When driving through Albion, MI, in early spring, visitors will see the usual agricultural-based sights — corn fields ready for planting, floaters applying spring fertilizer, grain elevators gleaming in the sun. A more unusual sight is what’s alongside some of the grain elevators — a newly opened ethanol production facility, fermentation tanks and distillers churning out thousands of gallons of this corn-derived biofuel 24 hours per day.
Although this scene may be somewhat unique at the moment, industry insiders expect it to become much more commonplace in the near future. By most estimates, more than 100 ethanol production facilities are slated to open within the next year — a good majority working in conjunction with grain elevators. In fact, according to Neill McKinstray, vice president/general manager of the Ethanol Division for The Andersons, Inc., Maumee, OH, ethanol plants co-located with elevators could very well be one of the future paths the grain industry follows.
“By now, everyone’s aware of what the move to ethanol has done for corn acreage and commodity prices,” says McKinstray. “But it could also mean the end of the grain business as we knew it, affecting everything from supply to distribution to storage. We realized that if we wanted to prosper in this new ethanol world, The Andersons would have to turn this potential minus into a plus.”
The Production Equation
According to McKinstray, the origin of The Andersons’ investment in ethanol production dates back five or six years ago. At that time, the company noted the growing interest in ethanol/increased production plant openings taking place in many parts of the western Corn Belt. In the areas where this trend had taken hold, the percentage of corn being used to produce ethanol steadily grew. One of the top grain-handling companies in the country, The Andersons distributes more than 175 million bushels per year through 10,000 Midwest producer and elevator customers.
“We quickly realized that the ethanol movement would likely enter the eastern Corn Belt and have a serious impact on the way we run our grain business,” says McKinstray. “We were one of the first companies to realize the synergy that existed between grain elevators and ethanol plants.”
Calling upon its 60 years of experience with grain handling, the company decided that entering the ethanol production business directly was the surest way to keep the retailer ahead of the expected market changes. In 2005, says McKinstray, The Andersons’ Board of Directors agreed to build an ethanol production facility in Albion, next door to the company’s 25-year-old grain terminal.
Construction began in August 2005, and the new plant officially started producing ethanol one year later.
The Albion ethanol plant sits on 78 acres of Michigan land connected to the existing grain terminal. According to Gabe Corey, production manager, The Andersons Albion Ethanol LLC, the facility will make approximately 55 million gallons of ethanol per year. It features state-of-the-art control and security systems — not to mention approximately 100 miles worth of wiring, 7 miles of piping, and more than 700 control motors that run much of the automated equipment.
“From an operations standpoint, this volume of material means that lots of stuff can break down while we are running the plant,” says Corey. “But we still only have 40 employees on-site, and they do a great job of keeping everything in good working order.”
Keeping Supply Close By
Of course, one of the main challenges for any ethanol plant today is making certain it has enough feedstock to operate. Although USDA estimates predict U.S. growers will plant an additional 12 million acres of corn in 2006, there is already some nervousness among producers that this still won’t be enough to supply all the existing and soon-to-open ethanol plants located throughout the Midwest.
Anticipating this very scenario at work is one of the reasons The Andersons Albion facility is connected with a grain terminal, says Corey. “In the grain bins we have on-site, we have a storage capacity of 3 million bushels at any given moment,” he says. “Even if we have trouble getting corn from outside sources, we can always fall back on this grain to keep our operations running at full steam.”
Initially, he adds, the facility faced a challenge hiring operators that had ethanol experience. “But our management leadership and drive to learn the process overcame this short-term challenge,” says Corey. “Our biggest challenge now is continuing to look toward process and profitability improvements.”
More Training Planned
To address this issue, Corey says The Andersons has conducted extensive training and education at the ethanol operator level to promote further opportunities from within the group. In the future, he expects The Andersons to recruit potential ethanol workers from universities and hopes that there will be more scholarship efforts to students interested in job opportunities within the ethanol industry.
On the larger ethanol business stage, The Andersons is already in the midst of adding to its production division. One ethanol plant in Clymers, IN, should be open by mid-2007. Another located in Greenville, OH, is scheduled to start production in January 2008.
“We have a few other market sites we are looking at as possible places where we could construct ethanol plants,” says McKinstray. “If additional plants aren’t built, we believe we have a solid concept and strong competitive position. At The Andersons, we are not so much about building plants and producing ethanol as we are about running a successful business into the future. Our focus is on optimal production efficiency and commodity price risk management on a plant-by-plant basis.”
In today’s ethanol business, McKinstray thinks this “in it for the long haul” approach is the way to operate, particularly with The Andersons’ grain interests in mind. Although he expects ethanol to remain a “hot” business area for the next year or so, he predicts things will get “much more competitive” than what’s been witnessed thus far. He notes that the cost of building new ethanol production facilities is rapidly rising and finding new sources of corn feedstock will probably become more difficult as 2007 rolls on. This might lead to something of an industry shakeout or pushback by the end of the year.
“To achieve long-term success in this business, it is extremely important to have a solid production facility and team of people running it for you,” he says. “Grain is a commodity market, and sometimes very volatile. Unless you have a long range vision in place, I think it will be very hard — if not impossible — to expect to be a player in this field for very long. In this regard, The Andersons is here to stay.”