The Hancock-Henderson Quill, Inc.

Ethanol Investment: No Promises, But It's Lookin' Good

by Dessa Rodeffer, Publisher/Owner

27 February 2002

Come on now. If we knew the future, we'd all be rich. But, all we can do is look back at trends and patterns, look at the present situation, and then predict what we think will happen. The more you research, the better your "common sense" decision will be.

Profits in Ethanol production are finally coming around the last couple of years according to my son Troy Andrews, in Tulsa, Oklahoma, who works in management at Williams Energy Marketing and Trading, a well known ethanol producer and marketer and owner of a plant in Pekin.

For several years he has seen Ethanol plants dependent on government help and not a money-maker. In fact, Williams had talked of selling theirs. After eight years, he said, they finally are starting to come around the last couple of years, which in part could be due to the MTBE problem in California.

In burning ethanol, the National Research Council reported little differences between the additives ethanol, and methyl tertiary-butyl ether, better-known as MTBE.

The use of reformulated gasoline is required in certain states under amendments to the Clean Air Act of 1990 to lower emissions of vehicle pollutants.

However, the oxygen additives have raised environmental concerns.

The state of California voted to phase out the use of MTBE in its gasoline because it has contaminated the state's drinking water.

It pollutes when spilled and unused, and has a shelf life of 500 years!

Troy says the California banned of MTBE will create approximately another 50,000 barrels a day in ethanol demand (42 gal. per barrel).

Other states are passing laws to phase its use out with ethanol the preferred blend.

According to Big River Resources Cooperative, plant prospectus Bill Reisch, "We no longer have to literally sell every gallon at the pump."

BRR's contractors, Executive Vice President Wayne Mitchell and CEO Ron Fagen of Fagen, Inc., and largest builder of Ethanol plants, said the earlier ethanol plants are not as good. "We've learned some things, and made improvements, so plants are more efficient today," Mitchell said.

Another plus is the ethanol market and new products being researched which entices investors, such as DDGS, bio-diesel fuel etc. It's a new way farmers can finally gain more value from low priced corn.

Of course, in the Midwest, and in the farming communities, it is typical for farmers to take their time, "mull it over, before they make a decision that will cost them at the very least, $10,500.

They aren't apt to hurry into an investment no matter how good it looks until all their questions have been answered even if they have the extra money in the bank.

"It's always a risk with "no guarantees," Ray Defenbaugh, told farmers at the first of 46 investors meetings.

But, we know he wouldn't be doing this if he and his board didn't believe in it.

Defenbaugh of rural Biggsville, graduate of Southern Ill. University, and Chairman of the Board at Midwest Bank in Monmouth, is co-chair of BRR Coop along with Andy Brader of Mediapolis, IA. They both feel good about the future of ethanol.

Based on past experiences, timing, improvements of plants, and low-priced corn, his 14 member board of BRR say the time is ripe.

Defenbaugh warned farmers not to place all of their money and corn into this investment, but to think of this as an opportunity to diversify and get their share of the marketing profits.

In reading a two-page timely article of a Farm Progress Publication called Prairie Farmer (Feb. 2002), an ethanol proponent listed several things farmers should look for before jumping into a cooperative Ethanol venture.

I took the magazine article with me as I attended the first two investment meetings last week. The article: "Ethanol's Hard Questions: Advice for Ethanol Investors," written by reporter, Mike Wilson, was my guide for rating the BRR offering. I came away giving the Ethanol board of Big River Resources an "A" in meeting the criteria in the article.

September 11th has stirred new interest in homegrown energy and ethanol enthusiasts are "buzzing" of putting up plants. Illinois, leader in U.S. corn production, already has 4 plants, 1 under construction, 3 who received ICMB grants, and 9 organizing.

The growth curve shows a doubling of demand in three to five years, according to Prairie Farmer.

This is good news for corn growers, it says, but warns ethanol plants carry a high risk with all the plants already on line across the country.

The interview with Stan Blunier of Forrest, Ill. says to make sure the new plant has access to a wide basis of cheap corn with enough corn production to draw on.

"Once you put up a plant and start bringing 18 million bushels for a 40 million gallon plant, you are going to raise the basis in that area. If you raise it a lot, it puts that ethanol plant in financial jeopardy, because it will be forced to use expensive raw materials. You want to make sure there's plenty of supply." (Full story in the 2/2002 Prairie Farmer.)

Of course, Defenbaugh and Brader and their board have looked into these matters and have sought out the very best to lessen the risk.

Bill Riechers BRR plant prospectus of South Dakota, put up the first farmer-owned soybean processing plant and it profited in its first year when others said they couldn't do it.

Since then, Riechers was in charge of two Ethanol plants, both were profitable and were paid off early.

Ron Fagen, CEO of Fagen, Inc. Grand Rapids, Michigan said all of their 28 plants they've built are profitable.

There is also tremendous support from President Bush and legislatures who want to see us not dependent on the Middle East by using our corn.

BRR's experienced management team and financial experts seem top-notch and should give investors a secure feeling. The plant will hire different marketing experts for three different products.

The site has room to easily expand from 40m to 80m, and it will be built in the middle of the corn belt, near highways, railroad, and rivers to help in transportation costs.

The only thing missing for our residents is to have it in Illinois. Getting power to the facility is the problem.

An attractive cooperative venture with Illinois Power Co. is needed, but a letter writing campaign by investors, and community minded individual might be the key to bring that to closure. t's worth a try.