Ethanol Boosts Bottom Line for Nebraska Farmers

When it comes to ethanol, Nebraska is one of the nation’s leading producers, second only to Iowa. Farmers like Don Benner, a Merrick County Farm Bureau member, are dependent upon the growth of ethanol production as a market for his crop. And with Green Plains ethanol plant in Central City, Nebraska, just miles from Benner’s family farm, he can boost his bottom line by selling them his corn.

“About 90 percent of all my corn goes there every year. They’re an easy 10 to 15 cents more per bushel and I have a great relationship with Green Plains. If they need corn, they call and sometimes they will bump you a couple pennies more, so it’s been a win-win for us,” Benner said.

Benner has had a long relationship with Green Plains since it opened in Central City in 2004. He sells his standard yellow corn there and has raised Enogen hybrid seed corn in the past.

Enogen is a type of corn with an enzyme that converts starches in corn to sugars, the first step in the process of making ethanol. And while Green Plains buys both yellow corn and Enogen corn, plant manager Andy Dahlke says the Enegoen corn helps the plant run more efficiently.

“One of the most important parts of running efficient is knowing how much corn we are actually grinding and bringing into the process because we want to make sure that the yeast is consuming all of the glucose that we’ve made available to it,” Dahlke said.

More than 50 employees at Green Plains closely monitor every step in the process of making ethanol to ensure the plant is running as efficient as possible. There is very little waste of the corn coming into the plant and they actually produce four products during the process.

“We’re producing the ethanol. We also produce a syrup product and extract corn oil. And we are producing the modified feed product for the cattle,” Dahlke said.

A native to Central City, Dahlke knows going to work every morning is about more than just making ethanol. He has seen first-hand the economic impact one ethanol plant in the $5 billion Nebraska ethanol industry can make on a rural community.

“One of the biggest things, it’s boosting the farm economy. It gives the local farmers a place to bring their corn. The amount of jobs it’s created, especially in these smaller communities, is astronomical. It’s a great place for people to come and work. I’m from this community, so to have something like this in my back yard, it’s a great thing,” Dahlke said.

For Benner, as he will send countless truckloads of corn to the ethanol plant this year, it’s the best option for his bottom line and he knows he is doing his part to provide a great option at the pumps not just in Nebraska, but across the country.

“At the ethanol plant, 85 percent of the corn becomes gas. It gets shipped all the way from Nebraska to California. So, we don’t have to buy 15 percent of our fuel from overseas. It’s a benefit for the United States and it’s all local, so why wouldn’t you want to use a local product,” Benner said.

Financial Squeeze on Farmers and Ranchers Continues

Recent reports suggest agricultural producers in the Midwest and Nebraska continue to feel the financial squeeze. First, Cortney Cowley and Ty Kreitman, economists with the Tenth District Federal Reserve Bank, report that surveys of Tenth District bankers found that cash-flow shortages on the farm have “reinforced concerns about liquidity in agricultural lending.”

Cowley and Kreitman note that bankers continue to work with producers this year to restructure debt, although the pace of loan restructuring has slowed this year compared to the two previous years. Survey results also show farm loan requests denied this year due to cash-flow issues was up in the Tenth District. In the District, only Kansas experienced a slight decline in loan denials this year, while Oklahoma saw the largest spike, exceeding 12 percent. Nebraska saw a slight uptick in loan denials this year.

Nebraska Farm Business, Inc.
Closer to home, the Nebraska Farm Business, Inc. (NFBI) recently issued its 2017 report detailing the financial data of Nebraska farmers who participate in its programs. Nearly 120 Nebraska farms participate in NFBI programs, with most of these farms dominated by crop production. A positive take-away from the report is average farm income across all NFBI farms was higher in 2017 compared to the two previous years.  Average net farm income for 2017 was $78,337. This marks the second consecutive year average farm income for NFBI participants increased. A second positive take-away is the long-term solvency of participating farms remains stable, with an average debt-to-asset ratio across all farms of 29 percent. A ratio of 30 percent or less is considered by NFBI to indicate an operation is in a strong, solvent position.

On the other hand, NFBI saw the average total debt climb amongst its farm participants by 10 percent in 2017, reaching $1.3 million on average. And, it saw the average working capital-to-gross revenue ratio across all farms, a ratio it uses to measure an operation’s liquidity, continue to deteriorate (see graph below). The overall average ratio was 25 percent. NFBI considers a ratio above 30 percent to be good; a ratio between 10 and 30 percent to warrant caution; and a ratio below 10 percent to indicate financial difficulties.

Capital-to-Gross Revenue
Perhaps more concerning, the average working capital-to-gross revenue for the lowest one-third of the participants was 10.6 percent, only slightly above the 10 percent threshold indicating financial problems.

Finally, the UNL Bureau of Business Research and the Nebraska Business Forecast Council released projections earlier this month which indicated Nebraska net farm income will lag in 2018, falling 6.7 percent. The decline in farm income will result partly from a drop in farm program payments, expected to fall by $430 million this year. On the positive side, the Bureau projects net farm income will rebound in 2019 and 2020 with stable commodity prices and a new farm bill.

In summary, while net farm income in the region and Nebraska has stabilized, agricultural producers are still feeling the financial squeeze, particularly for the short-term. Further belt-tightening, creative financing, and alternative income sources will be needed for some operators to overcome the thin margins.