Ethanol energizes farmers

Plants sprout in Yuma County to ferment gasoline substitute from plentiful corn

Gargi Chakrabarty, Rocky Mountain News

Published October 7, 2006 at midnight

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YUMA - Corn and cattle rule in this county.

For generations, the corn was grown to feed the cattle. But now, the corn is being grown for an insatiable beast - the car.

Local farmers scraped together their money to build a $60 million plant to turn the kernels into ethanol.

The bet: Feeding cars pays more than feeding cattle.

They're not the only ones making that bet.

A few miles down the dusty county road to the city's main drag along U.S. 34, local officials meet with Texas investors. They discuss another plant, double the size of the farmers' Yuma Ethanol plant. Dallas-based Panda Energy wants to turn the fuel into cash.

Yuma is abuzz with ethanol - the so-called green fuel derived from mashing and fermenting corn.

This rural town close to the Kansas-Nebraska border is arguably shaping up as the fishpond of Colorado's corn rush even as the nation is being swept up by ethanol hype.

Bill Gates and Sun Microsystems co-founder Vinod Khosla have jumped into the fray with their supply of cash, along with hedge funds and Wall Street investors.

The nation's ethanol production has nearly doubled in the past four years to about 4.6 billion gallons a year, and conservative estimates say it could double again by 2010.

Yuma's two plants will account for more than half the state's ethanol production, once they're up and running in a couple of years.

"Ethanol is good for the local economy, it made sense to me," said George Seward, a local farmer who invested in the Yuma Ethanol plant.

Ethanol plants typically generate more than a 100 percent profit in two to three years.

Andrea Anderson, executive director of Yuma County, figures the two plants will create more than 70 well-paying jobs and hundreds of indirect ones, drawing young people back to the area. The plants will expand the county's tax base and pay for wider roads and better schools.

It's a godsend for the county of 9,800.

"Yuma is really bucking the trend of dying rural communities," Anderson said. "Ethanol plants are a natural fit for where we are going."

Sterling, a 42-mile drive northwest from Yuma, is already lapping up the benefits of its $52 million plant. Expansion plans are on the drawing board. The founding members are mulling over three more plants.

Great Western is building an ethanol plant in Evans, and Sun Energy is planning one in Walsh.

Front Range Energy's $54 million plant near Windsor went online this summer. And Coors Brewing Co. in Golden is planning to double its production to nearly 3 million gallons this year.

Nationwide, there are 105 ethanol plants and 44 more under construction. Another seven are being expanded.

Ethanol as a clean-burning alternative to gasoline gained ground this summer when pump prices topped $3 a gallon.

The Energy Act of 2005 mandates the doubling of renewable fuel use - such as ethanol and biodiesel - by 2012, to 7.5 billion gallons.

The fuel's use as a gasoline additive has surged with the phasing out of another additive MTBE, or methyl tertiary-butyl ether, over pollution concerns. In Colorado, all gasoline contains about 10 percent ethanol.

Also, billions of dollars in federal and state subsidies are being poured into the fuel, leading to the rapid sprouting of plants across the nation, some hundreds of miles away from corn-growing areas.

The green fuel isn't without detractors who warn that the corn wave neglects to account other factors. Namely, that it takes more energy to produce ethanol than the green fuel contains.

Cornell University professor David Pimentel and University of California at Berkeley's Tad Patzek in a study released last year concluded ethanol has a negative energy balance. They said growing corn and producing ethanol consumes 29 percent more energy than the energy produced by burning that ethanol.

Pimentel says the production of 1 gallon of ethanol requires 1,700 gallons of water and the process generates 12 gallons of waste.

That's a concern for water-hungry states such as Colorado.

"Ethanol production in the United States does not benefit the nation's energy security, its agriculture, the economy or the environment," the study stated.

Others, including scientists from the National Renewable Energy Laboratory in Golden, have disputed their claim, saying ethanol has a positive energy balance.

Some critics say ethanol will drive up food prices by diverting more corn toward fuel production. Supporters point out in 2005, 13.6 percent of the corn crop in the U.S. was used for ethanol production.

Others doubt if ethanol can fully replace crude oil.

The U.S. consumes more than 20 million barrels of oil per day. Of that, nearly 75 percent is imported from other nations.

"There's not enough corn in the United States to satisfy everybody," said farmer Don Rutledge, director of Colorado Corn Administrative Committee.

Sterling triumvirate

Dave, Bill and Chris.

Three buddies.

And three entrepreneurs who jump-started eastern Colorado's ethanol rush.

It began, incidentally, when Dave Kramer stopped at a gas station in Nebraska on his way back from visiting family in Minnesota two years ago.

He noticed a pump marked E-10, which sold gasoline blended with 10 percent ethanol.

"Why not make ethanol in Sterling?" Kramer wondered.

A corn salesman, Kramer, 45, knew the surrounding acres of cornfields would easily support an ethanol plant.

One acre produces about 200 bushels of corn, and one bushel roughly translates into 2.8 gallons of ethanol.

Kramer roped in old friend Bill Bornhoft and the duo set out to research ethanol.

They drove to Trenton and Central City in Nebraska, toured ethanol plants and spoke with newly rich local farmers.

They grabbed on to the idea.

The plant's byproduct, a gooey stuff called distillers' grain, could feed the herds. That really appealed to Bornhoft, 54, a third-generation cattle-feeder.

But they still had to resolve another matter: Money.

A 50-million-gallon a year plant easily would cost upward of $50 million. So they approached Chris Dinsdale.

A tall, suave man, Dinsdale, 57, had prior banking experience. He could smoothly pitch a multimillion-dollar project to investors.

They set to work and raised nearly $20 million in a couple of weeks from farmers and cattle-feeders within a 30-mile radius.

And First National Bank of Omaha pitched in the rest.

They hired Industry Consulting and Marketing of Colwich, Kan., to design the plant. The $52 million plant began production on Nov. 12, 2005.

Ironically, Kramer, who worked for DeKalb (a subsidiary of Monsanto) selling seed corn to farmers, began buying harvested corn from them.

This year, the plant will produce more than 50 million gallons of ethanol.

Investors are hoping to soon see dividends.

"Our projection is a five-year payback," Kramer said with a laugh, "but we are well ahead of that."

The quick success prompted them to try the model again, in nearby Yuma. The second plant is under construction.

They want to repeat it in three more locations that have yet to be finalized.

"It's really an over-glorified brewery," quipped Kramer.

Corn fills a fleet of trucks

Trucks filled with corn line up at the Sterling plant.

Sixty-five, on average. Every day. And 17 million bushels of corn a year.

They unload a small sample at a window near the entrance and a scale operator checks the corn for quality.

Once approved, the corn is dumped out of the bottom of the trucks, and then the kernels are mashed and fermented, their carbohydrate converted into ethanol.

A sweet smell permeates the air. Workers hose down the concrete plant floor with water.

They regularly clean the pipes and equipment, ever vigilant against bugs that could eat into production.

The 200-proof ethanol is mixed with an unwholesome substance, called denaturant, to prevent people from drinking what is essentially pure alcohol.

The denatured ethanol is trucked to the blending stations where it is blended with gasoline.

Sterling Ethanol produces 17 semi-loads of ethanol, and 42 trucks of distillers grain, each day. It employs 27 full-time workers.

Investors estimate it contributes 120 indirect jobs and about $9 million in additional revenue to eastern Colorado.

The site is a big draw with visitors - businesses and politicians alike.

"It's been a lot of fun," Bornhoft said. "Got to meet different people."

Ethanol is not a novel idea. It has been around for years.

Henry Ford had designed his 1908 Model T automobile to run on alcohol. But carmakers shelved the concept of alcohol-fueled vehicles with the advent of cheap and plentiful supplies of crude oil in the early 20th century.

In the early 1980s, some Midwestern states tried to use ethanol to inject life into rural economies.

They offered millions of dollars in subsidy to ethanol producers.

Ethanol prices got a sharp boost in recent years, riding on the back of runaway oil prices.

This summer, when oil prices touched $70 a barrel, ethanol sold for more than $2.50 a gallon in the spot market - with processing plants earning about $4.50 per bushel of corn, assuming they sold spot and bought corn for $2.50 a bushel. That doesn't include the processing and overhead costs.

Oil prices have slid since then, as have ethanol prices.

Most experts agree ethanol's future is in cellulose, not corn.

Cellulosic ethanol can be made from corn stover (leaves, stalks, etc), switchgrass, wood pulp and forest waste among others.

Experts say the U.S. could produce 45 to 50 billion gallons of cellulosic ethanol a year, and that production would not divert corn from the food chain.

The Bush administration supports the technology, as does industry.

The National Renewable Energy Laboratory in Golden has teamed up with Chevron Corp. to research cellulosic ethanol among other biofuels.

DuPont and Broin this week announced a partnership to bring cost-effective ethanol derived from corn stover to market.

The challenge is to find a cost-effective way to break down large, tough cellulose and lignin molecules into simpler sugars for fermentation.

NREL expects the cost of cellulosic ethanol production - which is about twice the cost of regular ethanol production - to drop in half and compete with regular ethanol at $1.07 a gallon over the next six years.

"We think ethanol, mostly cellulosic, could replace 30 percent of the nation's gasoline consumption by 2030," said NREL spokesman George Douglas.

Competition down the road

The dusty, two-lane U.S. 34 cuts through the heart of Yuma.

An assortment of vehicles - semi-trucks, dump trucks, SUVs and pickups - rumble down the road, spewing smoke and more dust.

They carry corn, sugar beets, potatoes and silage from the harvested fields.

In a few months, they will have another load: Hundreds of thousands of gallons of ethanol.

A couple of miles from the highway, Yuma Ethanol is under construction. It likely will be online by May. The $60 million plant will produce about 50 million gallons of ethanol a year.

Standing on the edge of the furrowed acres ready for winter wheat, farmer Ruben Richardson looks across the fields toward the plant - the tops of cranes and earthmovers gleaming in the afternoon sun.

"Ethanol is a good investment right now," said Richardson, 35, with a smile on his boyish face. "The way I look at it, for a corn farmer, it is one step closer to vertical integration."

Kramer nodded.

Ethanol is a good hedge, he argued. If corn prices go down, farmers still can earn profit on ethanol. If corn prices go up, margins on ethanol will be squeezed but farmers can still make money.

Kramer's logic resonated with farmers. Besides, they'd seen the Sterling plant. They offered millions of dollars for the plant.

In fact, Kramer turned away $9 million from eager investors. (About 85 percent of Yuma Ethanol investors also put money into Sterling Ethanol).

Yuma knows the bounty of ethanol.

Farmers have seen a 10-cent hike in the price of a bushel of corn in past months. Corn sells for about $2 to $2.50 a bushel, although it touched $3 a bushel a few times in past months.

Now that farmers have more cash, they open fewer lines-of-credit before harvest, said Robert Harding, branch president of the Bank of Colorado in Yuma.

But farmers worry the windfall soon could dissipate if Panda Energy sets up a rival $120 million gallon plant. That plant, scheduled to break ground in the first quarter of 2007, will produce 100 million gallons of ethanol a year.

"I don't know if Yuma can support two ethanol plants," Richardson said. "There is not enough corn here, it will have to be railed from the Midwest. Panda will have the inverse effect on price, it will lower the value of corn."

Yuma grows more than 40 million bushels a year, the No. 12 corn-growing county in the nation.

Also, there'll be more distillers' grain than can be used here, farmers complained. The Sterling plant produces about 1,000 tons of distillers' grain a day, priced at $28 to $35 a ton.

A recent study by the St. Louis-based National Corn Growers Association concluded that a local farmer-owned cooperative ethanol plant's contribution to the local economy is likely to be as much as 56 percent larger than the impact of an absentee-owned corporate plant.

"Yuma and Panda both started one year ago," Richardson said.

"Here is Yuma, pouring concrete and making it happen. But Panda hasn't done anything, they're all talk."

Ethanol boosts entrepreneurs

Andrea Anderson is upbeat.

Sitting next to her in the Colorado Community Bank's conference room, John Zamlen shares the sentiment.

Zamlen, a senior executive at Panda Energy, had flown from Dallas earlier that morning to discuss his company's proposed plant.

Rather than cut down on each other's profitability, Anderson said both plants would spur Yuma's economic transformation.

"Along with ethanol, we are seeing entrepreneurs in their 20s and early 30s coming back to Yuma," said Anderson, Yuma's executive director.

For instance, farmer Mike Bowman's son Reece, a recent graduate from Colorado State University, came back to work at Bank of Colorado's Yuma branch.

Rick Whitehead moved back with his wife and kids from Denver; he owns a liquor store among other businesses. Ann Wenger opened a coffee shop, and Mark Harof took to farming after he sold his business in Denver.

Land prices, especially for irrigated acres, have jumped nearly 50 percent in the past five years. That's a far cry from Yuma's downturn in the mid-1980s, when land prices dropped in half and foreclosed homes became a common sight. Schools were half-empty as parents moved out to make a living elsewhere.

Now even rental homes are fully occupied, as are motels.

Yuma has a new, $9.3 million elementary school. A $24 million hospital is under construction. The town has completed a $2 million wastewater treatment plant.

"We want entrepreneurs to think, 'Wow, they're ready to handle us,' " Anderson said. "We are planned for growth."

Still, more needs to done.

Residents say the two-lane U.S. 34, the town's main road that links Interstate 76, becomes dangerous during harvest season, with trucks, semis and other heavy vehicles rolling along the narrow lanes.

"It is not uncommon to lose a couple of hands in road accidents," said farmer Seward.

Three doctors have resigned recently. There are only six doctors and one dentist in the area, forcing patients to wait for months to get appointments. Yuma doesn't have an attorney either.

"It is a real serious problem," Seward added.

Colorado's slow start

Colorado has three plants. Two of them are less than a year old.

Together they will produce more than 100 million gallons a year, compared to top producer Iowa's annual production of more than a billion gallons.

The state's rank: 15th among 22 ethanol-producing states.

Unlike states such as Minnesota that has offered hundreds of millions of dollars in subsidies to ethanol producers in the past two decades, Colorado hasn't done much.

"That's a question to the legislature," said Ed Lewis, with the Governor's Office of Energy Management and Conservation.

"Evidently they decided not to (provide incentives)."

Corn growers do get federal subsidies, as do small ethanol producers, up to $1.5 million in tax breaks per plant. Blenders receive 51 cents per gallon.

State officials blame the faltering start to a lack of awareness, and that's partly because of ethanol's inadequate distribution network.

There are more than 170,000 gas stations in the nation, but only 600 sell E-85, a blend of 85 percent ethanol and 15 percent gasoline. A dozen of those stations are in Colorado.

Lewis is working with auto companies, dealers and gas stations to put up 40 more E-85 filling stations. And Detroit carmakers have said they will double the production of FFVs or flexible-fuel vehicles and other biofuel vehicles to 2 million by 2010. FFVs can run on either gasoline or E-85.

Currently, there are about 6 million E-85 compatible vehicles on American roads.

"Once there are more filling stations selling E-85, more people will want to use that," Lewis said.

"At that point, we will have more people interested in FFVs and in ethanol plants as well."

chakrabartyg@RockyMountainNews.com or 303-954-2976

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