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Posted on  

February 3, 2003

Uniting to produce ethanol: Farmers north of Madison plan $54 million plant

A group of farmers north of Madison hopes to convert corn into profit-making fuel by constructing an ethanol plant that would be one of the state's largest.

The proposed $54 million project in the town of Randolph in Columbia County about 40 miles north of Madison is being spearheaded by United Wisconsin Grain Producers L.L.C. The plant is projected to produce 40 million gallons of ethanol per year, generate a payroll of nearly $2 million and boost corn prices for local farmers.

"The plant would bring a substantial amount of money into the township," town chairman David Hughes said. "It has been well received."

United Wisconsin Grain Producers believes it will benefit from the nation's increasing dependence on ethanol. It anticipates increased demand due to pending federal legislation that would set a higher standard for the volume of renewable fuels, such as ethanol, to be used in gasoline.

The group has conducted preliminary studies and is arranging financing for the project, said Bill Herrmann, vice president of the group based in Friesland.

The group hopes to start construction at the 20-acre site by late spring or early summer.

Financing for nearly 50 percent of the plant will come from local investors. The balance will be raised from a combination of state and federal grants, a public stock offering and bank loans.

The group is selling shares of stock at $1,000 per share, according to a prospectus filed Dec. 13, 2002, with the U.S. Securities & Exchange Commission. The grain producers are selling shares directly, without an underwriter, and intend to raise between $19.25 million and $27.5 million, the prospectus says.

Ethanol, which is generated from the starch portion of a corn kernel, is blended with gasoline to reduce emissions and increase fuel combustion. It is used in Wisconsin's reformulated gasoline program.

Wisconsin already has two large-scale facilities Ace Ethanol, a 15-million gallon plant in Stanley, and Badger State Ethanol, a 40-million gallon facility in Monroe.

In 2002, the state produced about 60 million gallons of ethanol, according to the Renewable Fuels Association, a national trade association in Washington, D.C.

The Randolph plant is expected to convert 15 million bushels of corn into 40 million gallons of ethanol annually, according to the prospectus.

Twelve new ethanol plants are in the planning or building stages nationwide, said Dave Nelson, a member of the National Corn Growers Association's National Ethanol Committee. In 2002, more than 60 plants produced 2.6 billion gallons of ethanol.

Post-Elba push

United Wisconsin Grain Producers, which formed in November 2001, is new to the industry, but its members were early supporters of a similar proposal slated for the town of Elba.

That plan fell through in September 2001 because the site was too far from a natural gas line and the developer, Nesnah/Venture Bio Fuels of La Crosse, encountered some local opposition. Herrmann said his group originally intended to find another operator interested in building a plant but "as things materialized, we've been able to do it ourselves."

"It was one way to try to help ourselves and other farmers in the area," said

Herrmann, who owns a farm 15 miles from the proposed site. "All of us felt this in some way would help increase the amount of money we would generate for our community."

Herrmann said farmers around the area sell their corn for animal feed and for export.

Randolph stood out as an attractive area given its close proximity to the Union Pacific Railroad, three highways and a natural gas line, Herrmann said. The town is within three miles of Interstate 90/94, a half-mile from Highway 33 and two miles east of Highway 73. It is also two miles from a natural gas line.

Another asset Randolph offers is a corn supply sufficient to support such a large facility, he said.

Herrmann said the group determined the plant's capacity based on potential profitability as well as economies of scale.

About $45 million of the total cost will go toward plant construction and the remainder will pay for other development costs, including start-up costs, utilities and working capital, according to the prospectus. The plant is expected to employ 35 people.

The group expects to generate $55 million in revenue within the first year of operation, president Kevin Roche said.

The primary contractor will be Fagen Inc., a Granite Falls, Minn., ethanol construction and engineering firm that has worked on nearly 30 plants nationwide, including the one in Monroe.

United Wisconsin Grain Producers expects to enter into an agreement with an experienced ethanol marketer to sell the ethanol as well as animal feed products, according to its prospectus. The group has not yet signed any contracts.

Some residents have raised concerns about the environmental and aesthetic impact the plant will have on their communities.

Hughes, of Randolph, was initially concerned about the plant's appearance as well as the buffer area between the plant and the residential area but "I'm hoping it will be a friendly relationship," he said.



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