Archive for November, 2008

The news on VeraSun Energy Corporation has been flying fast and furious. Just yesterday, the financially-troubled ethanol producer announced that it had received a non-binding unsolicited indication of interest to purchase substantially all of its assets. The identity of the third party was not disclosed, but some speculate that it could be Poet, LLC.

The VeraSun announcement came just hours after Jeff Broin, CEO, Poet, LLC, Sioux Falls, SD, told the Associated Press that the company was in talks with a number of ethanol producers. But, Broin did not disclose the names of companies with which his company is talking.

Most likely any buyout of VeraSun would be welcome news to farmers concerned about having their corn contracts honored.

VeraSun Corn Suppliers to meet tomorrow

In fact, a large group of farmers (now more than 100) filed an objection last Friday to VeraSun’s motion in a Delaware bankruptcy court to be allowed to void corn contracts with as little as 10 days notice.

The group of farmers, known as the VeraSun Corn Suppliers, plan to meet tomorrow at 9:00 am at the Floyd Community Center in Floyd, Iowa. At this time, other farmers and grain elevators with contracts for the delivery of corn to any of VeraSun’s 14 operating ethanol plants will have the opportunity to join the group.

The cost to join the group is $300. For more information, contact Mark Kuhn at 641-228-2566, a farmer who also is a representative with the Iowa Legislature.

Minnesota State Representative Tony Cornish said that some farmers could lose their business if VeraSun cancels their contracts. “There’s anger and frustration,” says Cornish of his constituents, including farmers, grain elevators and rural lenders. Few people realized how a Chapter 11 filing could affect contracts yet to be executed, he says.

Cornish added that rejected contracts could not only affect farmers and grain elevators, but implement dealers as well. Farmers may have taken out loans for new equipment, expecting they would be paid from VeraSun. Now that is in question, he says.

Chip Mack, Whitewater Creek Grain & Feed, Waterville, MN, noted that he has contracts with farmers based on forward contract prices that he was going to receive from VeraSun. He and other grain elevators in the same situation will have to honor the contracts because they are not bankrupt. Many of the contracts were for $5-7 per bushel when corn prices were up to record levels this spring. Corn now has dipped below $3.50 per bushel.

“VeraSun could have hedged grain or sold ethanol, but chose to do neither. This was their poor management decision. People in good faith agreed on contracts,” Mack says, adding that the recent VeraSun action to void contracts calls into validity the concept of cash contracts.

Thirty-four fuel stations in 27 cities across South Dakota are offering consumers with flex fuel vehicles (FFVs) more ethanol blend choices at the pump, with the help of grants from the South Dakota Corn Utilization Council and the Ethanol Promotion and Information Council (EPIC). And 11 more fuel stations have applied to this blender pump grant program which debuted last May. This puts South Dakota behind only Minnesota in the total number of blender pumps available to consumers.

“While mid-level blends are for flex fuel vehicles only, we are confident research will demonstrate that E15, E20 or even E30 can be run in conventional vehicles with no changes needed,” says Toni Nuernberg, executive director, EPIC. Nuernberg notes that early tests are being conducted on higher blends at the EPA. Should EPA approve higher blends, the pump infrastructure, at least in South Dakota, will be in place.

The organizations recently launched a state-wide advertising campaign to educate consumers about mid-level ethanol blends, blender pumps and blender pump locations.

Farmers may be interested to learn that the Department of Energy already has begun testing the potential impacts of E15 and E20 on emissions, catalyst and engine durability, vehicle driveability, engine operability and vehicle and engine materials. DOE’s first report is just part of a very large test program. To see the preliminary test results, visit http://feerce.ornl.gov/publications/Int_blends_Rpt_1.pdf.

How much money would you save annually by using E10 or E85 ethanol blends? Find out at www.ethanolfactor.org, a new online calculator developed by the American Coalition for Ethanol (ACE). In addition to dollar savings, the Web site enables you and your friends to find out how many barrels of oil and greenhouse gas emissions you could save by using an ethanol blend.

Ethanolfactor.org was built with hard data from industry sources. ACE will be launching other Web tools that will allow Internet users to “to discover for themselves the value of clean-burning and cost-effective ethanol blended fuel,” says Brian Jennings, executive vice president, ACE.

Publication of EPA’s notice of an increase in the Renewable Fuel Standard (RFS) for 2009 will appear soon in the Federal Register. In this notice, the EPA is publishing an RFS of 10.21% for 2009, which is intended to lead to the use of 11.1 billion gallons of renewable fuel in 2009.

Along with ethanol, the EPA expects that the 11.1 billion gallons of renewable fuel required next year will include approximately 0.5 billion gallons of biodiesel and renewable diesel.

Remember earlier this year when ethanol was being blamed for just about all ills, including record high food prices? Well, now that corn prices have dropped to about half of the summer highs of $8/bushel, food prices remain high.

On October 17, The Wall Street Journal reported that while corn and soybean prices fell dramatically in September, grocery store prices increased about 8%, and cereal and bakery prices rose 14%.

In a press conference at the National Press Club in Washington, D.C. today, Growth Energy, a new organization comprised of ethanol producers, pointed out that food giant Kraft has seen revenues increase 20% over the year-earlier period and that Kellogg saw sales increase 9.5% in the third quarter.

One of the reasons for the formation of Growth Energy is to “set the record straight about ethanol,” said Jeff Broin, CEO Poet, a leading ethanol producer. Poet, along with ICM, Western Plains Energy, Amaizing Energy Cooperative, Hawkeye, Green Plains and the National Corn Growers Association, formed the new organization to provide what Broin calls “a fresh, aggressive voice in the ethanol debate.”

Growth Energy is launching an ad campaign that dispels the food vs. fuel fight, beginning with ads in Roll Call and The New York Times. For more on the ad campaign plus a policy brief, visit www.growthenergy.org.

VeraSun Energy Corporation, Sioux Falls, SD, announced that it is seeking Chapter 11 bankruptcy protection on October 31. This announcement followed the company’s report of significant losses in the third quarter.

A large part of the problem was that VeraSun had locked in corn prices earlier this summer (when corn was near $8 per bushel) and then corn dropped to less than $5 per bushel. VeraSun also cited worsening capital market conditions and a tightening of trade credit for constraining its liquidity position.

VeraSun and 24 of its subsidiaries have filed voluntary petitions for relief under Chapter 11 to facilitate access to additional liquidity while they reorganize, the company reported. The company plans to maintain its operations and has taken steps to “ensure continued supply of product to its customers and to fulfill all customer obligations.”

VeraSun also reported that it does not expect to scale back its purchases of corn and other raw materials. It expects that suppliers will be paid in full for goods and services furnished after the filing data as required by the United States Bankruptcy Code.

The bankruptcy of any major ethanol producer is not a positive sign for the industry, says Todd Alexander, partner, Chadbourne & Parke LLP, New York. Alexander represents developers and lenders participating in U.S. and international biofuels financings. He has participated in the limited recourse financing of power projects in various countries.

A Sign?

But, the VeraSun Chapter 11 announcement may possibly be “a sign that operating margins have been squeezed to or close to their breaking point,” Alexander says.

“There is a general consensus that many ethanol facilities did not properly size their working capital lines to allow them to fully fund their margin calls,” Alexander says. “As a result, they were forced to accept losses that could have been better managed. In addition, ethanol producers’ ability to effectively lock in longer term ethanol sales contracts has greatly diminished as a result of the increased capacity that has entered the market during the last 12 months. This has made it more difficult for ethanol producers to manage their crush spreads and has made earning less predictable.”

The ethanol industry could face additional Chapter 11 filings. “We are working with several groups that are in the process of renegotiating their debt arrangements. If these negotiations break down, several transactions will wind up in bankruptcy court. However, for the most part, bank groups are cooperating with their borrowers to try to avoid bankruptcy filings. It is generally not in anyone’s best interest to end up in bankruptcy court.”

Biofuels will be well served by the incoming Obama administration, says Ernie Shea, project coordinator, 25x’25, an alliance of agriculture, business, labor, conservation and religious groups whose goal is to have America’s farms, forests and ranches provide 25% of the total energy consumed in the U.S. by 2025.

President-elect Barack Obama has had a strong record of showing support of biofuels, including next generation biofuels, Shea says. President-elect Obama “appreciates and understands the need for enabling policies that support this young industry,” Shea says. “He has a well developed understanding of how renewable energy from farms and forestry could be part of a new economy.”

In an interview with AgriTalk’s Mike Adams in late October, Heather Zichal, policy director for energy, environment and agriculture for the Obama campaign, said that Obama will support the Renewable Fuel Standard (RFS) that was part of the Energy Independence and Security Act signed into law by President Bush last December.

The RFS currently requires 36 billion gallons of renewable fuel to be used by the year 2022, with 21 billion gallons coming from advanced biofuels, including cellulosic ethanol.

President-elect Obama is proposing to expand the RFS to 60 billion gallons of biofuels by 2022. Moreover, he will support continued R&D into the next generation of feedstock and processing technologies.

Obama’s stance is in sharp contrast to Senator McCain’s opposition of the RFS and proposal to eliminate it.

*The 25x’25 organization is supported financially by the Energy Future Coalition (www.energyfuturecoalition.org), a non-partisan public policy initiative funded by foundations.

When you’re talking with someone about ethanol and they say, “Yeah, but it takes more energy to produce ethanol than the energy you get out,” ask them if they have heard of GREET, the Greenhouse gases, Regulated Emissions and Energy use in Transportation model developed by Dr. Michael Wang.

Wang, of the respected Argonne National Laboratory’s Center for Transportation Research, has found that the fossil fuel energy input per unit of ethanol is lower (.78 British Thermal Units for each 1 million Btu of ethanol delivered) compared to 1.23 million Btu of fossil fuel energy consumed for each 1 million Btu of gasoline delivered. Check out www.1eere.energy.gov/vehiclesandfuels/pdfs/program/ethanol_brochure_color.pdf.

In the past, some researchers have calculated total input. This includes solar energy, which is free, renewable and environmentally benign. Argonne National Lab points out that solar energy should not be taken into account in energy balance calculations.

The Laboratory adds that while the total energy needed to produce a unit of ethanol is more than the total energy needed to produce a unit of gas, ethanol is superior when calculating either the amount of fossil fuel energy needed or the amount of petroleum energy needed.