Higher oil prices and lower feed wheat costs are allowing ethanol plants to break even following a recent period of rough times.
Brad Welter, president of Pound-Maker Agventures, Canada’s first integrated feedlot and ethanol facility, said it has been a tough slog in the ethanol business the last couple years.
“It has been a long stretch of selling ethanol at below cost,” he said.
Crude oil prices tumbled from US$110 a barrel in the spring of 2014 to a low of $30 a barrel in the winter of 2015. Ethanol prices followed the same downward trajectory.
The crash in ethanol prices happened at the same time the federal ecoEnergy for Biofuels production subsidy ran out for Canadian ethanol plants.
“They ended as the markets were getting tougher to be an ethanol producer, so it was a little bit of a perfect storm,” said Welter.
Pound-Maker was able to weather the storm because it is a diversified business that has been operating the 14 million litre ethanol plant since 1991.
There is no long-term debt attached to the Lanigan, Sask., facility and it is a small and nimble operation.
“If you’re a lot bigger, your losses are just bigger,” he said.
NorAmera BioEnergy Corp. did not weather the storm. The 25 million litre Weyburn, Sask., wheat ethanol plant shut down in May 2015 and has not reopened.
The plant is owned by Parrish & Heimbecker, which acquired it when it bought Weyburn Inland Terminal in 2014. The facility is currently up for sale.
“It’s not our core business. It’s not what our wheelhouse is,” said Sherry Lees, corporate controller for P & H.
The preference is to sell the facility intact as a fully functioning ethanol plant.
“There is a wide variety of interest surprisingly to me,” said Lees.
“But nobody to date is interested in operating that facility as an ethanol plant.”
Plants in the United States and Eastern Canada have expressed interest in some of NorAmera’s assets. And there are people that want to use the land and buildings for other business purposes, so P&H is considering a piecemeal approach to the sale.
Meanwhile, the economics are starting to turn around in the ethanol sector, largely because oil prices have climbed to more than $50 a barrel.
“We’re now at the point in our business where ethanol is about breaking even,” he said.
It helps that there is an abundance of feed wheat due to poor weather conditions last year.
However, the plant has to be careful about the feed wheat it buys due to high levels of fusarium and vomitoxin.
The distillers grain byproduct of the ethanol plant is used to feed the cattle in Pound-Maker’s 26,000 head feedlot. The problem is the vomitoxin is not eliminated in the ethanol manufacturing process. In fact, it is concentrated.
Wheat that comes into the plant with five parts per million vomitoxin infection is converted into distillers grain with 15 p.p.m. vomitoxin. So the facility has to carefully measure vomitoxin levels and choose wheat that falls within a certain range.
“We can’t just take any wheat at any price,” said Welter.
But there is still feed wheat to be had at good prices and that’s helping the bottom line in 2017.
“It looks like we might be at the turning point,” he said.