| A Grafton, N.D., company is so far the biggest purchaser of
government-owned sugar in an experimental sugar-to-ethanol program.
The program was developed last summer at the urging of Red River Valley
leaders as part of a strategy to reduce market-depressing amounts of
government-owned sugar stocks. But participation has been small and both
ethanol and sugar industry officials have written to the U.S. Department
of Agriculture, asking it to accept lower bids in subsequent bidding
rounds.
Since July, Alchem L.L.L.C. of Grafton has purchased about 2,400 tons
of stored government sugar under the program -- at least one-fourth of the
total nation's purchases.
Neither Alchem officials nor the company's owner, Harold Newman of
Jamestown, N.D., answered phone messages. Alchem's sugar purchases amount
to about 96 semi-loads of sugar at 25 tons each.
The U.S. Department of Agriculture last May 28 earned praise from the
industry when it announced the creation of a new sugar-to-ethanol program.
It would involve up to 100,000 tons of sugar, it says, and the
government's most recent world agricultural supply and demand estimates
show that 90,000 tons of refined sugar would be used in the program in
2001-2002.
Few bids
USDA announced offers for bids in July, August and October. USDA
announced Oct. 10 that Alchem's latest bid on 1,200 tons was accepted --
the only successful bid in the USDA's third round offering of 90,902 tons
Oct. 1.
Merle Anderson, a Climax, Minn., farmer who promoted the program, says
the "win-win-win" opportunity for ethanol producers, the sugar
industry and the government has fallen flat.
"I think there would have been more bids accepted in the first two
tenders if the USDA would have accepted lower bids," says Anderson, a
former sugar beet grower and former president and founder of the American
Coalition for Ethanol, based in Sioux Falls, S.D.
Anderson says the original goal was to get at least 10 ethanol
factories to try it. There are significant differences in their processes,
he says, and part of the reason for the program is to see how the sugar
performs.
The first tender included a 10,000-ton limit per manufacturer. Anderson
and others then pushed for a 20,000-ton limit. Now they'll push for no
limit at all, meaning one company could buy all of the sugar for its
ethanol process. Anderson says bids from Minnesota ethanol manufactures
"have been rejected, apparently on a cost basis," but he could
not say who made bids or how much they were willing to pay.
Disappointing response
He praises Harold Newman, owner of the Alchem L.L.L.C. plant in
Grafton, as a strong supporter of the program. Analysts say Alchem may
have been able to bid more for the sugar than some of its Minnesota
comptitors because Grafton is a corn-deficit area and because it is
relatively close to USDA sugar storage.
Alchem certainly is the only "dry mill," to succeed in a bid,
ACE officials say. Most ethanol plants in the region are dry mills. Others
that have won some bids included a Simplot plant in Idaho and a
smaller-scale ethanol plant in Texas that uses waste from candy
businesses.
"I think we're all disappointed that only this small quantity of
sugar has been taken," says Mark Weber, executive vice president of
the Red River Valley Sugarbeet Growers.
"We were hopeful that 200,000 tons would be taken by the PIK
program and another 100,000 tons for the ethanol program," Weber
says. "This is such a minute quantity here, it's very
disappointing."
The PIK program pays farmers to destroy healthy beets in exchange for a
near-equivalent amount of government-owned sugar. USDA's Commodity Credit
Corp. has about 750,000 tons of sugar in storage. The stored sugar was
forfeited to the government by American Crystal Sugar Co. of Moorhead,
Minn., and other similar companies when sugar prices in 2000 failed to
match the value of the commodity loans they'd taken out with the USDA.
"We're hoping for another sugar offering," Anderson says.
"We've been conferring with USDA officials regularly. Unfortunately,
we did not do that in the beginning (for the early tenders).
"If I were them, administering the program, I would accept
whatever bids I got, up to that 100,000 tons and get it
incorporated," says Trevor Guthmiller, ACE executive director.
"They've had three tenders now, and only been able to get bids of
10,000 tons out of 100,000 tons. That should send a pretty clear signal to
them that the value as a feedstock for ethanol isn't what they thought it
was."
Among other things, Guthmiller says the ethanol industry will try to
convince USDA that different ethanol plants will have different cost
levels, including acquisition for corn. He says that besides using up
stored sugar, USDA gains "valuable knowledge about sugar as a
feedstock for ethanol" if it should ever be needed again.
He says he doesn't know whether USDA can go back and accept bids it
already has rejected, or whether it has to reopen the bidding process.
"There's going to have to be some communication between the people
involved with this program if the USDA goes forward with another tender,
as to how or why it would be different," Guthmiller says.
From the start, the ethanol industry tried to convince USDA officials
that sugar was "not worth 10 cents a pound" for the ethanol
program and that indeed it might need to be in the 1- to 2-cents-
a-pound range, Anderson says.
At the end of the day, however, the government needs to move sugar out
of its storage program where it's costing it money, he says.
Timing issues
Several timing issues seem to be at work to dampen the sugar-to-ethanol
program. Minnesota plants -- many cooperatives -- have been in an
expansion and construction mode and may have decided not to bid, Anderson
says.
"I'm being gracious on that," he says, but adds, "They
probably were worried the sugar would reduce their corn grind. We believe
it would not reduce their corn grind but in fact would increase their corn
grind on an annual basis."
But even Joe Johansen, general manager of the Minnesota Energy ethanol
cooperative of Buffalo Lake, Minn., did not submit a bid for the program.
Johansen is the ethanol maker who originally ran two truckloads of donated
sugar through his plant a year ago. Those experiments indicated adding
sugar actually could increase the amount of corn that could run through
the plant.
Johansen says his factory's expansion is his main reason for not
bidding.
"It's a fine program -- don't get me wrong -- but I think the
timing has been so rough," Johansen says. "The corn prices are
so depressed and everybody is expanding (ethanol production). But they're
looking at the major feedstock for their plant as corn.
"They're trying to get their plants expanded and aren't going to
look at something that's going to be short-lived."
Johansen says he doesn't know of any specific plants that had bid for
the sugar.
"I'm going to venture a guess that 90 percent of the Minnesota
plants that didn't bid -- it's because we're all under expansion."
Minnesota Energy co-op is in the process of increasing production from
12 million gallons a year to 18 million gallons a year, Johansen says.
That expansion should be complete in January, but it would be late spring
before he'd be interested in accepting sugar into his process. He'd need
to install bins and concrete.
The price of corn delivered to his plant is "cheap" at $1.67
per bushel, he says. He calculates that in order for a bid to make sense
to an ethanol manufacturer, it only would be about 1 cent per pound,
delivered.
"If corn was higher, that would be another matter," Johansen
says. |