ETHANOL: BLESSING OR BANE?
Plants offer promise of prosperity, but some fear bubble may burst
By Greg Burns
Tribune senior correspondent
Published October 23, 2006
OSCO, Ill. -- Gary Asay raises thousands of hogs in this small town near the Mississippi River, and for years he's had nothing much around him but farmland stretching in every direction.
Now an ethanol plant will be opening just 25 miles to the south in Galva. Another is coming to Annawan, about 25 miles to the east, and another just 30 miles across the river in Buffalo, Iowa. The town of Fulton, 44 miles to the north, will be getting a big one, too, leaving Asay to wonder if all those factories amount to too much too soon: "Anyone who has looked into it is concerned," he says. "There are too many plants too close together."
The ethanol boom is spreading money around the heartland like so much fertilizer. Billions of dollars in new government subsidies have touched off a flurry of private investment at biofuel operations across the Midwest. Tired towns where opportunity has slipped away for decades now see their salvation in the giant distilleries that turn corn into alcohol for the gas tank. Almost every rural hamlet has a plant in its sights, or so it seems.
Yet the benefits of ethanol fall unevenly, and some longtime rural interests stand to lose ground even as corn farmers and many others gain.
If the local crop gets used for ethanol instead of exports, then grain elevators, loading equipment and barges used to ship corn down the Mississippi could become obsolete. If grain is less readily available for feed, Midwest livestock producers such as Asay could be squeezed out. If ethanol plants emit excessive levels of pollution, their nearby neighbors could be in for a rude surprise.
And what if the ethanol boom goes bust? What if oil prices, already down sharply from their summer peak, head back to $20 a barrel? What if some cheaper raw ingredient takes the place of grain? What if ethanol plants really belong near their customers in big cities, instead of small towns in corn country?
Already, gasoline prices have plunged, corn has shot higher, and the hype surrounding ethanol investments has fizzled. Two ethanol producers that went public this summer have seen their stocks pummeled. In September, a third producer postponed its planned initial public offering amid hostile market conditions.
Yet the rush to launch ethanol plants as soon as possible continues in the heartland. Town after town is jockeying for a spot on the forward schedules of the relatively few companies that specialize in designing the rural factories. Big dreams still rule the day.
"Gasoline prices have dropped dramatically, and that gives some people cause to wonder, but not me. I don't think there's any place you could build a plant and not make money," says Ron Plain, agricultural economist at the University of Missouri. "Turning farm crops into automobile fuel has the potential to be the biggest change in U.S. agriculture since the introduction of the soybean."
Where boosters see vast opportunities, however, David Sykuta sees an "ethanol dream world" based on energy markets that go up but never down. Grass-roots ethanol investors accustomed to lavish government crop subsidies will be in for a shock if oil prices keep falling and bailouts fail to follow, he warns.
"They're all told they can have it all with no consequences," says Sykuta, who heads the Illinois Petroleum Council. "Some of these towns are going to get a heaping dose of the realities of the energy industry. It's the opposite of what they're used to."
Russell Holesinger meets that warning with the serenity of a man accustomed to playing a big role in his small hometown of Fulton. The calm, soft-spoken attorney has built a legal practice specializing in wills, estate planning and real estate transactions, but these days he's the local ethanol man. "It's a little more exciting," he allows. "It's quite a boom right now."
Brotherly endeavor
The Holesinger boys were the sons of a prosperous entrepreneur who farmed, owned a feed mill and ran the local John Deere equipment store. Three of the four brothers stuck around Fulton, and they started dabbling in biofuel about five years ago.
One is trying to turn wood chips into electricity, while another is making biodiesel from vegetable oil. Someday, Holesinger says, the family might try to produce energy from the methane in local manure pits. But now they have their hands full spearheading the plan for a 100-million-gallon ethanol plant less than a mile from downtown.
The Fulton project got rolling about a year ago, when a North Carolina architect searching for an investment opportunity tracked down Russell's brother Keith, the wood-chip guy. The Holesingers asked around, and within a matter of weeks, 14 local farmers and businessmen had pledged money. In December, two entrepreneurs from neighboring towns provided the rest of the Phase 1 capital, and Fulton Ethanol was born.
In early spring, the group contacted AGRI-Bunge, a joint venture between farmer co-op AGRI Industries and the North American arm of Bunge, a multinational that owns the town's biggest grain facility. As the profit margins for ethanol soared, their inquiry about corn supplies led to a formal partnership between the well-financed company and the local entrepreneurs--one of many blooming around the region.
By July, the partners had filed for an environmental permit, lined up bank loans and met with contractors. But they still face a long journey to their ethanol payday, including more than a year for construction. That's a long time to wait, says Holesinger. "Time is of the essence. No one knows how long the window's going to stay open."
Asay, on the other hand, thinks it has already shut. The veteran hog farmer and current president of the Illinois Pork Producers Association has no interest in putting his money into ethanol, he says. "The time to invest probably would have been two or three years ago."
Seated at his kitchen table this summer, Asay looked out the window over a fine stand of corn surrounding his farm. He intends to plant corn on every one of his 300 acres from now on, as long as the ethanol factories demand it.
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