel. We need something. I hope it’s ethanol.”

September/October Table of Contents