Ed Zurga for The New York Times

Ryland Utlaut, president of the Mid-Missouri board, said members are attached to the plant. But, he said, “pride can make you poor.”

Mid-Missouri Energy, an ethanol plant in Malta Bend, Mo., is owned by farmers who are debating whether to accept buyout offers. A recent drop in ethanol prices is complicating their decision

The New York Times

 

 
November 2, 2006
 

As Investors Covet Ethanol, Farmers Resist

By ALEXEI BARRIONUEVO
MALTA BEND, Mo. — Farmers do not see fast money very often. But with big profits gushing forth from ethanol plants, dozens of Wall Street bankers, in loafers and suits, have been descending on the cornfields of the Midwest promising to make thousands of farmers rich overnight.

Most of them, though, are proving surprisingly reluctant to cash in.

In this sleepy town of 250, for example, people have lived on the edge of despair for decades, dreaming of a way to make their corn worth more than $2 a bushel. Seeking a way out, a group of farmers from here and surrounding communities scoured the state three years ago to raise the money for a $60 million plant that would turn some of their corn into ethanol for cars and lift their incomes.

When ethanol prices soared to more than $4 a gallon this summer, the plant became a roaring success.

And that is when the big money types came knocking. New offers — some as high as $275 million — have rolled in just about every week from an investment bank or hedge fund seeking to buy the plant. For the farmers, particularly those who borrowed part of their investment, a sale could have meant a profit of as much as 10 times what they put in.

So far, however, the plant owners have said no. To them — and to many other farmers who have invested in ethanol around the country — the ethanol plants represent more than a winning lottery ticket. Instead, they signify an emotional investment in the future of their farms and communities, a chance for greater independence and a sense of pride that they are helping make America less dependent on foreign oil.

“Farmers have never been the best moneymakers,” said Mark Casner, 30, a seventh-generation farmer and a member of the board of Mid-Missouri Energy, the ethanol operation here. He is against selling out. “They have gotten in it because they love what they do. I would be tortured if I couldn’t be here doing what I do.”

Despite the gold rush atmosphere, only two farmer-owned ethanol plants are known to have been sold to outsiders: one in Iowa and one in Minnesota.

One mysterious investor who visited the Mid-Missouri plant a few months ago claimed to represent a pool of $11 billion aimed at ethanol investments, and outlined a bid of about $275 million. The problem?

“He didn’t really know what ethanol was,” said Ryland Utlaut, a veteran of 40 years of corn farming who is the president of Mid-Missouri’s board. “That bothers me. We built this plant.”

The offer, like others, was not firm enough to recommend to the members, he said, and the board, deluged with other offers, has yet to invite the man back.

But lately some regrets have started to creep in. “Maybe we have waited too long, “ Mr. Utlaut said.

The ethanol market has slipped in recent weeks, so for farmers across the Midwest, the window of opportunity for big windfalls could be closing. “We as board members do have a strong attachment to the plant,” Mr. Utlaut said. “But pride can make you poor.”

Gasoline prices began surging last year and ethanol prices followed upward. In its first seven months after opening in February 2005, the Mid-Missouri plant made a profit of $6.6 million on the farmers’ original investment of $22 million. Farmers who invested the minimum of $20,000 received dividends of about $6,000 each.

The 15-member board continues to debate whether to sell even a part of the plant, let alone a controlling interest. Weeks have turned into months and the board has yet to put any proposal to the cooperative’s 729 farmer-owners. A sale would require a two-thirds vote for approval.

“They can almost debate themselves into paralysis,” said Gregory J. Lynch, a lawyer in Madison, Wis., who has been advising Mid-Missouri’s board and the directors of other ethanol plants.

Mid-Missouri’s board members particularly chafe at the notion of selling out to a foreign buyer, as the Iowa ethanol cooperative did when it agreed in March to sell a 60 percent interest to an Australian buyer. They look upon the source of some other proposals with deep suspicion, too.

“If Big Oil managed to get control of the ethanol industry we are back to Square 1, and they can set prices wherever they want,” said Ron Linneman, Mid-Missouri’s treasurer.

From the start, local farmers saw Mid-Missouri as a way to raise the demand for their corn, which until recently had been stuck at around $2 a bushel for the better part of four decades — not to mention the bite that inflation has taken from that price over all those years.

In 2002, a group of 11 farmers near Malta Bend banded together to help change that. During six weeks in early 2003, they made 82 scouting visits in a 150-mile radius, looking for farmers willing to invest in an ethanol plant. Three times a day they made their Power Point pitches in church basements and town halls, even an abandoned train depot where they shivered in the bitter Midwest winter. They drew audiences as large as 150 people and as small as 2.

Don Arth, Mid-Missouri’s vice president, struggled with whether he should remain involved in the equity drive or stay home with his wife, Donna, who was receiving chemotherapy for cancer.

“She said, ‘This ethanol stuff is important to farmers,’ ” Mr. Arth recalled. So he kept at it. Weeks later, before the fund-raising was finished, she died. “This ethanol plant is what kept me going since she passed,” Mr. Arth said, his voice cracking at the memory. “It’s kind of my second marriage.”

Not long after, Mr. Arth stood with the other board members under a tent at the plant’s groundbreaking. The directors were introduced, to a standing ovation from 700 people. “That was really something,” he said. “I kept thinking I wished she were there.”

Mr. Arth, 67, has mixed emotions about selling. “You hate to see it change hands,” he said, “but when we get to looking at it and using a rational mentality on it, it is hard not to look at.”

But other board members say that they are confident ethanol prices will remain strong for 10 to 20 years and that they think the plant could earn steady returns of at least 10 percent a year. More important, farmers who invested in the plant are getting 10 to 15 cents more for their corn, since Mid-Missouri is paying a premium over the local grain elevator.

“I have been farming for 50 years and this is something we have been waiting for all our lives: a way to increase the value of our agricultural commodities,” said Marvin Oerke, 66, another board member. “I would hate to turn loose this opportunity to leave something for the kids and grandkids.”

This year, before the flood of buyout offers, the Mid-Missouri directors decided to double the size of their plant; the project is scheduled to be finished in 2008.

The ethanol profits are just starting to dribble into the local economy. Farmers have invested in storage bins in the last two years that have added five million bushels of grain storage, giving them a greater ability to decide when and where to sell their corn to maximize the price.

If the Mid-Missouri board did recommend selling the plant, getting the full membership to agree would not be easy.

“I would just as soon we keep it,” Brent Gorrell, a farmer in Malta Bend who invested in the plant, said while lunching on fried chicken at the Waggin Wheel, a local diner. “I don’t see any price that would make me want to sell.”

But other farmers who invested in the plant pester Mr. Utlaut with calls about the latest rumors of huge offers. Many of them, particularly those who took out loans to finance their share, say “they are willing to sell part or all of their interest,” Mr. Utlaut said.

On Wall Street, however, many investors find the whole farmers’ debate baffling.

“They are out of their minds,” said Peter C. Fusaro, a principal at the Energy Hedge Fund Center, which tracks such funds. “We see a glut of ethanol coming.”

Ethanol prices have already fallen by half since peaking at $4.23 a gallon on the Chicago spot market in June. And for Mid-Missouri, which sells its ethanol on mostly long-term contracts, the price has fallen to $1.60 a gallon, from a peak of $2.68, while corn has recently surged to more than $3 a bushel.

Outside investors are pestering farmers to sell out now so they can take part in the ethanol boom with existing plants — before the ethanol market might turn sour. With dozens of new plants coming online next year, the wait to start construction of a new one is three years, said Ron Fagen, chief executive of Fagen Inc., the country’s biggest builder of ethanol plants.

Still, farmers have reason to be cautious. While many offers are legitimate, others are being cobbled together by fly-by-night investor groups without ethanol experience who are willing to commit little cash upfront, said Mr. Fagen, who constructed the ethanol plant here.

In Malta Bend, the trucks keep arriving daily to dump the farmers’ corn at Mid-Missouri. And the board continues to meet about twice a month to discuss the latest buyout offers.

“I wish the industry weren’t moving so fast,” said David Swearingin, a board member who favors combining Mid-Missouri with another cooperative. “Farmers are cautious, conservative people. But if we stick our head in the sand and do nothing, that opportunity for harvest may be over.”