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completed in February 2008. But if he were trying to finance the project now, he would have a very difficult time.
"When ethanol prices were higher, it induced a lot of people to go out and start building additional capacity," Frazier
said. "But when supply exceeds demand, this is what happens. The market for ethanol right now is about $1.60 per gallon and
that's down almost a dollar from where it was a year ago. Corn prices are up substantially and ethanol prices are down
substantially, so you put the two together and the economics aren't what they were."
Despite a record corn crop in 2007, prices of the commodity jumped substantially from about $2.60 per bushel in 2006,
hitting a high of more than $4 per bushel in June 2007. These record high prices were pushed up not only by the demands of
ethanol refiners but also by strong export demand, according to Ag Answers, a collaboration of Ohio State University and
Purdue University.
Further exacerbating the problem, according to Mary Kane, first vice president of public finance at Stifel, Nicolaus &
Co. Inc., is that the price of constructing an ethanol plant has jumped as well. She said the industry is simply getting
more sophisticated and the plants are getting more high-tech - leading the cost of development up to about $2.20 per gallon
of capacity from about $1.50 just one year ago.
Kane says all of this means that the days of farmer co-ops banding together and building an ethanol plant out in a rural
area are over. It has become a big business, and only the biggest and best will survive, according to Kane.
"Only those plants that are currently under construction or that are being developed by large, well-financed companies
are going to get built," Kane said.
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In addition to the Center Ethanol plant, two others are currently in the permitting process in Southwestern Illinois: the
Abengoa plant at River's Edge in the Granite City area and the VeraSun plant in Granite City. Abengoa Bioenergy Corp. is a
large, multi-national, Spanish company. VeraSun Energy Corp. is a publicly traded company based in Brookings, S.D.
According to Kane, Abengoa is planning to build a new ethanol plant either at the Granite City site or in Kansas but has
not yet made a determination which.
VeraSun - which is a relatively new but fast-growing company - has seen its stock price fall along with the downturn in
the ethanol market. Shares of VeraSun stock were trading at about $27 last November but hit a 52-week low of just $10.41 in
late September. No timetable has been announced as to when the company might proceed with its Granite City plant.
Kane is optimistic, however, about the future of ethanol in Southwestern Illinois. She says that it's a young industry,
and that means it will be volatile. Kane says she expects quite a bit of shake-out as the industry matures with larger,
better-financed refiners buying out the smaller companies that are less able to handle the volatility. But she says
Southwestern Illinois will remain an attractive location for these plants because its transportation system - including
truck, rail and barge - opens it to a far larger market than a rural location can access.
From 2001-2006, the number of ethanol plants in the United States grew from 56 to 119, according to the Renewable Fuels
Association; another 86 are currently on the drawing board. Many of those plans may be mothballed, however, as companies
wait for demand to catch up with supply. Despite these figures, Frazier says that he remains optimistic that the industry
will stabilize.
"We don't anticipate that there's going to be any rapid improvement," Frazier said, "but we think it's still a good
business to be in over the long term."
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