Big River navigates downturn [The Hawk Eye, Burlington, Iowa]By Rex L. Troute, The Hawk Eye, Burlington, IowaMcClatchy-Tribune Information Services
July 08--WEST BURLINGTON -- With the ethanol industry struggling through a weak U.S. economy, Big River Resources is surviving better than some ethanol companies.
High corn prices, high temperatures and a surplus of ethanol on the market has made times tough for ethanol plants across the country. Such factors have forced the temporary idling of some plants, such as Valero Energy Corp., shutting down facilities in Linden, Ind., and Albion, Neb.
"We are in a down cycle," said Ray Defenbaugh, CEO and president of Big River Resources, based in West Burlington.
Big River Resources consists of four ethanol plants and five grain elevators. The ethanol facilities are located in West Burlington, Dyersville, Galva, Ill., and the Boyceville, Wis. plant, which the company purchased in December 2011.
"We are managing to make a little profit," Defenbaugh said. "The margins are different at all four plants."
One of the problems facing the ethanol industry is a surplus of the product. Defenbaugh said 16 billion gallons of ethanol was produced in a year's time when only 15 billion gallons was used by gas producers.
"We have to work through the inventory buildup," he said.
With the idling of several plants and other facilities cutting back the level of production, Defenbaugh said it is estimated the industry will produce 13 billion gallons of ethanol this year. The cutback in production could eliminate the surplus and get idled plants back up and running.
With ethanol being made from corn starch, the high price of the product's main ingredient has caused great concern. The price of corn has been rising but dipped Friday to $6.94 per bushel on September futures according to the Chicago Board of Trade.
"We have a very active risk management committee. We anticipated the dry fall and winter, and that we'd have a dry summer," Defenbaugh said.
Big River Resources planned ahead and bought more corn at lower prices on the spot and through hedging. Through the company's advance planning, Big River Resources has kept all its plants running through the industry's downturn. That means the firm has kept more than 350 employees working at the four plants and five elevators.
"One of our goals when we started out was to provide jobs and preserve our rural communities," Defenbaugh said.
Yet, weather conditions and continued high corn prices could alter Big River Resources' plans in the coming weeks. For the moment, all four plants are staying open.
"That's the way it looks at this time," Defenbaugh said.
Considering the price of corn and what the company is getting for a gallon of ethanol, Defenbaugh said it wouldn't be wise to do a temporary shutdown of any of Big River Resources plants. And once profit margins turn around for idled plants in the country, they will open back up, he said.
One thing that hurt the ethanol industry at the start of the year was Congress not renewing the ethanol tax credit. The program started 30 years ago, and gave companies a 45-cent tax credit per gallon of ethanol. Over that time span, the federal government gave $20 billion in subsidies for the use of ethanol.
"I think it is totally gone," Defenbaugh said of the tax credit.
He doesn't see any movement among politicians to restore the tax credit in 2013.
Despite the downturn, Defenbaugh remains positive about ethanol's future.
"There is a good market out there," he said.
Defenbaugh believes ethanol hasn't hit a wall in terms of its reach.
"There is plenty of corn out there," Defenbaugh said. "I think there is a really good future out there for ethanol."
Most gas stations offer fuel with a 10 percent blend of ethanol. Defenbaugh believes a 30 percent blend will give excellent fuel economy to customers.
In the long run, ethanol plants help farmers, the communities within its territory and the final consumers in saving them money at the pump, Defenbaugh said.
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