Day: Fort Dodge ethanol plant deemed healthy
A Valero corporate executive visited the company’s ethanol plant in Fort Dodge on Sept. 9 to outline the company’s plans for its drive to support the regional United Way programs.
While employees were treated to a company lunch under an awning outdoors, Bill Day, vice president of media and community relations, held a press conference to discuss the outlook for the Valero plant and ethanol industry in general.
In a nutshell, Day said, the 10 ethanol plants Valero owns, including Fort Dodge, were in strong, profitable, competitive conditions, with a positive long-term outlook.
With the supply of ethanol building, as gasoline demand falls, Day said there are other markets the company is looking for marketing the renewable fuel.
“We may be able to export some ethanol and keep production numbers high,” he said, “especially as corn prices have moderated.
“That makes it attractive to sell ethanol overseas. Even beyond the Renewable Fuels Standard, if you keep plants operating at a fairly high utilization rate, making ethanol for sale overseas it’s great for everybody and helps reduce the balance of trade in the U.S.”
Last year, Valero had three plants shut down in areas where corn prices were too high,
“They were actually losing money on every gallon of ethanol,” Day said. “We kept all the employees on the payroll because we knew we were going to start those plants back up. They were doing training or maintenance on the units.
“It was a shutdown for financial reasons, rather than some cyclical thing.
“And that’s not the situation this year at all.”
In fact, Day said all 10 of the Valero ethanol plants together made more money in July 2013 than they made all 12 months of 2012.
“So that’s an indication that the high corn prices and the lower margins are hopefully behind us,” he said.
Are there 2013 harvest concerns?
“We’ll have to see going into harvest what the yields are looking like,” Day said. “This area seems to be drier than some of the other areas and the corn seems a little short.”
Nevertheless, he said he sees that supply of corn will not be a problem.
When asked about the quality of heat- and drought-stressed corn on the ability to make ethanol, Day said low test weights can “affect how many gallons we can get out of a bushel, but won’t affect the quality of the ethanol.
“But again, there’s plenty of corn around. Most of the plants we have take in corn from about a 50-mile radius. Supply is not a huge concern. We can draw from further out, but that’s at a higher cost.
“The good news is, the farmers that do have corn will get pretty good prices for it.”
Demand is limiting factor
Demand for gasoline has still not rebounded from the economic downturn. Day said that peak U.S. gasoline usage was recorded in 2006 and 2007 and fell off by a million barrels per day since.
“It hasn’t recovered. It’s not just the economy; it’s also the demographics as people get older, more people are retiring. They just drive less. Vehicles are more efficient, using less gasoline and fewer miles traveled.
“All this means is that gasoline usage is down and won’t ever be again what it was in 2006-2007.
“So if you’re a gasoline maker, you have to be concerned about the fact that demand is not going to recover and will probably taper off.
“So you have to be a low-cost producer so you can still make money at the margins.”
Valero has looked for other markets, Day said.
“Valero sells a lot of gasoline in Latin America,” he said, “a lot of diesel in Europe, plus Mexico and South America are economies that are growing pretty rapidly.
“They have more demand for gasoline than they have refining capacity.
“That makes the U.S., especially along the Gulf Coast, a manufacturing center for the rest of the world. Refining and ethanol production are some of the industries that are leading this renaissance of American manufacturing.
“When you think 20, 30 years ago manufacturing was leaving the U.S. going overseas in search of cheap labor and low operating costs.
“Today, because of low natural gas and crude oil prices and the high amount of expertise, a lot of that manufacturing is coming back to the U.S.”
Refiner, not producer
Day said that Valero is a refiner, not an oil producer.
“That’s why we don’t like it when oil prices are high because we are buying all the crude oil we are refining.”
He said the company purchases more crude oil from within the U..S. than it did three or four years ago.
Valero has stopped importing crude, Day said. “We’re using all domestic sources. For example, we’re buying crude from North Dakota and send by rail to our refinery in Tennessee, which no one would have imagined five years ago.”
Welcomes Cargill competition
Day said there is no serious concern for Valero when Cargill’s next door wet-milling ethanol plants goes operational this fall,
“Both of these are modern plants,” he said. “They’re very efficient with good workers out here. The size of the plants and proximity to rail transportation makes both very competitive, very efficient plants.
“And backed up by a company like Valero, which was No. 9 on the Fortune 500 list last year, we’re of the size we can weather some of the ups and downs of the economy.
“We are a very large, very strong company.”