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Ethanol plants, cooperatives find middle ground

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Old 11-01-2009, 06:07 PM
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Default Ethanol plants, cooperatives find middle ground

By Gene Lucht, Iowa Farmer Today
Wednesday, October 28, 2009 2:14 PM CDT

Andy Miller, plant manager of Corn LP, talks to Brad Davis, general manager for Gold-Eagle Cooperative as a truck goes over the scale. IFT photo by Gene Lucht

GOLDFIELD -- Wagon by wagon, semi by semi, Midwestern co-ops and grain elevators are learning how to operate alongside grain users in the ethanol era.

In the beginning, quite frankly, we were a little bit insecure, says Brad Davis, general manager of Gold-Eagle Cooperative. We live and die by grain volume.

But, slowly Gold-Eagle and other co-ops have learned to live with their friends and sometimes competitors in the grain trade who process corn into ethanol.

I think when they first began building most of the ethanol plants the cooperatives and grain elevators were afraid they were going to create a whole new level of competition, explains Dave Holm, executive director of the Iowa Institute For Cooperatives.

But, today the relationship is very symbiotic.

Thats not to say the relationship is perfect, Holm adds. Some elevators have lost business. Others are struggling to adapt.

But, the relationship has improved as each group has learned to work with the other.

Of course, in some ways they had no choice but to work together.

A recent Iowa grain and biofuel flow study by Iowa State University economists Chad Hart and Tun-Hsiang Yu indicated elevators remain the largest buyer of Iowa grain, but ethanol plants increased their share of the pie.

That survey showed between the 1999-2000 crop year and the 2007-2008 crop year, the share of Iowa corn sold directly to processors, including ethanol plants, doubled to 32 percent.

The percentage delivered from country elevators to processors also increased from 44 to 53 percent. One place that shrunk was the amount sold directly to river terminals, from 14 to 5 percent.

One difference is the expansion in the ethanol industry meant more grain is processed in Iowa instead of being exported to other states or countries, Holm explains.

He says that has helped some smaller elevators not located on rail lines because more of the crop is being moved shorter distances by truck.

Of course, some of that is moving directly from the farm as more farmers own trucks, but smaller co-ops and elevators have in many cases found a niche.

Then there are more complex relationships, such as the unusual one at Gold-Eagle. Here, the managers at the co-op decided they needed to address usage and transportation issues head on.

They planned the ethanol plant, and while the Gold-Eagle Cooperative and the Corn LP ethanol plant are located next door to each other, they are technically separate entities.

While separate, they do work together.

For example, Gold-Eagle owns part of the ethanol plant. Many of the investors in Corn LP are also co-op members.

The co-op leases employees to the ethanol plant. The two share some workers in specific areas of expertise. It is difficult to completely separate one from the other.

We invented the model, Davis says.

So, while other elevators and ethanol plants may have agreements or may work together on some issues, the relationship here is much more complex and intertwined.

For Andy Miller, plant manager at Corn LP, the relationship is a good one.

It makes my job really easy, he says.

One reason is he can use the grain marketers and other experts who were at the co-op.

Were not re-inventing the wheel, explains Duane Madoerin, merchandising manager at Gold-Eagle.

Madoerin, Miller and Davis all add one more point. Because of the ethanol plant and the presence of a large livestock industry in the area, virtually all the grain shipped here stays in the area.

But, they say there are advantages to the relationship between the two facilities in this town. For one, each can lean on expertise at the other company.

That means less overlap of expertise but, also at the same time, more depth as grain marketers or repairmen or other service personnel can back each other up.

Also, Miller says the facilities can work together to deal with potential problems.

For example, they might work to make adjustments in grain- moisture requirements this fall with the wet harvest conditions. They can make sure grain flow needs are met.

Ive never had to stop because Ive had full tanks or full feed bins, Miller says.

Of course, not everything has always worked perfectly.

While the move from idea to working ethanol plant was achieved quickly, Davis says the ethanol plant was the first coal- fired plant of its kind. That meant much work was done as the staff worked through the process.

Meanwhile, Holm says the ethanol industry and the co-ops are learning each year how better to work together.

Ethanol plants with 10 days to 2 weeks of storage have learned local elevators are very good at handling a lot of grain very fast during the harvest and drying it to meet the needs of the ethanol facility.

Elevators are learning how to use their storage and transportation expertise to serve a new set of customers.

Iowa Farmer Today
"People are not remembered by how few times they fail, but how often they succeed."
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