"My morning presentation took over 100 slides and three hours," says Jeff Kapell of SJH and Company, "but I’ll do my best to summarize the results. Based on careful and in-depth analysis, we know that Missouri can reasonably support approximately 150 million gallons of ethanol production with current market conditions. This number is based primarily on domestic corn supply and corn available at a reasonable price, as well as numerous other market factors. It is possible that federal legislation could mean that Missouri can support up to 250 million gallons of ethanol production in the future.

"In further analysis of current farmer-owned dry mill ethanol production facilities, SJH learned that significant economies of scale exist for 30 to 50 million gallon plants versus 15 million gallon plants. Thus, from an available corn supply, approximately five, 30 to 50 million gallon facilities would be appropriate to supply 150 to 250 million gallons of ethanol to the automobile fuel marketplace. Based on further analysis, these five plants would likely be located in the five major corn growing regions of the state: northwest, northeast, west-central, east-central and southeast Missouri.

"Certainly, plants could be located in other areas, but their business plan would have to identify a competitive advantage which would offset the increased cost of inputs. SJH recommends that individual, independent micro feasibility studies be completed for any proposed new facility or expansion of existing facility prior to farmer-investment and construction. We also found that the state ethanol incentive fund was critical to the success of such farmer-owned ventures.

"From a demand perspective, the ethanol industry is experiencing tremendous growth nationwide. SJH was asked to provide a reasonable analysis of how much ethanol might be reasonably produced in Missouri to meet state as well as national fuel requirements. Based on current industry estimates, the ethanol demand nationwide may grow from the current market of approximately 2 billion gallons of ethanol to 4 billion gallons by 2004-2005. This demand growth for ethanol comes primarily as states phase out the use of MTBE in reformulated gasoline (because of drinking water concerns) and replace MTBE with ethanol.

"Legislation is before Congress proposes to grow the use of ethanol (through a renewable fuel standard) to 10 billion gallons by 2010. Obviously, this is tremendous growth in demand. At the same time, Missouri farmers cannot necessarily make investment decisions on these growth projections because they’re largely based on political decisions yet to be made," says Jeff Kapell of SJH and Company.

"Missouri farmers can make more informed decisions if they consider current and anticipated ethanol demand in Missouri which is more stable. Missouri ethanol demand is currently approximately 60 million gallons. Based on in-depth analysis, SJH finds that the ethanol market can be expected to grow in the mid- to long-term to approximately 80 million gallons, considering current market drivers. (This precludes the St. Louis market switching out of MTBE because of health concerns and going to 100 percent ethanol, which would result in a total Missouri market demand of approximately 120 million gallons.)

"In the ethanol industry, (as in other ag, food and manufacturing industries,) an accepted rule of thumb is for 30 to 50 percent of a facilities’ production to be used in a ‘local’ market – in this case the state of Missouri. Thus, if Missouri ethanol demand is 80 million gallons, then Missouri production should be approximately 160 to 240 million gallons to meet such demand. Again, the case is built for approximately five, 30 to 50 million gallon ethanol production facilities. Current plants are Golden Triangle Energy at Craig in northwest Missouri and Northeast Missouri Grain at Macon.

"There is, of course, an abundance of supporting documentation which I made available in my presentation today, and will provide to the Missouri Corn Growers Association in a written report by mid-late September. Unfortunately, the limitations of time do not allow me to explain all of this information to you today. In summary, based on this ‘snapshot in time’ analysis, SJH would recommend that further analysis be conducted by individual groups of farmers to determine how to meet the market demands for 160 to 240 million gallons of ethanol, likely to be produced in five, 30 to 50 million gallon plants."