Glacial Lakes Energy, LLC (GLE) announced late Friday, Oct. 5, that it has temporarily suspended any further construction activities on its Missouri Valley ethanol project in Meckling.
The news comes at a time when construction costs are climbing, due to the rising prices of new building materials.
The cost of corn itself is ballooning. According to closing elevator bids in East River South Dakota grain markets on Oct. 9, corn was steady to 2 cents higher, ranging in price from $2.67 to $3.01 per bushel.
A year ago at this time, when Clay County residents were anticipating that construction of the ethanol plant would soon begin, corn was fetching approximately $2.25 per bushel.
Ethanol prices also were higher back in 2006. That's no longer a reality for farmers in the corn belt. A number of new ethanol plants were built nationwide in the last year, and existing plants were expanded.
That contributed to an increase in the nation's ethanol supply, and a subsequent drop in its price.
The press release states that MVE and GLE believe that completing financing for the Meckling project in not in the best interests of its shareholders at this time.
Deciding factors, GLE states, include:
- The narrowing of operating margins due to the high cost of corn.
- Declining ethanol prices.
- The high costs of construction.
- The completion of construction of a large number of ethanol plants over the next six months.
- Declining ethanol company valuations.
Reports of ethanol glut
The Sept. 24 New York Times reported companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace.
The average national ethanol price on the spot market has plunged more 30 percent since May, with the decline escalating sharply in the last few weeks.
The wholesale price of ethanol is $1.50, compared to $2.50 in late 2006.
"Due to the sudden change in the market and falling ethanol prices for the past couple
of months, of almost 50 cents per gallon, that warrants us to amend our construction plans," said Tom Branhan, chief executive officer of GLE, in the Oct. 5 press release. "We will continue to explore funding and other opportunities for this project, and we continue to believe that the long-term future of the ethanol industry and of our Meckling project remains bright."
In August of 2006, GLE, through its subsidiary Missouri Valley Energy, LLC (MVE) announced its plans to construct a large-scale ethanol facility on 220 acres near Meckling.
Successful equity drive
A local equity drive was held to raise capital for the project. Glacial Lakes sought to sell up to $95 million of its common stock at $2 per share. Citizens could invest in the plant for a minimum of $10,000.
In late August 2006, over 800 interested investors packed the Vermillion High School gymnasium. The success of the equity drive allowed work to quickly proceed.
MVE acquired the land in the fall of 2006, and completed the first phase of dirt work and internal plant roads at the site in November 2006. MVE also submitted the necessary water and air and construction permits for the ethanol facility, completed initial site investigation and site layout drawings.
It entered into initial design build contracts for the engineering and construction of the facility with New Mech Companies, Minneapolis, MN, and Praj Industries, a construction firm from India.
Water, gas and electric service for the site was secured.
But as time passed, it became apparent that the original timelines announced in August 2006 weren't being followed.
Construction of the plant was expected to begin during the winter months of 2006-07, with the distillery being completed and producing ethanol by late 2007 or in 2008.
Today, the building site remains vacant.
GLE's board of directors sent a letter to its members last April in an attempt to allay concerns.
The letter begins, "We wanted to set the record straight. We are not 'out of money.' We are not abandoning our Vermillion or Madison ethanol projects."
The letter lists several steps that had been taken to fully fund the equity requirements of ethanol facilities in Mina and Watertown. It also stated that GLE was continuing to work with First National Bank of Omaha to close on the debt financing commitments for the Aberdeen facility and the expansion of the Watertown plant.
"As a result of the increased costs of construction, we have had to re-evaluate the timing of our financing plans for our Vermillion and Madison projects," the letter states. "We expect to finalize our 2007 financing plan over the next 60 to 90 days."
The April letter also notes that GLE hoped to complete financing for the Meckling project in 90 to 120 days, by obtaining required additional equity and commitment for debt financing.
The letter set the summer of 2007 as the target date for construction to commence.
It also states, "Our goal is to have the Meckling facility operational for 2008 new crop corn."
Climate hasn't improved
The economic climate, however, hasn't improved sufficiently for GLE to reach that goal.
Friday's news release notes that as MVE sought to complete the financing of the local project, rapidly increasing construction costs and equipment and materials shortages hit the ethanol industry in late 2006 and into early 2007, significantly increasing the cost of plant construction for the entire ethanol industry.
Based on revised construction cost estimates, MVE and GLE were forced to re-evaluate their financing plan.
"We will continue to explore funding and other opportunities for this project, and we continue to believe that the long-term future of the ethanol industry and of our Meckling project remains bright," states Branhan in Friday's press announcement.
Attempts by the Plain Talk to contact Branhan were unsuccessful. Personnel at the GLE office in Watertown said he would have no further comment.