Big shake up in eastern corn markets

The shutdown of Bionol, the ethanol plant in Clearfield, Pa., has thrown a monkey wrench into grain marketing in the East currently. A plant that uses 100,000 bushels of corn a day is certainly the 600-pound gorilla in local markets.

Producers, elevators and traders are scrambling to work out the problems the shutdown creates. The news hit about 10 days ago with trucker rumors that have slowly become news stories.

Google “bionol, shutdown” and you get interesting bits of news. Talk to brokers and farmers and truckers and you can hear anything.

The Centre Daily News reported June 21 that rising corn costs and flat ethanol prices had caused the plant to close temporarily. The article stated there were no plans for layoffs. Private sources have told me the plant is on “hot idle,” whatever that means. It sounds like they are maintaining the plant to start again on short notice.

Different stories

Other published articles say the original one-week shutdown for maintenance was just extended. This does not wash with trucker reports that they were told one day to deliver corn and the next day arrived to find the gates padlocked.

That there will be no fast re-opening is evidenced by the fact that traders with corn contracted for current delivery are offering producers options for delivery elsewhere.

Some published articles confirm the speculation running around — they will wait until new crop for cheaper corn. The Bionol plant was already very public about the on-going dispute with Getty Oil regarding its “take-off” agreement.

The justification for an ethanol plant in Pennsylvania was location for delivery to eastern markets and the five-year Getty agreement which would guarantee margin. From the first production in January 2010, according to Bional, Getty had not paid according to the contracted formula. Now, according to some speculation, Getty may be able to abrogate the agreement entirely because Bionol is not producing for the contract.

Possibility

All this could mean even cheaper corn in September would not save the plant. Some Ohio plants and at least one New York plant are also expected to extend summer shutdowns in response to current market conditions.

Even as that is planned and expected, the market has reacted to current news by crashing a buck on the futures markets and more than that on cash markets.

On June 10, July corn futures hit a high of 7.99. A week later it posted a low of 6.92. At the time of the high, central Pennsylvania bids were as much as $1 plus over the futures. So, we saw a cash bid more than $9. That cannot be sustained.

Even while that was going on our Senate was reversing itself and voting to end the blender credit, which subsidizes ethanol by 45 cents a gallon and puts a 54-cent tariff on imports to keep out sugar-based ethanol from Brazil.

They would also refuse to subsidize blender pumps at retail sites that would allow a practical solution to get the ethanol blend to 15 per cent.

It remains to be seen if these measures can get through the House, but the handwriting is on the wall. Mature producers say they can live without Uncle Sugar, but would appreciate a slower conversion to no help. They say it would cut revenue by 7 percent and profits by 20. For the producers who are just starting to pay off debt, it is a plant killer.

Result

. The result could be a savings to the government of $6 billion and a cost to consumers of several times that in higher gas prices. So, just when farmers found a way to make money, the public is screaming about the cost of food going up in the world.

Ethanol is being blamed for starvation and pollution around the globe, even while the gasoline producers are using ethanol blending to create a cleaner fuel.

The truth is hard to come by, but my sympathy is with the producers who have fed the world for years while their children have had to go to town to get a job good enough to live on.

About the Author

Marlin Clark trades producer and elevator grain from an office near Andover, Ohio for Town & Country Co-op. You can reach him for comment at 440-293-4055. More Stories by Marlin Clark

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