Ethanol open for business
By BERNARD TOBIN & TOM BUTTON
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For the better part of a decade, the fledgling ethanol industry that spawned the $153-million plant has been a cause célébre for local farmers, rural development groups and politicians. Over the years, the project has needed all the support the friends of ethanol could muster.
In the late 1980s, two Chatham-area farmers, Scott McGeachy and Stephen McGrail, set out to bring ethanol to the cash crop dominated area and produced feasibility studies to prove that the corn-based fuel and industrial product additive would be good for the Chatham Kent area. The two grain farmers also hoped the industry would create more demand and a better price for Ontario corn.
Throughout the early 1990s, ethanol supporters lobbied both the provincial and federal governments for tax relief so ethanol blended fuels could compete on price with regular gas. But trying to break into the energy business isn't easy.
Industry representatives trying to sell ethanol on its environmental benefits and rural renewal potential butted heads with powerful oil companies, tight budgets and an entrenched bureaucracy not willing to let ethanol producers play the lucrative energy supply game.
But the ethanol spirit has persevered. The first load of corn was delivered to the Chatham plant last week, and many of the principals who have laboured for the cause are now waiting to see if ethanol delivers the payoff - demand for corn and a boost to the local economy.
Commercial Alcohols president Doug MacKenzie, a former oilman who signed on with the company in 1993 after working for Sunoco, Imperial Oil and Petro Canada, says the plant will create jobs and economic activity. The company expects the plant, which sits on a 40-acre site, to create 500 direct and indirect jobs and have a $100-million economic impact, which is linked to its labour, equipment and raw material needs, including corn.
But will the plant put more money in the pockets of corn farmers? MacKenzie says he's committed to buying Ontario corn "if the quality is there and the price is right." The plant can run on anything from Grade 2 to Grade 5 corn. "That helps when you get an off season with quality. A typical plant [uses] No. 2 corn, but it could be three or four," he says.
Jim Johnson, an Alvinston corn producer and president of the Canadian Renewable Fuels Association, says it's in Commercial Alcohols' best interest to buy Ontario corn but farmers could still benefit if the company opts for U.S. corn, as long as it offers the import basis for corn.
"If they can't get enough corn in Ontario at that basis, they're perfectly welcome to go elsewhere to buy their corn," Johnson says. "All I want is a price. I don't care if they buy my corn or not. All I want them to do is help me improve my price.
"I'm not committed to selling them corn. If an American buyer comes in here and pays more for corn than what they're willing to pay, the American buyer gets the corn," Johnson says. "That's the way the markets always worked."
Johnson says all farmers can expect is more demand, which will help support the price.
Meeting the demand for the Commercial plant will be a job for Casco, Ontario's leading wet miller, producing starch and sweeteners.
Casco will be purchasing virtually all the corn going into the 15-million-bushel-a-year plant, thanks to the sourcing agreement it signed with Commercial Alcohols.
The agreement creates a fundamental change in the Ontario corn market.
For the first time in history, Ontario's corn market is going to be dominated by a single player, holding the power to inflate or strangle corn prices.
Casco's London office will buy corn for the ethanol plant, plus 16 million bushels for the London wet milling facility and about nine million bushels for Port Colborne. The company's Cardinal desk will buy 17 million bushels for the company's plant there, and another eight million bushels of freighter corn for Port Colborne.
"We're going to be watching," says Brian Doidge, economist for the Ontario Corn Producers Association. "That isn't a threat. It's recognition that they have huge market clout."
With purchases of 62 to 68 million bushels a year, Casco will be buying one third of Ontario's grain corn crop, and over half the corn that moves through country elevators, Doidge points out.
Shelley Wybo, London based buyer for Casco, says her job is to source up to 32 million bushels for the London and Chatham plants. She says her first choice is to buy Ontario corn. "It makes sense for us to support local production," Wybo says. "We have also been very satisfied with the quality of Ontario corn."
Wybo says it's up to Ontario corn growers whether Casco goes shopping in the U.S. "We're trying to buy corn, and the growers tell us they're waiting for $5.
"If growers won't sell to us, I have no choice but to import. I can't shut the plants down until producers decide to sell."
Wybo says the Chatham plant will be selling feed to the U.S. and will backhaul corn in order to economize on freight costs. Otherwise, she says, she expects to buy most of the plant's inputs from Ontario.
Doidge predicts the Chatham ethanol plant will boost corn prices in the southwest by an average 10 cents a bushel, mainly by shifting the local market from an export to an import basis.
"We have a pretty good industry getting established here in Chatham, but if we don't service it, we're going to get the heck kicked out of our basis."
If growers aren't sure what ethanol will mean to them, neither are elevators sure what's in store for their own businesses.
"We don't know," says Wes Thompson Jr. of W.G. Thompsons. "We've had three years to prepare for the ethanol plant, but now it's here, we think it's going to take another year at least to sort out the impacts.
"When you introduce a new source of this much demand, you have to
look at a bigger map than just Ontario," Thompson says. "The
plant will affect trading patterns for hundreds of miles around."
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