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Ethanol plant officials plan for the long run

By Larry Dreiling

GOOD DIVIDENDS--CEO Steve McNinch and chairman Jeff Tourlemke (pictured left to right) and the WPE board have been working to ensure ready availability of cash while paying good dividends to stockholders. (Journal photo by Larry Dreiling.)

Corn-based ethanol production has dropped in recent months due to the downturn in the economy. Plants are closing and corporate entities are in bankruptcy.

One ethanol producer, however, stands out for five years of continuous success and a business plan that will be around for the long run.

On the fifth anniversary of the opening of its Campus, Kan., plant, the board of directors of Western Plains Energy, LLC (WPE), voted to pay a 7 percent per share dividend to its shareholders and a 3 percent bonus to its employees.

Ground was broken on the plant, then valued at $20 million, in April 2003. At that time 563 shareholders held equity in the plant, with a similar number holding shares today.

The plant produces fuel-grade ethanol, distillers dried grains with solubles, and distillers wet grains with solubles from grain supplied by shareholder members and other local growers. The original plant capacity was 30 million gallons per year. In 2005, WPE expanded to a 40 million gallon annual capacity and is currently running at about 48 million gallons annual production.

Proof there's a God

The plant employs over 40 people with a payroll of over $1 million. The best part: The company has no debt. This is, in large part, due to board members and shareholders pouring money back into the plant rather than taking larger dividends, according to Jeff Torluemke, WPE chairman of the board.

"I can say I'm living proof there is a God. We could not have assembled this by ourselves," Torluemke said. "Timing is everything. We started that plant when the cost of production was 80 cents a gallon. Now it's north of $2 per gallon. We paid our debt off in 14 months rather than the 12 years we predicted. When you work without debt you can accomplish a lot."

While the plant uses grain sorghum as the primary feedstock, WPE officials peg their success around how they do in comparison with plants using corn. By doing so, it meant that when corn prices were high, ethanol prices were also high. Torluemke said between using that yardstick and not getting greedy right away, as money flowed in from good sales, WPE now has a better balance sheet than many of their counterparts.

"When corn prices were good, relatively high, instead of paying dividends or looking to expand right away, we concentrated on paying down debt," Torluemke said. "We took dividends, but smaller dividends than originally planned for, until we paid down the debt. Since then, we figured there was no need to accumulate cash so we paid some substantial dividends for a while.

"Essentially, everyone on the board is either a conservative old farmer or a conservative old banker. We just didn't ever think of taking unnecessary risks."

No regrets

WPE officials, for example, considered expansion by purchasing other plants, as some other firms did and later regretted, but, instead, chose to reduce debt.

"Because we are debt free, we now are looking at opportunities," Torluemke said.

These kinds of statements, Torluemke admits, are not something he would have expected to have made five years ago.

"None of us really had the business expertise to do this. We had just enough knowledge to be dangerous," said Torluemke, despite his more than 25 years in banking. "We really relied on Val-Add Service Corp. out of Sioux Falls, (South Dakota). They came down here and held our hands and walked us through the process. We likely wouldn't have a plant without them."

Val-Add activities

Val-Add helped WPE gain an initial $290,000 startup grant. Torluemke said he's interested in seeing what will happen with Val-Add's latest work in promoting a new value-added agricultural project.

Laurel Biocomposite, Laurel, Neb., was formed to build the world's first commercial scale dried distillers grains with soluble to plastic extender in the world.

Utilizing technology from LignoTech Developments, Ltd., from Ashburton, New Zealand, Laurel Biocomposite is designed to produce a high-quality plastic extender, according to a company release.

The LignoTech technology utilizes a steam explosion process to thermally modify the molecular structure of the DDGS. The result of this explosion, the LignoTech material, is then milled and dried before being pelletized for shipment to the end user.

"This is the kind of thing that's really going to expand the growth of ethanol in the next few years as we all look to extend our reach. I'm interested to see what they do," Torluemke said.

Growth Energy

Another activity WPE has added is its membership in Growth Energy, the new name for the Ethanol Promotion and Information Council. The group is taking a more aggressive tone in promoting the benefits of ethanol--to producers and the general public.

"The bigger goal of Growth Energy is to increase sales of ethanol into higher blends and adding blender pumps wherever we can get them," Torluemke said.

"We are pushing for an ethanol checkoff, so we can take a small percentage of output sales from every ethanol plant and put it toward education and market promotion. We want to get E85 into more places and put forward a positive message that you can have both food and fuel."

WPE's representative on the Growth Energy board is CEO Steve McNinch, who described a recent meeting in which retired four-star General Wesley Clark was introduced as Growth Energy's new co-chairman.

"We're putting the message, that you can have food and fuel, into advertising in New York and Washington," McNinch said. "We're putting out the word that there's a million acres of farm ground idled in the world and that the high price of grain can bring those acres back on line. The message is: We aren't starving more people--we are feeding more people with these prices. It's making it worthwhile to farm again.

"Sierra Club, through Gen. Clark, was very happy to embrace this effort. They wanted to have their picture taken with him. We are happy to see someone on the left being in favor of ethanol. A lot of environmentalists hate farmers even though we are the original environmentalists. We are going to reach out to as many people as we can with this message."

Advanced biofuels

Furthering that effort is the recent appointment of Tom Buis, recent president of the National Farmers Union, as Growth Energy's new CEO, and former Rep. Jim Nussle, R-Iowa, as a special advisor to the board of directors.

"We plan to engage those who do not like our message and that, as producers, we're being seen as something that killed the Mississippi River and the Plains," McNinch said. "Growth Energy will play a critical role in making a proactive stand for producers."

The next step at WPE, however, is to have the plant declared an advanced biofuels facility by the Environmental Protection Agency. According to current language being written for rules on the declaration, it would mean the plant produces ethanol at levels at least 50 percent less polluting than plants producing conventional fuels.

"It means we are showing that we are trying to cap our plant emissions while producing good levels of ethanol. We hope to show a level of at least 70 percent lower because we use sorghum," McNinch said, adding that a designation could help in obtaining further grant money for improving the plant.

More importantly, said Torluemke, is that not only will the plant improve but, by extension, the area from where the plant takes its feedstocks and the quality of life of the people whose lives are touched by plant employees will improve as well.

"I said this when the plant opened and I believe it today," said Torluemke, "I truly believe that projects like this, that add value to our grain and livestock industries, will help preserve a special and important way of life. It's still true."

Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at ldreiling@aol.com.

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