A Quiet Giant

Archer Daniels Midland Co. has kept the nameplate capacities of each of its plants a closely guarded secret for many years. After discovering its Cedar Rapids, Iowa, facility could produce as much as 820 MMgy, EPM wondered how such a large plant might impact the industry.
By Craig A. Johnson / Photos by Mark Tade | May 09, 2008
Even as guarded companies go, Archer Daniels Midland Co. keeps company information extremely close to the vest. The company refrains from publicizing any capacity numbers associated with its individual plants, choosing instead to report its production total as a single sum of 1.1 billion gallons per year that it attributes to its Decatur, Ill, headquarters. When asked for individual plant capacities, ADM officials say they don't distinguish between plants.

Early in 2008, EPM was able to confirm, through various state environmental regulatory agencies, the nameplate capacity of each of ADM's plants, which when added up equals 1,215 MMgy. The list includes what are now revealed to be three of the largest ethanol plants in the country. The three wet mills in Decatur (290 MMgy), Clinton, Iowa, (237 MMgy) and Cedar Rapids, Iowa, (420 MMgy) account for 947 MMgy of ADM's overall capacity, or roughly 80 percent of its total production. Although these numbers have been verified by third-party sources, ADM declined to comment on the figures, or to be quoted in this feature. Also, these plants may not be producing at nameplate capacity.

In July 2007, ADM announced plans to build two 275 MMgy dry-mill ethanol plants adjacent to its existing Cedar Rapids and Columbus, Neb., wet-mill facilities. For most ethanol industry observers, that announcement is consistent with the company's commitment to biofuels. The two plants combined will add 550 MMgy to ADM's current nameplate capacity of 1,215 MMgy for a grand total of 1,765 MMgy.

Mega Complex Estimates
With these new plant capacity numbers, the unearthing of ADM's plan for Cedar Rapids, where the bigger of the two new plants is being built, is especially significant. The new plant is a dry mill designed to be expandable up to 400 MMgy. The current 420 MMgy plant, a coal-fired, wet-mill facility, adds to this capacity, allowing for the production of 820 MMgy from a single site. It's not clear, however, if ADM will produce 100 percent ethanol or both ethanol and sweeteners such as high fructose corn syrup (an option that's available to a wet mill). If ADM chooses to dedicate the site just to fuel ethanol production, Cedar Rapids would produce at almost half the total capacity of Poet Energy or VeraSun Energy Corp. If

Cedar Rapids were a state its ethanol production capacity would rank seventh, behind Indiana and ahead of Kansas once ADM's construction and expansion are complete.

There are many unknowns about the site, but the size of the facility poses some interesting questions for an industry already dealing with expensive feedstocks and negative press. According to Rick Kment, an analyst with DTN, a big consideration is going to be "feeding" the plant. Based on his calculations, a plant with that capacity would require 250 million to 300 million bushels of corn per year. The large gap between those numbers comes from uncertainty about the wet-mill process. It's not clear how efficient the existing wet-mill plant is, and it could require more corn than a typical dry mill to produce the same amount of ethanol. Depending on the plant's efficiency it could require anywhere from 685,000 to 800,000 bushels of corn a day. At the higher rate, that would require two 110-car unit trains seven days a week if the plant were in operation 365 days a year.

When approaching this scale, considerations like power generation, transportation and general infrastructure characteristics are massive. "There are very few locations that are going to facilitate what they are doing," according to Art Wiselogel, a manager in BBI International's project development division. Synergies and economies of scale can be assumed, but because the existing plant is a wet mill, there are components that will not "carry-over" to a dry mill. Energy production is one aspect that would however, lend itself to the 275 MMgy dry-mill expansion. The current wet-mill facility uses coal for power generation. ADM could save money by expanding the capacity in the power generating part of the facility, rather than building a new power plant, Wiselogel says.

The company's ability to leverage existing infrastructure will be key to the plant's expansion, Wiselogel says. Because ADM has the land and the infrastructure in place to expand, adding to the facility becomes a matter of how much risk they are willing to take.

Why So Big?
Nathanael Greene, a senior policy analyst with the Natural Resources Defense Council in Washington, D.C., has seen the trend toward larger plants develop over the past few years. Most companies in the ethanol industry were building 55 MMgy and 60 MMgy plants a few years ago, increasing to 110 MMgy more recently. ADM's 275 MMgy dry-mill facility will be one of the biggest plants to come on line, once completed. "I don't know why you'd want to have so much capital in one area," Greene says. "It's certainly out of step with what I understand the rest of the industry to be conceiving of these days." There has in fact been a mini resurgence in the construction of smaller plantsone of them a 10 MMgy plant in New Mexico and another 20 MMgy facility in Kansasbut most new plants are still built to produce 50 MMgy to 100 MMgy of ethanol.

There may be some advantages, however, to building even bigger and utilizing economies of scale, Kment says. It doesn't take that many more employees to staff a 55 MMgy plant than it does to staff a 110 MMgy plant. Most 55 MMgy plants employ 25 to 30 employees, while 110 MMgy facilities will only increase that to about 40 employees. Scaling the size of the labor force may be a distinct advantage for the company. Kment goes on to explain that ethanol production in the United States today is based on a manufacturing model. "Companies are looking for ways to cut the marginal cost per gallon," Kment says. "By using such a large plant, processing more gallons per employee hour, there is a savings." The real advantage, however, is in the company's merged processes. Four 110 MMgy plants would require four loading segments, four fermentors, four rail loops, etc. In the same way that a 110 MMgy plant can realize economies of scale over a 55 MMgy competitor, ADM's 820 MMgy facility could be designed to take advantage of these same economies, albeit at a scale most companies cannot imagine.

It would be difficult for another company to replicate what ADM is doing in Cedar Rapids, according to Wiselogel. Finding a site is a significant challenge for companies interested in building new ethanol plants, and one that requires the kind of inputs this ADM plant requires will put it in a class by itself. "The primary reason you see corn-based facilities reach a certain size is that the [area from which feedstocks are sourced] is increased to such a level that it doesn't make economic sense," Wieselogel says. "It is all about the transportation cost."

It's not yet clear how far ADM will have to go to procure its corn. Even using a feedstock as energy-dense as corn, there is a limit to how far the company can transport its feedstocks and still maintain the plant's efficiency. The key to ADM's strategy may be its location. The two 275 MMgy plants under construction in Cedar Rapids and Columbus are in the heart of corn country. Cedar Rapids is colocated with Class 1 rail serviced by Union Pacific Railroad and Canadian National Railway. In addition, two short lines service the area and could possibly bring in feedstocks, or ship unit trains of ethanol.

Although bigger may be better when it comes to economics, Greene is concerned about the environmental impacts of a plant of this size. He points out that a plant this large is bound to place a huge demand on the local aquifer. "The bigger you are the less of an excuse you have for not spending the right amount of money and doing the right amount of engineering to develop a good air and water pollution control system," he says. Smaller companies can get caught off guard by state and federal air quality mandates, leading to expensive work arounds and retrofitting. However, for a giant like ADM, there is no place to hide. The tacit expectation is that a company like ADM has fully assessed its environmental impact and is prepared to comply with all local and federal laws.

Boost for the Local Economy
For local corn growers, having a giant new customer will be beneficial. Iowa has a current production capacity of 2.3 billion gallons of ethanol, and another 1.14 billion under construction. Despite all of this ethanol being produced, about 2.1 billion bushels of corn left the state last year destined for export markets. Exporting is a marketing option that some growers are finding burdensome as transportation costs skyrocket. A redirection of corn from the export to the local market is a powerful advantage for local grain elevators as well.

Rob Ball started working at the Lin Co-Op Oil Co. elevator in Springville, Iowa, when he was 18. Today he manages the elevator and has worked closely with ADM during his career. According to Ball, one of the biggest problems an elevator has is making sure grain is shipped out at the same rate it comes in. "[Demand from the ADM facility] is going to help the elevators in the fall because they're going to have more daily consumption," Ball says. Fall is a time when the shipping balance is most difficult to achieve because that's when the corn is being harvested.

According to Ball, having a plant that requires more corn is good news for local growers, but it may present a problem for ADM. The company will have two options for procuring their feedstock. "Either they're going to pay to ship [corn in] or bump their local price," Ball says. Shipping corn in may appear the cheaper feedstock option on paper, but any gains may be offset by transportation costs that continue to rise as fuel prices increase.

In the end, more locally grown corn is going to stay and be processed by ADM in Cedar Rapids and that will be a boon for the local economy. "I think this plant will help the local economy much more than it could hurt it. Between the business [ADM will do,] the jobs they'll create and the savings farmers will get by not having to ship their corn away from Cedar Rapids, I think it's a real good thing."

Ball believes that despite the company's secrecy about its true size, and production numbers, ADM has a positive effect on the local economy. "ADM takes a ton of grain out of this area, which saves the local farmers from having to ship it to Des Moines for export," he says. At a time when transportation costs are soaring, this could be a lifesaver.

The Future of the Industry?
All signs point to ADM's model of the "mega plant" as being an anomaly. As this article goes to print, corn futures for December delivery are peaking at $6.20 a bushel. Even if the Cedar Rapids site were the model of efficiency, in order to produce at its full capacity would require 250 million bushels of corn per year, at a cost of about $1.5 billion dollars. ADM has no doubt done the math and believes that this is the best way for it to grow.

Looking around, it is clear that other companies have chosen a different path. Poet Energy currently operates 23 plants with a combined capacity of 1,236 MMgy with roughly another 200 MMgy under construction. VeraSun, after completing its merger with U.S. BioEnergy Corp., will own and operate 1,640 MMgy of nameplate capacity from 16 plants.
None of these producers would comment for this story, but clearly they have a business model that doesn't include focusing production in only a few areas. Evidently ADM sees the future of the industry differently.

Craig A. Johnson is the Ethanol Producer Magazine plant list and construction editor. Reach him at cjohnson@bbibiofuels.com or (701) 738-4962.