Ethanol growth fueling changes in corn, milo outlook

ORIGINALLY WRITTEN JERRY ENGLER
Oppressively high gasoline prices may have helped realign the economy in a way that gives new hope to farmers and rural communities as ethanol from sorghum grain and corn commands a larger market share.

Marion County is involved directly in this even if parts of its population are unaware of the situation.

Jerre White, executive director of the Kansas Corn Growers and Kansas Grain Sorghum associations, said the trade and traffic go through the county every day, even international interest.

Milo is shipped from Marion County cooperatives through TEAM marketing to the ethanol plant at Colwich, where it in turn leaves to be blended into gasohol at the refinery in McPherson.

While White was being interviewed Thursday, a team of Morrocans was scheduled to stop by Countryside Feeds LLC in Hillsboro to talk about using distiller’s meal for livestock feeds, and a group of Tunisians was expected in McPherson.

White had worked with both groups through his office in Fredonia.

Rush of investors

White and the rest of the grain industry are watching a growing rush of big investors getting in on building more ethanol distilling infrastructure.

For farmers, the economic differences are obvious as grain prices begin a slow climb, and the national conversation of experts turns from corn surpluses to plans to raise more grain and arguments over the potential for shortages.

For small cities, where leaders aren’t accustomed of late to the surrounding agriculture being prosperous, there is a danger of ignoring opportunities until other communities already have grabbed the winning share.

For all rural residents who have grown accustomed to the idea of a relative state of poverty in the wealthiest farming region of the world, don’t be surprised if agricultural leaders share a growing excitement over what is happening.

Demand surpassing supply

This is the first time in modern American farm history that the amount of corn going into grain alcohol, or ethanol, production for fuel is expected to equal, and then surpass, corn going to exports within the year, according to the U.S. Department of Agriculture.

Corn demand is expected to exceed production nationally this year with the 2.55 billion bushels surplus of last year covering any shortfall this year, according to Rick Tolman, chief executive officer of the National Corn Growers Association.

According to articles released by NCGA, when farmers were making decisions on what to plant this winter, corn prices were hovering around $2 a bushel. The first part of June, corn futures for July were trading over $2.55 a bushel on the Chicago Board of Trade.

Tolman said, according to information from ProExporter research firm based in Olathe, corn probably won’t go over a yearly average of $2.84 a bushel over the next decade as farmers meet demand with more corn acreage.

These price increases due to ethanol use are the first price increases for corn farmers since 1995, when drought pushed prices as high as $5 a bushel, he said. NCGA farmers say $3.50 is the price needed.

Milo shortage emerging

Marion County farmers are growing more corn with newer, short-season drought-resistant varieties. But typically, as in most of Kansas, the grain product they are growing that goes into grain alcohol for fuel is milo, or grain sorghum.

Historically, milo replaced corn as the main dryland feed grain grown because of its reliability during dry weather.

Traditionally, milo sells for less than corn, and is sold by the hundredweight instead of by the bushel.

In Kansas now, the proximity of an ethanol plant can bring milo up to the price of corn, which gives an edge to milo producers. The pricing often changes market language to include milo in price per bushel.

Kevin Lickteig, administrator for the Kansas Grain Sorghum Commission at Paola, confirmed this.

“In fact, we have had a shortage of sorghum in about half of Kansas for the past two years,” Lickteig said. “In those areas, milo sells for the same or a little more than corn.

“At Colwich on Tuesday last week, the ethanol plant manager said they are buying corn for the first time in years,” he added. “A friend of mine confirms that he sold corn and sorghum there last week for $2.62 (a bushel) each.

Lickteig said the people who load trains for milo to use as animal feed grain to Mexico and Japan have complained for the past four years.

The increase in soybeans because of Roundup, with its genetically altered resistance in beans to enhance weed control, and lower nitrogen requirements, because beans are legumes that fix nitrogen into the soil, have changed available quantities.

“Prices and the free market will eventually determine what is planted,” Lickteig said.

White said milo normally is assigned 85 percent the value of corn, but in areas where there is an ethanol plant the “gap is almost non-existent.

Unless wheat prices also go up for some reason, White said he would expect the most gain in milo acreage to come from reductions in wheat acreage since they tend to both occupy drier uplands.

On occasion, he added, wheat has been used to fill in for making ethanol when supplies of the other two grains were inadequate. But normally wheat is a more expensive source of starch needed to make alcohol, White said.

Impact of an ethanol plant

In recent years, White noted the spread in price between milo and corn has been larger in southwest Kansas because of the lack of an ethanol plant there. That spread may disappear as the Conestoga Energy Partners LLC ethanol plant eventually comes on line in Garden City. The project broke ground in May. It’s projected to produce 55 million gallons of ethanol production and consume 20 million bushels of corn and grain sorghum annually. It will employ 33 to 40 people and create a large value-added factor for agriculture that will impact the community.

The Garden City plant will also guarantee the availability of large quantities of distiller’s grain for cattle rations in the large feedlot industry there.

Most of the profit from the distilling process is in selling the distiller’s grain as a byproduct after the alcohol is produced. The distillers also sell carbon dioxide from the process.

The biggest company in the business, Archer Daniel Midland, continues to expand its fuel alcohol production with the announcement that it will build new plants at Columbus, Neb., and Cedar Rapids, Iowa.

Opportunity for small towns

White said that just because large companies build ethanol plants during this current boom time, it is no reason that small communities in agricultural areas can’t use the trends of investment to shape their own world by bringing an ethanol plant to their area.

He often is involved in these efforts as an advisor and a consultant. For instance, he and the associations he represents were highly involved in locating the ethanol at Garnett, where they have their headquarters. He advised that any small Kansas community can follow Garnett’s track record to locate a plant.

White said it “takes a group of local guys who are at least invested in the concept and willing to be leaders.”

Sometimes the biggest hurdle is that local people tend to be conservative and already dealing with risks, such as the weather. But they, usually around 10 people, are what it takes to bring in the large investors.

White said 25 percent of the investment for the Garnett plant came from New York City investors after local people began the effort. An investment around a million dollars came from a group of Ohio farmers who want to make sure they were invested in ethanol somewhere.

The ethanol plant at Phillipsburg had an investment group from South Dakota involved.

The interest and commitment of investors to get into ethanol production is growing all over the United States and the world, he said.

Yes, it could happen in Marion County, he said.

“For the last four years we’ve had people come to us with some projects that we’ve helped get some legs under them,” White said.

The phone number for White and the associations is 1-800-489-2676.

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