The world has changed since farmers pitched in hard-earned money, bit by bit, to build ethanol plants.
The investment boom in ethanol plants has attracted unprecedented levels of private equity to an industry once characterized by farmer-owned co-ops.
Of 42 ethanol plants under construction nationwide, six are farmer-owned, according to the Renewable Fuels Association trade group. That's a stark contrast to the ethanol boom of the 1990s, when farmer-owned co-ops built more than half of all plants, according to the Federal Reserve Bank of Kansas City.
About half of the corn ethanol plants in operation or under construction in Iowa are owned by farmers. But all of the new plants will include money from nonfarm investors.
Some plants are a hybrid of farmer and outside investors. One plant under construction, Lincolnway Energy in Nevada, Ia., attracted $38 million from 900 Iowa investors. About 60 percent of the investors are from Polk and Story counties, general manager Rick Brehm said.
Other new plants are owned by ethanol companies like South Dakota-based US BioEnergy Corp., which is building a 100-million-gallon plant that will open later this year at Albert City.
Nonfarm investors are expected to be interested in the ethanol industry, said Monte Shaw, executive director of the Iowa Renewable Fuels Association.
Farmers benefit from having a new place to sell corn, and the plants also add jobs to the communities where they are located, he said.
"After two or three years of 20 to 30 percent returns to think that Wall Street or international capital or even domestic entrepreneurs are not going to get in on that I think is unreasonable," Shaw said. "Any ethanol plant is good for rural Iowa."
The shift could have a far-reaching effect on who owns ethanol production, an issue of particular interest to farmers. The network of plants and refineries is seen as a beacon of economic hope in rural America, where the traditional pillars of agriculture and manufacturing have lagged.
"I think it's kind of a double-edged sword," said Geoff Cooper of the National Corn Growers Association. "We obviously want to see the industry succeed, and it is going to take lots of effort and lots of different groups and different resources. At the same time, we'd like the money that's invested in these plants to stay in these rural communities."
Broin Cos. of South Dakota builds plants around the nation, including in Iowa. Chief Executive Officer Jeff Broin said farmers made ideal investors during the late 1990s, when the industry was getting off the ground. As corn producers, they had a vested interest in facilities that raised the price of grain.
Institutional investors stayed out of the business because they had seen ethanol production grow and collapse in the 1980s, Broin said.
That changed in the late 1990s when ethanol demand increased, driven in part by federal laws requiring gasoline to contain cleansing additives.
The true investor sea change came in August, with the passage of the 2005 Energy Policy Act, experts said. The bill set a standard requiring the United States to use 7.5 billion gallons of renewable fuels by 2012, including ethanol and other fuels like biodiesel.Associated Press
