A South Dakota ethanol plant that rode the wave of the biofuels industry's precipitous rise and subsequent crash has gone back to its roots.
That's a good thing, according to representatives of both ethanol and agriculture.
NuGen Energy, a wholly owned subsidiary of Central Farmers Cooperative, has acquired the 110-million gallon VeraSun plant that Central Farmers helped create four years ago in Marion.
"It just felt like it was time to get it back somewhat locally owned and controlled," Steve Domm said. He is chief executive officer of Central Farmers and Fremar, the co-op's joint venture grain buying business with Archer Daniels Midland.
The purchase clarifies the future for a key business in Marion, a community southwest of Sioux Falls. It also reinforces a belief in an era of industry giants that a smaller approach might work.
The move comes after VeraSun's rapid ascent as a blockbuster force for ethanol ended in bankruptcy. Now a contrasting picture is emerging as a group of farmers steps up to run the operation.
"I just think it is a great thing to be able to keep the plant in local ownership and keep it open as a market for local corn," said Bill Chase, president of the South Dakota Corn Growers Association.
"It's a good way to provide farmers with additional markets for their grain, and it's the right thing to do in these rural communities," Doug Anderson said.
Anderson is the former head of plant operations for Rawhide Energy. He becomes the chief executive officer of NuGen Energy, effective today.
Neither the price nor terms of the sale were announced, although Dougherty Funding, which financed the Marion plant, submitted a $93 million creditor's bid for the facility when it was sold in a bankruptcy auction in March. Domm said the favorable financing package Dougherty offered NuGen Energy was a key point in making the deal happen.
About 900 South Dakota investors founded Millennium Ethanol in 2005 under the auspices of the co-op. In 2007 U.S. BioEnergy bought Millennium. Later that year, VeraSun purchased the U.S. BioEnergy plants and became one of the largest ethanol producers in the nation.
The sales illustrated a shift in the South Dakota ethanol industry.
It had begun several decades ago as a virtual cottage industry built on farmer-owned plants. It produced an almost boutique motor fuel from corn those farmers had a difficult time selling at a good price elsewhere. Now it was transforming to an industry that much larger publicly traded companies controlled as they rapidly expanded to meet the country's new and apparently insatiable appetite for renewable fuels.
To maintain its position, though, VeraSun pledged to buy corn at record highs. Within a year, both corn and ethanol plummeted. VeraSun collapsed in bankruptcy last October. Its failure sent waves of worry through farmers who sold corn to VeraSun ethanol plants. Some of that eased this year as Texas oil refiner Valero bought seven former VeraSun plants, including one in Aurora.
Larry Diedrich, an Elkton farmer who sells corn to the Aurora plant, said at the time, "Six or eight years ago people told me when the oil industry invests in ethanol, you know ethanol is here to stay."
Now, the sale of the Marion plant back to many of the original farmer-investors who built it to expand their grain marketing opportunities signals that such a business model also still is viable.
"It is encouraging that a group of farmers has been able to work out a deal with the creditor to purchase the plant," said Brian Jennings executive director of the American Coalition for Ethanol. "It was originally a farmer-owned entity, and it is nice to see it back in the hands of farmers."
While the expansion in ethanol production capability in recent years has left the industry able to make more fuel than motorists can use, "conditions have improved marginally in the ethanol industry," Jennings said. "Most plants are probably making a bit of a profit today. Things are looking up."
Domm agrees. Following the banking crash that dragged down the rest of the economy last fall, "the energy markets are back in somewhat normalcy, and the commodity markets came back to some normalcy," he said.
When Valero bought some of the VeraSun plants, it offered farmers holding corn contracts with those plants the spot price of corn plus 40 percent of the difference between that price and their contract price.
Domm said NuGen Energy also plans an arrangement with farmers who had contracts with VeraSun to supply corn to the Marion plant. But he declined to specify details.
He added, however, that NuGen Energy is licensed and bonded as a grain buyer. That should afford farmers selling corn to the plant greater security.
In the turbulent history of the Marion ethanol plant, "there were definitely lessons to be learned as far as risk management strategies," Domm said. Now, as it hearkens back to its beginning, "that will be put in place going forward."
Copyright ©2008 Argus Leader Media.
