Osage Bio Energy blames commodity prices for closure

The country's first barley-to-ethanol plant is up for sale in Hopewell. But another company is hoping to build one in Montana. So why is one company moving forward, while the local company stopped?

Osage Bio Energy in Hopewell spent 3 years and $150 million to build the plant, then suddenly decided to put it up for sale. The reason the company has given is "unfavorable market conditions."

Osage spokesperson Heather Scott says it came down to commodity prices, that barley prices were too high and ethanol prices not high enough, causing investors to fear they wouldn't make a profit.

We asked Virginia Farm Bureau market analyst Jonah Bowles for his perspective on the ethanol market. "They built that at a very difficult time in the economy and a number of other things going. To produce a plant such as that, for one reason or another, the plant was unable to come up to speed in production."

Bowles says any local ethanol producer may face any number of business challenges, including having to import barley. Since Osage started construction, Virginia farmers have increased barley crops by 50%. But Bowles says that's still likely not enough and Osage may still have needed to import more from the midwest.

Said Bowles, "The relative cost of corn or barley in the major growing areas are much lower than they are here in a grain deficit state. So to bring in the quantities into the State of Virginia would be done in very large quantities at a lower-per-bushel rate. So there's a transportation cost, but probably the benefit of price."

Meantime, another company, Montana Advanced Biofuels is trying to build a barley-to-ethanol plant in Great Falls, Montana. President Gary Hebener says Osage's shutdown doesn't phase his company because Montana is filled with barley fields, Virginia is not. Is his company interested in buying the Osage plant? Hebener says no.

However, Scott says Osage expected to have to import some barley for the first few years of production and says that was not part of the decision to close.

The Maryland based non-profit group, Advanced Biofuels USA, which advocates for the adoption of biofuels, says one challenge could be that the U.S. demand for ethanol is currently being met, though there is demand overseas.

The question remains whether another company will buy the Osage plant. Bowles believes chances are good. "I think there is a future for ethanol whether it comes from corn or barley or some other feed stock. There will be a continued emphasis on reducing our foreign dependency on energy."

Scott points out that the decision to sell Osage Bio Energy was made by its board of directors, not the company itself, and that businesses change hands all the time.