Ethanol outlook: Where is the industry headed?

In the past decade, ethanol has been both a golden egg and a rotten one.

The 2004-2007 years proved to be an ethanol boom.

Then, with corn prices spiking and gas prices falling at the end of 2008 and in early 2009, ethanol producers found themselves in a perfect storm.

Making and selling ethanol actually cost the fuel's producers money.

When the storm blew over, though, most of Iowa's ethanol plants still stood.

Today, corn prices have dipped and ethanol is once again profitable.

While some plants sat idle when profits were bad, now all but one of Iowa's 40 ethanol plants are producing ethanol, according to Monte Shaw, executive director of Iowa Renewable Fuels Association.

Just north of Merrill, Plymouth Energy, which went online in December 2008, is one of the plants that weathered the storm.

This month, Plymouth Energy CEO Dave Hoffman asked part-owners of the investor-owned ethanol plant to plug a total of $10 million more into the ethanol operation.

Hoffman said the money will be used to pay down the plant's operational loan at the bank and to free up capital to hedge -- or lock in on prices in advance -- to prepare for price volatility in corn and ethanol.

"The ethanol industry hasn't really had a 'normal' period yet," Chad Hart, Iowa State University (ISU) Extension economist, speaking of price swings in the past.

At the Iowa Renewable Fuels Association, though, the outlook for ethanol is "pretty positive," Shaw said.

While quite a few plants throughout the United States have been offline, a number have returned to production in the last few months, he said.

"There's going to be growing demand for ethanol, whether it's pure economics, which is driving it now, or the federal renewable fuels standard, which sets a minimum amount of ethanol big oil companies have to use each year, and that steps up over time," according to Shaw.

Public policy, he argued, dramatically impacts the energy sector, whether it's ethanol or any other source.

"They (pubic policy makers), to a certain extent, if not outright choose the winners and losers, certainly put their hands on the scales," Shaw said.

Ethanol industry officials are pushing for E-15 to be approved for general car use, he said.

"That would really swing the doors open and get these plants rolling," he said.

Currently, there is strong public policy support to continue to grow the ethanol industry, he said.

"There's no guarantees that five years from now, we won't have a much different public policy," Shaw pointed out. "But I'd be very surprised."

Today, near Merrill, the Plymouth Energy ethanol plant is running at 105 percent of its nameplate capacity of 50 million gallons per year.

"Some day we'd like to be at 55-60 million gallons," he said.

After paying off the bank loan, Plymouth Energy's second goal is to pay "a nice return to our investors."

Still, investors are not yet receiving any dividend checks.

"We're hoping to start issuing dividends to our investors as soon as possible," Hoffman said. "That will kind of depend on market conditions."

At ISU, Hart's advice for investors is -- like with any other business investment -- to do their homework.

"Make sure they understand where this industry is at and what they think the prospects are going forward," Hart said. "Know how the company is set up, what the financials are looking at and take what the CEO is offering and compare it with the notes you can gather anywhere else."

With ethanol there will be good investments or bad ones, Hart said.

"You can't tell just on the face of it which ones are going to be that way until the market plays itself out," he said. "We have seen some high profile losses, but we've also seen a lot of companies fork through fairly rough financial times and they're still going fairly strong."