Moving Beyond Grain

Lansing Trade Group LLC is one of the five oldest, continuously active members of the National Grain and Feed Association and is well-established within the grain trading industry. The company's experience and reputation have allowed it to easily expand into the merchandising of ethanol and distillers grains.
By Lindsey Irwin | March 27, 2007
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Lansing Trade Group (LTG) LLC's roots run deep. The privately held company traces its origin to a partnership formed in 1922 between Lyle Marshall and Ray Myers, two grain traders who recognized the need for a marketing organization in the region. The one-room office in Jackson, Mich., was called the Marshall-Myers Grain Company. Nine years later, the partnership was moved to Lansing, Mich., and was renamed for its new location. For years, LTG served as a grain and feed trader with offices in the Midwest. The company later expanded, adding a regional hub on the East Coast to service customers all across the United States. In January 2003, LTG partnered with The Andersons Inc. and formed the limited liability corporation that it is today.

Now based in Overland Park, Kan., the company currently works with clients in the United States, Canada and Mexico out of six regional offices, handling everything from corn, wheat and soybean procurement to the trading of cottonseed, animal proteins and milk products. In 2005, ethanol and distillers grains merchandising were added. Clients now have the ability to have all aspects of their ethanol business—from the feedstock coming in, to the ethanol and distillers grains going out—handled under one roof with LTG's comprehensive approach.

The addition of ethanol and distillers grains was quite natural, despite the company's sheer size. LTG controls nearly 11 million bushels of grain elevator capacity in the United States. It's "just a larger trading organization that has evolved …," President and CEO Bill Krueger says. The formation of Lansing Ethanol Services (LES) LLC in March 2006 made sense as LTG began to recognize the similarities between the transportation of ethanol, and the commodities it was already moving via railcar and truck, he says. The timing was also right for LTG because methyl tertiary butyl ether was being phased out, and the demand for ethanol was high on the East and West Coasts. At that time, many of the new producers and blenders had little experience moving ethanol that far out of the Midwest. After seven months of dabbling in ethanol trading and analyzing the market, LTG formed LES as a joint venture with Macquarie Americas Corp. (MAC), a subsidiary of Sydney, Australia-based Macquarie Bank Limited, which has more than 15 years of experience in providing investment banking and financial market services.

With LTG's history in agricultural commodities trading and knowledge of physical ethanol logistics capabilities, and MAC's experience in the financials of the energy and commodity markets, LES has claimed much of the market share after only one year in operation. The Chicago Board of Trade's physical ethanol trade contract lists LES as the third-largest participant since the contract began July 1, 2006. Krueger attributes this initial success to LTG's overall business principles. "We don't have plants that we own, so we don't have a vested interest in our assets being first," he says. "Our assets are our customers—both the purchase side and our sales-side customers—so that is one of the key strengths that we have."

More specifically, LES has been able to gain so much market share in such a short amount of time because there is a difference between being categorized as a trader or a marketer. LTG is absolutely a trader, Krueger says. "Our focus is to generate revenue off of trading the product and positioning the product versus just charging a service fee to a plant," he says. By doing this, its customers save more than 50 percent of the price of a standard industry marketing fee. With LES's merchandising fee the company provides all logistical support and competitive bids at the market for up to a year out. LTG is able to do this because of its large fleet of railcars and the number of plants that it currently purchases from, Krueger explains. In addition, LTG's financial strength allows it to take positions in the market in order to create liquidity, he says. The company thus has the ability to utilize over-the-counter financial products—physical ethanol product and cash trades—, as well as any exchange-related options in order to facilitate a trade, he says.

Satisfaction Guaranteed
What LTG is doing overall seems to be working quite well. The company's approximate annual revenues for 2006 were $2.7 billion, Krueger says. The company currently has ethanol marketing agreements with four ethanol plants, and five corn and three distillers grains merchandising contracts, according to LTG: LES Vice President of Business Development Tom Irmen. Those made public so far, are contracts with: U.S. Ethanol LLC for corn procurement for a 55 MMgy plant that recently started construction in Longview, Wash.; Mercer Energy Inc. for corn origination, risk management services and ethanol merchandising services; and Levelland/Hockley County Ethanol LLC for corn origination, distillers grains marketing and ethanol merchandising for its ethanol plant that recently started construction in Levelland, Texas. Mercer has a proposed 50 MMgy facility in Mercer County, Ohio, that will require 18 million bushels of corn annually.

After shopping around and talking with other companies that offer similar services, it was LTG that offered Levelland/Hockley County Ethanol the best program for its plant, according to company president Greg Methvin. LTG's experience and connections throughout the grain trade also made LES attractive, Methvin says. Those in the business definitely know who LTG is, he says. "I was very impressed with his willingness to help our plant … be a successful operation," Methvin says of Krueger, who attended Levelland/Hockley County Ethanol planning meetings before construction got underway. The Levelland board is equally impressed with the people in LES's distillers grains department in Amarillo, Texas, Methvin says, adding that he feels comfortable that Levelland's relationship with LTG is going to be a long and fruitful one. "We liked what they had to offer as far as being able to broker our ethanol and be our grain procurement, and also handle our distillers grains," Methvin says. "Having that all in-house seemed to make our risk management program simpler to run.

Each of LES's contracts is unique. Because the company offers a full-range of services in the market and can put together an all-encompassing package, Krueger feels the company doesn't have a single major competitor in the overall scope of the business.
"We do have very good competitors in each facet of our business—on the corn side, the distillers grains side and the ethanol side," Krueger said. "We have good competitors in each of those sectors, but I don't know of a company today that competes against us—truly competes against us—in all three sectors."

Krueger says that in 2006, the portion of LTG's business, including corn and distillers grains sales, that was devoted to ethanol was roughly 30 percent, with 92 percent of total business done domestically. The company has 42 total traders, and while the balance remains in grain and feed ingredients, five are ethanol traders. The company has also expanded its role in energy trading to include biodiesel, Krueger says. LES signed a contract in September 2006 with Houston Biodiesel LLC, a subsidiary of TexComm Inc., which is constructing a 35 MMgy plant in Seabrook, Texas. Like its ethanol contracts, LES will be providing a merchandising agreement, as well as feedstock origination.

As LTG embarks into relatively new territory with its role in energy trading, it continues to uphold the principles that have been part of the company for more than 60 years. Some of LTG's current merchandisers have been trading with the company for more than 30 years. As the ethanol industry grows, LES looks for its growth to parallel through innovative solutions and top-notch service, Krueger says. "I would say that [LES] is arguably one of the largest physical traders of ethanol," he says. "There are marketers larger than us, but to physically buy and sell product from the plants that either don't have marketers or those with marketing companies that need help with logistic needs, we are able to provide a strong balance sheet for them to lean on."

Lindsey Irwin is an Ethanol Producer Magazine staff writer. Reach her at lirwin@bbibiofuels.com or (701) 746-8385.