April 7. 2020

Sioux Falls-based POET will be temporarily idling three of its ethanol plants, including the one in Chancellor, as demand for fuel has dropped significantly because of COVID-19 related mandates for people to stay home.

“It’s affected every business and industry to some degree. We’re no different,” POET president Jeff Lautt said. “Being tied to energy, specifically, we had kind of a one-two punch. We had the COVID effects on gasoline demand in the U.S. and around the world, and the oil war between Russia and Saudi Arabia.”

There has been a significant reduction in demand for gasoline, which is expected to continue at least through April, he said.

“We produce fuel on a regular basis, and that market has just considerably shrunk as high as 75 percent in some states. Some are 60 to 65 percent. So we’ve adjusted capacity and are grateful we have that capacity,” Lautt said. “But some of our plants serve certain markets that have just been hit harder than others.”

In the case of Chancellor, it was a triple punch. The plant already had struggled because of a wet corn crop last year, he said. POET had been bringing in corn to the plant from other states at an increased cost.

“Now, they have this market effect combined with the raw material issue, and it just makes it unpalatable to continue to operate,” Lautt said, adding that Chancellor’s ethanol also was sold to customers in California, which has been under significant coronavirus-related travel restrictions.

“Chancellor has been a real star for us,” he said, adding the shutdown “is intended to be temporary … with every intention of bringing them back.”

A small number of people will stay on to watch the plant and do small projects, he said.

The other two plants being idled are in Iowa. That will leave about two dozen plants operational in seven states. POET estimates 130 of its approximately 2,000 employees will be affected by the idling. Their benefits will be extended through the end of August and their employee contribution toward benefits will be deferred through the furlough. The company will work with employees individually on repayment options.

POET also plans to pay a portion of COBRA premiums equal to the employer contribution for regular benefits and is working with employees to help them understand their state and federal benefits, including unemployment.

A POET plant in Indiana that was getting ready to start up operations in mid-March won’t begin yet.

“I was out at the plant meeting with the team, and then the market just crumbled, so it made no sense to start a plant up in this current economic time,” Lautt said.

“We’ll wait for the market conditions to improve — not sure how long that’s going to be.”

In the case of Chancellor, it could take until harvest when the hope is for a better corn crop and improved market conditions.

There have not been any announced cuts to the corporate staff in Sioux Falls, although the company is looking at controlling expenses.

“The one easy one now is no one is traveling,” Lautt said. “We always try to operate pretty lean anyway, but we’re trying to get our arms around how long this is going to extend. We don’t have anything to announce and don’t anticipate that in the near term, but like anything, if this gets protracted, we might be forced to make other decisions as well.”

Most if not all plants have reduced their output, he added.

The Sioux Falls office largely is working remotely. The company also is continuing its research and development efforts and might hone in on nearer term projects to support the base business, Lautt said.

He also acknowledged the ripple effect of POET buying less corn from farmers.

“This comes at what was already a tough time for farmers,” he said. “When you look at not just POET but all the ethanol producers who are having to adjust, there will be that much less demand for farmers. So they will be an even tougher situation as we roll forward with demand and pricing for their products.”