Ethanol plant goes bust

A lot of farmers in west-central Illinois just lost a grain cart-load of money.

Hype about anticipated ethanol production has played a significant role in the run-up in farm prices in west-central Illinois over the past few years. Hoping to capitalize on this hype, many local farmers made considerable investments in a new ethanol plant outside of Canton.

But the $40 million plant just went bust.

Brenda Rothert of the Peoria Journal Star has the story:

The minimum lost by the farmers who spoke with the Journal Star was $29,000 each for investing in just one share, not including the value of the corn they delivered. Farmers who purchased more than one share lost much more, and some farmers say they might lose their farms.

"It makes us all look so stupid," said one. "I'm trying to explain to my wife and son why I did this, and it doesn't make any sense."

A group of farmers from Fulton and McDonough counties who invested in the project recently talked to the Journal Star on the condition that their names not be used.

A good idea

When they were first approached in 2001 about the plan to build a $40 million ethanol plant, the farmers said it seemed to be a good idea.

"The community's been good to us," said one. "It would create some jobs."

They had to invest the money by March 2002, and projections from project planners called for the plant to be making alcohol by July 2003. Farmers had to commit $5,000 per share, plus pledge in writing to deliver 5,000 bushels of corn annually for five years.

One farmer said he supported the idea but was unsure about whether he could afford it.

"I really didn't have the $5,000 to put in," he said. "But I came up with it and put it in."

Since his farm lacks storage facilities for his corn, he figured it was a good decision, because he's close to the plant and would be delivering corn there.

But then board members came back to the farmers and asked them to double their investments: $10,000 and 10,000 bushels of corn annually for five years. Not all of the farmers agreed to double their investments. Those that did lost twice as much, plus the value of the corn.

"I swallowed hard," said the farmer who had struggled to invest the initial $5,000. But again, he did it.

Then board members came to the farmers again and asked them to sign letters of credit for the project. For each $5,000 share, they wanted a $24,000 letter of credit. Farmers went to their banks and signed paperwork for a $24,000 loan to the plant. The farmers would have to personally repay the loans if the company called them in.

"They kept saying that the creditors wanted to make sure we as investors delivered the corn," one farmer said.

"There was pressure put on," another said.

"I didn't want to be the one guy who messed things up," a third farmer said. "Almost all of us signed this thing."

The farmers' troubles may continue. Many fear that they'll be forced to honor their contracts and deliver corn to the ethanol plant for several more years.