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November 20, 2002

Corn into ethanol: MGP plant up and running

LAKOTA - The corn that was delivered to the Midwest Grain Processors ethanol plant just west of Lakota the first week of the month is now ready to be hauled out as ethanol and dried distillers grains.

The farmer-owned cooperative has fired up all of the processes in the plant and is running smoothly, according to CEO and general manager Dan Hernandez.

"We started grinding corn Monday (Nov. 11) at 5:20 p.m. ... We're a 24-hour operation," he said last week during an interview and tour of the facility, which will be capable of processing 45 million gallons of ethanol each year.

The start-up was the culmination of a process that began two years ago this month in Kossuth County when the first meetings were held to introduce farmers to the idea of a producer-owned ethanol plant.

The concept started in the non-profit group AgVentures Alliance, and the for-profit Midwest Grain Processors was formed from a subcommittee.

Kossuth County was chosen as the site for the plant in February 2001, based on a location with access to rail transport and natural gas, as well as the availability of corn.

In June of that year, voters in the county approved, by a vote of nearly 80 percent, a county-backed loan of $5 million to aid in the financing of the project, which is owned by nearly a thousand farmer-members in Iowa and Illinois. The Kossuth County Board of Supervisors is expected to begin the process next week of issuing bonds to make the loan to the company.

MGP held a ground-breaking on the site, located about two miles west of Lakota on Highway 9/169, in August 2001, though dirt work was started a couple of months earlier. A paved road into the plant was built by the county, paid for largely by a RISE (Revitalizing Iowa's Sound Economy) grant from the state; another RISE grant was sought to assist the company with the cost of installing a rail spur to provide service to the plant.

The first corn deliveries from producers were trucked into the plant the first week of November.

Midwest Grain Processors currently has 28 employees on staff, including management, lab staff and operations staff for the round-the-clock processing plant. In addition, there are two employees of West Bend Elevator Company on the site. WBEC is providing all of the grain delivery scheduling, weighing and payment for grain for the company.

Another third-party service provider is National Quality Inspectors, a company that will provide employees to test the corn as it is delivered and to provide test data on the distillers' grains before they are sent to end-users.

MGP's employees have all been through two weeks of training in Kansas at another ethanol plant designed by the same company, ICM, along with undergoing other on-site training from various equipment vendors.

As the week went on last week, the plant was slowly brought on line, one process at a time, as crews with general contractor Fagen Inc. scrambled to keep ahead of the ethanol-in-the-making.

Hernandez said he saw dramatic changes each day as areas were transformed from construction sites into clean, organized sections of the ethanol process.

The staff was also using the week to fine-tune each part of the process, balancing the inputs and making sure everything was working as it should be, starting out with partial batches.

Hernandez predicted that by the end of the this week, the plant will be running close to normal operating procedures, though they will keep it at a rate of 70-80 percent of capacity for a couple of weeks. He said they wouldn't test the plant at its full capacity until the first week of December.

At capacity, the plant will grind 45,000 bushels of grain a day, and produce about 125,000 gallons of ethanol a day, enough to fill four rail cars. Along with the ethanol, there will be about 400 tons - or five rail cars - or dried distillers grains produced every day.

"We'll consume about 10 empties (rail cars) a day," Hernandez said.

The plant's rail spur can accommodate about 85 cars, and Union Pacific has agreed to provide service to the plant up to three times a week.

Most of the ethanol and dried distillers grains will be taken out of the plant by rail, while all of the corn will come in by truck. The plant does have the capability, however, to send out both end products by truck as well.

Though the processing plant is 24-7 operation, grain deliveries will be accepted only Monday through Friday, and are coordinated by West Bend Elevator Company. Each producer will deliver grain to the plant on a quarterly basis. About 60-65,000 bushels of grain will be delivered each day.

Scott Swanson, commodity risk manager for MGP, said that while there are challenges to tapping into the markets for ethanol, there is no question the demand is growing.

"We've got ethanol sold well into next year," he said, most of it marketed directly to California refineries who are trying to get a jump on changes being mandated in the near future.

While California law requires that all fuels be oxygenated (adding oxygen to make the fuel burn cleaner), the currently used additive, MTBE, has been shown to cause contamination in water supplies. The California government has called for a phase-out of the additive, leaving the door open to ethanol as an alternative.

The difficulties, Swanson and Hernandez say, lie in the infrastructure within the California fuel industry. MTBE is a by-product of petroleum refining, and therefore is created on the same site as the gasoline.

It can also be mixed into the gasoline at the refinery before the fuel is transported by pipeline. Ethanol cannot be mixed in before the gasoline travels through the pipeline, and must be transported into California.

Swanson said the infrastructure is being developed, but that will likely entail a cost that will be passed along to California customers. The cost increase, he said, will not be because ethanol as a commodity is more expensive, but because of the infrastructure improvements needed to utilize it.

Despite the transition that must take place, both Swanson and Hernandez are confident that the demand for ethanol will continue to rise.

"Ethanol today is the premier oxygenator for a fuel, and it is needed for the environment," Hernandez said.

Swanson also said that the summer's rally in corn prices have not been a concern for the profitability of the Lakota plant.

"The industry as a whole has had positive margins, even through the summer rally in corn," he said.

Typically, the price of ethanol trails, but follows the price trend of corn - if corn prices rise, shortly after, the price of ethanol will go up.

"Your timing is that you try to maximize your profit margins," Swanson said.

MGP, whose slogan includes "Ethanol and more," is not content only to take the ethanol and distillers grains from the corn.

Though attention now if focused on getting the plant up and running smoothly, Hernandez said the cooperative is still working on synergistic enterprises to join them in what is planned to be an agricultural industrial park.

He said that talks are continuing with a company that would capture the CO2 (carbon dioxide) released in the fermentation process, along with discussions with other types of industries.

"We have several different businesses that we are in active discussions with," he said.

By: Shari Hegland
Algona Upper Des Moines 

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