Reduced demand for gas impacts ethanol business

WITH THE DEMAND for gasoline down, ethanol plants are reducing production. Dakota Ethanol near Wentworth is no different, but the company sees the situation as temporary and has no plans to lay off staff.

Scott Mundt, CEO and general manager of Dakota Ethanol near Wentworth, knows perspective is everything. You can focus on the negative -- the way COVID-19 is affecting everything from health care and Wall Street to neighborhood businesses and the cattle industry. Or, you can take a broader look and see beyond immediate circumstances to a time when things will turn around again.

Mundt is not being a Pollyanna in making his choice. He recognizes the current challenges.

"In general, things are really tough," he said in a phone interview on Tuesday.

With shelter-in-place orders implemented in more than 20 states already 10 days ago, a mobile nation is grinding to a halt, using vehicles with less frequency and needing less fuel as a result. Mundt is aware of this and is making production adjustments in response to projections.

However, Dakota Ethanol remains open.

"We're operating," Mundt said. "We're trying to assess going forward how much gasoline demand is down."

Since ethanol is a component of gasoline, that demand is a crucial factor. Initial reports that Mundt saw suggested there would be a 40% to 50% reduction in demand, but more recent reports suggested the impact would be less severe -- closer to 24% or 25%. He speculates it has to do with the way driving patterns differ around the country.

"If you look at the population centers, people don't have cars like we do here," he said.

Since people in rural areas are still mobile -- still need to be mobile to get the most basic necessities, like groceries -- the impact on the ethanol industry might not be as severe as anticipated. That being said, Mundt indicated Dakota Ethanol is still planning for a reduction in production.

While keeping its doors open, the company is also working to limit the spread of COVID-19. The Dakota Ethanol website outlines measures being taken. The administration office is not open to the public. On-site visitors are limited to those with essential business supporting ongoing operations. Those delivering corn and driving feed trucks are instructed to have minimal interaction with the staff based on scale operations.

The planned reduction in production comes just a year after the company's $13.6 million expansion went online. With cooling towers, tanks for fermentation and the latest technology, the expansion increased the production capacity of Dakota Ethanol from 50 million gallons annually to 90 million gallons annually.

Mundt indicated that project was complete in 2019 and operational since late last spring. Despite the poor harvest last fall due to widespread flooding and the late planting season, he said the company was able to purchase an adequate supply of corn to meet its needs.

"It did lead to higher priced corn in our drawing area," he noted, adding that Dakota Ethanol did pay more than its industry peers.

Even with the reduction, he anticipates being able to meet the company's contracts for distiller's grain, a nutrient-rich by-product used for feed. However, he does recognize that with other ethanol plants also responding to the reduction in demand, there isn't as much feed available for producers this spring.

Mundt also expects to weather the reduction without laying off staff, in part due to the $2 trillion stimulus package hammered out by Congress. He explained that with the last downturn in 2008, the government learned layoffs extended the recovery and so is working to keep people employed this time.

However, he has a more personal reason for keeping staff on the payroll.

"I need my talented, trained workforce when we get through this thing," Mundt said.

And, he has no doubt that both the country and Dakota Ethanol will get through the impact of the pandemic. He sees no reason to view the glass as half-empty when the economy was strong prior to the health-care threat posed by COVID-19. Too, it's spring, and farmers will be in the fields before long, laying the promise of another harvest into the ground.

With this in mind, Mundt is responding to what he describes as a "dynamic situation" with the reduction in production, but he's also working to ensure that Dakota Ethanol does its part in helping the area to recover when the threat passes by keeping the doors open, honoring contracts and keeping staff on payroll.

"We're doing the best we can," he said. "We are going to come through this."