INSIDE: CORN GROWERS HELP PUBLIC TRUST TODAY’S FARMING OCTOBER 2013
Growing Enzymes
Enogen Hybrid Benefits Farmers, Biofuel Producers Page 30
PLUS
Corn Outlook: This Year and Beyond Page 36
Ag Prosperity Audit Page 44
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CONTENTS
OCTOBER ISSUE 2013 VOL. 19 ISSUE 10
FEATURES 30
36
DEPARTMENTS 6
Editor’s Note
7
Ad Index
Value Propositions Made Clear BY TOM BRYAN
10 The Way I See It
FEEDSTOCK
Field-Grown Enzymes
Syngenta’s bio-engineered corn is grown in four states this year BY HOLLY JESSEN
42
OUTLOOK
Uneven Crop, Shifting Markets Peering into the possibilities and challenges of future corn production BY SUSANNE RETKA SCHILL
44
Believers, Nonbelievers, Activists and Antagonists BY MIKE BRYAN
11 Events Calendar
Upcoming Conferences & Trade Shows
12 View From the Hill
On the Road Again BY BOB DINNEEN
14 Drive
You’re No Dummy Campaign Fights Back BY TOM BUIS
16 Grassroots Voice Pounding the Table
BY RON LAMBERTY
Q&A
HISTORICAL COMPARISON
Rick Tolman and NCGA work to keep public up-to-date on developments in agriculture BY TIM PORTZ
The agricultural boom of the 1970s compared to today BY CHRIS HANSON
Corn Grower in Chief
CONTRIBUTION 50 POLICY Analyzing the Influence of Energy Policy An evaluation of the RFS impact on food, commodity prices BY JAKE FERRIS
Tides of Prosperity, Past and Present
18 Europe Calling
One-sided Report on
Biofuels Cost is Wrong BY ROBERT VIERHOUT
20 Business Matters
Congressional Efforts
Needed to Secure Future BY BRIAN KUEHL
ONLINE EXCLUSIVES
22 Business Briefs
The Effect of Ethanol Plant Siting on Corn Basis
54 Marketplace
24 Commodities Report 26 Distilled
Local basis increases of up to 13 cents per bushel seen BY YEHUSHUA FATAL
Tank Cleaning With Rotary Impingement Technology Understanding cleaning functions and issues helps in selecting the best process BY J.W. RESENHOEFT
Ethanol Producer Magazine: (USPS No. 023-974) October 2013, Vol. 19, Issue 10. Ethanol Producer Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.
4 | Ethanol Producer Magazine | OCTOBER 2013
ON THE COVER
Enogen corn is grown on the Doxtad family farm in northwestern Iowa. PHOTO: CHRISTINA KJAR
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EDITOR’S NOTE
Connected advancements in crop science, agronomy and ethanol production are creating a sort of industrial symbiosis that could have a transformative and lasting effect on American farming if American farmers want it to.
VALUE PROPOSITIONS MADE CLEAR TOM BRYAN, PRESIDENT & EDITOR IN CHIEF TBRYAN@BBIINTERNATIONAL.COM
At the Corn Stover Harvest & Transport seminar, which took place prior to the National Advanced Biofuels Conference & Expo in Omaha, Neb., in mid-September, I learned that U.S. corn growers—some 1,500 of them now—are opening up their fields for corn residue harvests this fall. Poet-DSM, DuPont and Abengoa each gave updates on their successful efforts to convince corn growers to harvest or allow the harvest of crop residue—stalks, leaves and cobs—from their land. Corn stover is arguably the feedstock that most represents second-generation ethanol in the Midwest. It’s available in potentially huge quantities. Farmer engagement remains challenging, however, and the largest ethanol companies in the world are doing their best to articulate a value proposition that convinces growers to join them. The whole thing works if, and only if, growers understand what’s in it for them, and a growing number of them do. This month’s cover story, on page 30, follows a parallel storyline taking place further upstream in the ethanol industry. Holly Jessen, EPM managing editor, looks at the commercial roll-out of Syngenta’s Enogen corn, the first grain bio-engineered specifically for ethanol production. Enogen has alpha amylase enzyme built into it, and it's now fully deregulated and in the early stages of commercial adoption. Three U.S. ethanol plants have signed on to use the corn and another eight facilities have trial agreements in place. Jessen tells us that about 65,000 acres of Enogen corn was planted in four states this year and Syngenta expects to exceed 100,000 acres next year. Like stover projects, the viability of enzyme-laden corn lies in grower buy-in. Corn growers like James Doxtad, the Iowa farmer pictured on our cover, are planting Enogen because there’s upside in it for him. On delivery, Doxtad will receive a premium price for the high-tech grain. The value proposition is clear. Likewise, ethanol plants are adopting Enogen because they see it as, perhaps, the next big advancement in production efficiency. The product has the potential to yield big decreases in water and power consumption. The value proposition is clear. Producers are doing an astounding job working with farmers in Iowa and Nebraska to convince them that corn stover harvesting can be done sustainably and profitably. PoetDSM, DuPont and Abengoa have already signed on several hundred farmers to their projects. They understand that to achieve the massive quantities of stover residue needed to fuel a second big wave of ethanol plant construction in the Corn Belt, growers will need to see a direct and immediate benefit when they allow residue to leave their land. They know that if the value proposition is clear, farmers will deliver.
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6 | Ethanol Producer Magazine | OCTOBER 2013
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AdIndex
EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com
29 & 59 2014 International Biomass Conference & Expo
VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com
34 Indeck Power Equipment Co.
MANAGING EDITOR Holly Jessen hjessen@bbiinternational.com
SENIOR EDITOR Susanne Retka Schill sretkaschill@bbiinternational.com
58 2014 National Advanced Biofuels Conference & Expo
33 INTL FCStone Inc.
53 2014 National Ethanol Conference
17 Iowa Economic Development Authority
60 BetaTec
51 Kennedy and Coe, LLC
32 Bilfinger Water Technologies
35 Louis Dreyfus
47 Buckman
27 Nalco, an Ecolab Company
NEWS EDITOR Erin Voegele evoegele@bbiinternational.com
STAFF WRITER Chris Hanson chanson@bbiinternational.com
COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com
ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com
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PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com
CEO Joe Bryan jbryan@bbiinternational.com
3 & 49 DuPont Industrial Biosciences
SALES
5 North American Industrial Services
VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com
BUSINESS DEVELOPMENT DIRECTOR
38 Ethanol Producer Magazine
15 Phibro Ethanol Performance Group
26 Fagen Inc.
21 POET-DSM Advanced Biofuels
52 Fuel Ethanol Industry Directory
46 SGS North America, Inc.
23 Gamajet Cleaning Systems, Inc
19 Syngenta: Enogen
41 Genscape, Inc.
40 Tower Performance, Inc.
Howard Brockhouse hbrockhouse@bbiinternational.com
SENIOR ACCOUNT MANAGER Chip Shereck cshereck@bbiinternational.com
ACCOUNT MANAGER Kelsi Brorby kbrorby@bbiinternational.com
MARKETING DIRECTOR John Nelson jnelson@bbiinternational.com
CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com
ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com
EDITORIAL BOARD Mike Jerke, Chippewa Valley Ethanol Co. LLLP Jeremy Wilhelm, Cilion Inc. Mick Henderson, Commonwealth Agri-Energy LLC Keith Kor, Pinal Energy LLC Walter Wendland, Golden Grain Energy LLC Neal Jakel Illinois River Energy LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP
2 Growth Energy
28 Hatfield Biodiesel Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to hjessen@bbiinternational. com. Please include your name, address and phone number. Letters may be edited for clarity and/ or space.
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39 Vogelbusch USA, Inc.
48 Wabash Power Equipment Co.
22 Himark bioGas
11 ICM, Inc.
8-9 Inbicon
COPYRIGHT Š 2013 by BBI International TM
OCTOBER 2013 | Ethanol Producer Magazine | 7
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THE WAY I SEE IT
Believers, Nonbelievers, Activists and Antagonists By Mike Bryan
Some say renewable energy is like a religion. I suppose it has some of the elements of a religion, in that you have believers, nonbelievers, activists and antagonists and many of the same highly intense efforts to spread the word or deny its relevancy. While believers work tirelessly to promote renewable energy, nonbelievers mount a never-ending assault of doubt, misinformation, pseudo-science and lies. Renewable energy activists are pounding the message home in the halls of Congress and the antagonists are working equally hard to discredit it. In truth, the comparison probably ends there but as a person who has been involved in renewable
10 | Ethanol Producer Magazine | OCTOBER 2013
energy for nearly 30 years, once you become a believer it is very difficult to simply turn your back and walk away. Truth is, for many of us, you probably never walk away, you just get carried away, so to speak. It’s important to keep in mind that the ethanol industry is just a cog in a much larger wheel of renewable energy technologies, its relevance is diminished without the rest of the cogs, like biodiesel, wind, solar, and a plethora of other emerging clean alternative fuels. Whatever form of renewable energy people are engaged in, it’s natural to think that they can stand alone, but in fact without each other, it would be virtually impossible to succeed. We are all intrinsically bound together by a higher calling, a sense of right and wrong and a passion for the preservation of our environment. As I have said before, time is on our side. Renewable energy will prevail over fossil fuels, it has to, there is no choice. In what form has yet to be determined but renewable
energy will continue to evolve and, in the end, will prevail. To those who are new to this industry, you are engaging in important work. You will become the bulwark against the antagonists and the non-believers. It will be your job, nay, privilege to carry the banner of clean domestic energy forward and spread the word. OK, I have gone on long enough now with this analogy. Suffice to say, this is a great and challenging industry that will not only provide those who work in it with a great career opportunity, but one that will change the course of history for generations to come. Amen! That’s the way I see it.
Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com
EVENTS CALENDAR National Ethanol Conference February 17-19, 2014 JW Marriott Orlando Grande Lakes Orlando, Florida
Since 1996, the RFA’s National Ethanol Conference has been recognized as the preeminent conference for delivering accurate, timely information on marketing, legislative and regulatory issues facing the ethanol industry. With numerous networking opportunities, more business meetings are conducted and contacts made at this conference than any other ethanol conference. 202-289-3835 | www.nationalethanolconference.com
International Biomass Conference & Expo March 24-26, 2014 Orange County Convention Center Orlando, Florida
Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. This event is the world’s premier educational and networking junction for all biomass industries. 866-746-8385 | www.biomassconference.com
International Fuel Ethanol Workshop & Expo June 9 -12, 2014 Indiana Convention Center Indianapolis, Indiana
Now in its 30th year, the FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine. 866-746-8385 | www.fuelethanolworkshop.com
National Advanced Biofuels Conference & Expo October 13-15, 2014 Hyatt Minneapolis Minneapolis, Minnesota
Produced by BBI International, this event will feature the world of advanced biofuels and biobased chemicals— technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. With a vertically integrated program and audience, this event is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products. 866-746-8385 | www.advancedbiofuelsconference.com
VIEW FROM THE HILL
On the Road Again By Bob Dinneen
At the end of every summer, while Congress is in recess and the U.S. Capital is a ghost town, I enjoy getting outside the Beltway to take the pulse of the industry and hear what’s happening at plants. It is always eye-opening and
reinvigorating to learn about the latest technologies and market dynamics that are reshaping the ethanol industry. It helps me to represent the industry more effectively when Congress returns and reminds me of the privilege it is to work for America’s ethanol producers. This year brought me to Galva, Iowa, where I was able to bear witness to the continued evolution of the ethanol industry. Quad County Corn Processors broke ground on it's cellulosic ethanol bolt-on facility, where it will process cellulosic corn fiber into high octane ethanol. Quad County’s Adding Cellulosic Ethanol (ACE) project will add 2 million gallons of cellulosic capacity to its existing 35 million gallon plant, while also increasing ethanol yield, expanding oil extraction and creating a more protein-enriched animal feed. For those who have questioned whether cellulosic ethanol would ever be commercialized, Quad County’s ACE project provides the answer. Cellulosic ethanol is here today! I visited Patriot Renewable Fuels in Annawan, Ill., as the plant celebrated five years of operation. It was a powerful reminder of the value-added benefits of ethanol production. Over its five years, Patriot has produced more than $1 billion
12 | Ethanol Producer Magazine | OCTOBER 2013
dollars of ethanol, sold 1.5 billion tons of high-protein distillers grains, employed 60 workers and provided a profit for more than 200 investors. Patriot showcased its many vendors and business partners at the event, companies that expand Patriot’s economic footprint with employees and profits of their own. During the two-day celebration, a local gas station was offering E85 for just $1.85 per gallon. Indeed, this summer has seen a dramatic increase in E85 sales as the value proposition for marketers and consumers alike became overwhelming. When time allows, I always enjoy a quick stop at the Farm Progress Show, and I was there this year to see the remarkable new technology that will enable America’s farmers to extend their reign as the most productive and efficient in the world. Consider that during last year’s record drought—the worst in more than 50 years—America’s farmers still produced the eighth largest corn crop in history. That’s a testament to the power of technology. As I walked the grounds of the Farm Progress Show this summer, I was struck by how much of the technology on display was more accessible to farmers today, at least in part because of ethanol and the economic revival the renewable fuel standard has brought to rural America. And because farmers are investing in those technologies, there will be more corn available for all users in the future, meeting the needs of feed, fiber and fuel here and abroad. Indeed, there was a clear response to the food vs. fuel alarmists in virtually every tent at this
year’s Farm Progress Show, if only critics would be open to seeing it. Driving around the country this summer, I saw the makings of another record crop. I also saw countless reasons for Congress to affirm the efficacy of the RFS and leave that important program in place. From Pacific Ethanol in Stockton, Calif., where my girls experienced their first ethanol plant tour, to Philadelphia, Pa., where I learned about all of the groundbreaking research being done on renewable energy by USDA’s Agricultural Research Service, the energy, economic, environmental benefits of ethanol and the RFS abound. If only Congress could see what I see. Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835
SARY R E V A N NI y
DRIVE
You’re No Dummy Campaign Fights Back By Tom Buis
For far too long, Big Oil has run a campaign of misinformation and unsubstantiated attacks against the renewable fuels industry. Big Oil would
rather mislead the public by disseminating false claims about the renewable fuel standard (RFS) and homegrown biofuels in an effort to confuse consumers. They claim the RFS isn’t working. That it isn’t supporting our domestic economy, our rural communities, our energy security and our future. Our industry knows this is blatantly wrong. We know the RFS is working, and it is working well. And, it’s time the American consumers know they’re being deceived. That’s why Growth Energy has taken a big stand against Big Oil’s propaganda with the new You’re No Dummy campaign. It features nationwide commercials, an interactive website and fights back against the efforts to stop the growth of clean, green, renewable fuels. The oil industry doesn’t want the American public to know that homegrown ethanol is revitalizing rural communities nationwide, supporting nearly 400,000
14 | Ethanol Producer Magazine | OCTOBER 2013
domestic jobs that cannot be outsourced, and contributing more than $40 billion to our economy every year; higher blends of ethanol are lowering prices at the pump for consumers; renewable fuels are better for the environment, substantially reducing greenhouse gas emissions; and, this industry is reducing our dangerous dependence on foreign oil. Big Oil has seen the positive and real effects of American ethanol and the RFS, and they’re scared of competition at the pump. They’re pouring millions of dollars into lobbying and ads to deceive the American public from the truth about the value and importance of ethanol, renewables and the RFS. Instead of looking ahead to the future and recognizing the importance of renewable fuels to our energy sector, environment, economy and national security, Big Oil is desperately clinging to the past—a past entrenched in oil’s monopoly over the liquid fuels market. Big Oil is doing everything it can
to block renewable fuels from the marketplace to avoid losing even an inch of its booming profits. The top five companies made almost $120 billion in profits in 2012 alone, and almost $50 billion in 2013 already. We can’t stand for this misinformation and deception any longer. American consumers deserve access to cheaper, cleaner renewable fuels, and deserve to know the truth. We know we’re the little guy in this David vs. Goliath battle. While we can’t match Big Oil dollar for dollar, we have the truth on our side. Help us share this simple message: You’re no dummy, don’t let the oil industry treat you like one. It is time consumers are allowed a choice when they fill up at the pump, a choice that allows them to not only save their own hard-earned income but also spend their money on an American product that creates American jobs, promotes energy independence and improves our environment. Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org
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GRASSROOTS VOICE
Pounding the Table By Ron Lamberty
An old lawyer’s adage says: “If you have the facts, pound the facts. If you have the law, pound the law. If you don’t have either, pound the table.”
The people who want ethanol to go away can’t pound the facts, because they know that the facts are against them. They have tried to pound the law—all the way up to the Supreme Court—and were told to pound sand. They didn’t even have a right to bring a lawsuit, much less win one. But Big Oil and its apologists in the media and Congress have had great success this year with their version of pounding the table, which is why you can expect that pounding to get louder and louder. Eventually, the “facts” they’ve made up out of whole cloth—like their renewable identification number distortion and the phonied-up Big Oil E15 studies—will give way to real facts that favor ethanol. And at some point, Congress will realize that the law that includes the renewable fuel standard (RFS) was written to give us more energy choices, not just to tide us over until more oil is discovered. A recent USA Today editorial contained a good collection of the current fraudulent case being made against ethanol. It was featured in the opinion section, probably because it would have no place in a fact section.
16 | Ethanol Producer Magazine | OCTOBER 2013
In addition to repeating some of the food vs. fuel charges that have been disproven multiple times, the article mentioned farmers planting corn on farm land “roughly the size of Kentucky” this year. Set aside the duplicity of complaining about lack of corn one year and then too much corn the following year. If that statement were true (it’s not), that amount of land would provide enough corn to make 18 billion gallons of ethanol and over 2 billion bushels of feed for livestock. But why no mention that fuel is needed to keep cars traveling on a Kentucky-and-a-half of U. S. highways? Why no concern about oil companies drilling for oil on four Kentuckys worth of U.S. land, and another Kentucky out in the ocean? The article cited reduced fuel use as another RFS problem, saying it was “driven largely by a new generation of fuel-efficient cars.” Wrong again. The new generation of fuel-efficient cars won’t hit the road in any significant numbers until 2016. The decline in gasoline consumption closely matches an overall decrease in total miles driven and that can be traced directly to high gas prices. Those gas prices are higher because, although Big Oil cites increased production as proof they don’t need the RFS, oil companies seem to only be finding oil that makes gas that costs more than double what it cost few years ago. Isn’t that precisely why we need alternatives to oil?
Which is maybe the most maddening part of the current anti-RFS rhetoric. The editorial says the only way for oil companies to meet the RFS “is to blend more into each gallon of gas,” as if that were some sort of revelation. It’s not. It’s the reason the Energy Independence and Security Act was passed in the first place. You don’t break an addiction to oil by switching to a different brand of gasoline, you beat it by providing choices that aren’t oil and using more of that. Whether it’s electricity, ethanol, or hydrogen, unless we have more options, we’re going to continue paying more and more for oil every year, until there’s no more oil. If you’re Big Oil, that’s worth pounding the table for, regardless of the cost. Author: Ron Lamberty Senior Vice President American Coalition for Ethanol 605-334-3381 rlamberty@ethanol.org
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EUROPE CALLING
One-Sided Report on Biofuels Cost is Wrong By Rob Vierhout
Back in April the International Institute for Sustainable Development published—with much pomp and circumstance—a study that revealed that the European taxpayer has to cover a €10 billion check every year to finance biofuels.
The study was requested and funded by nongovernmental organizations (NGOs). The day before it was officially released, the results were already quoted in the press. NGOs were screaming that biofuels were costing as much as the bailout for Cyprus and the member of the European Parliament preparing the position on ILUC was crying foul over all this waste of government money. The study was peer-reviewed by NGOs and a number of other biofuel critics. The biofuels industry asked to be involved in the peer review process but it was refused because, according to IISD, we could not be trusted. Still, we sent them comments, criticizing their methodology and numbers. The “accountancy-model” IISD used was one-sided, looking only at government expenditure but leaving out of the picture the revenues the industry is generating for government and society. A well-respected company, Ecofys Consultancy, analyzed the report and spotted similar errors we spotted and indicated. As a consequence of that
18 | Ethanol Producer Magazine | OCTOBER 2013
analysis IISD had to correct its numbers. The expenditure is now lowered to €6 billion per year, but according to the biofuel industry and Ecofys it’s still much too high. Several studies that were carried out for the European Union ethanol industry delivered the evidence that the benefits of biofuel support are net positive for society. For every liter of ethanol we produce, we contribute €1 to the gross domestic product. Last year, we produced 6 billion liters, which is equal to what the entire biofuel sector is costing society. And ethanol is only 25 percent of the market. Hopefully, IISD has learned from ignoring industry comments and will think twice before it again issues a biofuels at-what-cost report. Besides the preposterous accusation on the government subsidies, we have the forever on-going accusations by NGOs on food prices and land grabbing in areas outside Europe. On these two issues, two recent reports have proven that the claims do not match the facts. The Land Matrix Global Observatory stated that the global levels of land grabs have been massively exaggerated and known land grabs have not been driven by biofuels. And, not long ago the United Kingdom Overseas Development Institute came up with similar findings and exposed the NGO campaign as irresponsible and unconstructive. The whole land-grab story is created by NGOs to create a false emotion of guilt in the public opinion, whereas most people have no clue. Sad stories about Africa always run well in EU public opinion and certain groups of politicians.
That too applies to food. You can present 10 reports or 100 reports all saying that the relationship between biofuel policy and increase of commodity prices is not there but still the NGO community will not accept it. They keep shouting that it is a crime and a sin at the same time to use crops for fuel. And why? Because emotion and negativity are news and a guarantee for (financial) support. Europe will lose its way on biofuels when these emotional forces and arguments keep dominating the debate. In the EU, we are forgetting that biofuels are about oil, pure and simple. Renewable ethanol is the only large-scale competitor to petrol, and in that competition, ethanol bests petrol on every single social, security and environmental metric. In return, ethanol is usually a tiny bit more expensive than petrol. If the only goal of the world was to have the cheapest possible fuel, then there is no reason to support biofuels. There is no credible suggestion that ethanol is worse for the climate than petrol. Wars are not fought over biofuel supplies. And while about 90 percent of global ethanol subsidies have been phased out over the past five years, fossil fuel subsidies, running into the hundreds of billions of euros, have been left largely untouched. These are the facts that should be at the center of Europe's biofuels debate. Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org
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1
BUSINESS MATTERS
Congressional Efforts Needed to Secure Future By Brian Kuehl
As Congress considers tax reform in the coming months, producers must make the case for continued support for the U.S. ethanol industry. Without
significant outreach to Congress from individuals, companies and associations that support ethanol, existing incentives could be pared back or even eliminated. Kennedy and Coe closely tracks developments on Capitol Hill related to the ethanol industry in order to ensure clients have properly positioned their businesses to take advantage of important legislative developments. Two tax provisions are critical to continued development of the U.S. cellulosic industry. First, the tax code currently provides a Second Generation Production Tax Credit that gives ethanol plants a tax credit of $1.01 per gallon of cellulosic ethanol produced. Second, the code provides for an Accelerated Depreciation Allowance for Cellulosic Biomass Properties, which allows producers of cellulosic biofuel to take a 50 percent depreciation in the first year for property used to produce cellulosic ethanol. Another important provision to the ethanol industry is the Assets for Independence tax credit, which allows a retailer to claim 30 percent of the cost of installing alternative fuel infrastructure (up to $30,000). This program has been useful in encouraging installation of E85 pumps and will be critical in the future as
20 | Ethanol Producer Magazine | OCTOBER 2013
E85 grows in importance as a compliance strategy for the renewable fuel standard. To meaningfully incentivize market behavior, these provisions cannot be extended on a year-to-year basis. All three provisions are set to expire at the end of 2013. To support continued development of the U.S. ethanol industry, Congress should extend these provisions for at least five years to allow market participants to make sensible financing decisions. Efforts to simplify and reform the tax code are being led by Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee and by Rep. Dave Camp, R-Mich., who chairs the House Ways and Means Committee. Baucus and Camp have both engaged in a lengthy process to determine provisions that will remain in the code following tax reform. Baucus started with a position that all special provisions should be taken out of the tax code unless a case can be made to add the provision back. In the U.S. House, Camp has enlisted members of the Ways and Means Committee to lead 11 working groups to review the tax code, including provisions related to energy. Kennedy and Coe has learned there will likely be a tax reform bill produced by the House committee in early October and the Senate Finance Committee could produce a bill shortly thereafter. As the Committees draft these bills, it’s important for members of Congress to be reminded of the recent history related to first-generation ethanol. In
January 2012, Congress eliminated the first-generation ethanol tax credit and also repealed the ethanol tariff. With elimination of the production tax credit, the ethanol industry has already made a significant contribution to the cause of tax reform—both in terms of revenue creation and tax code simplification. It is against this backdrop that Congress will consider whether to keep and extend the production tax credit for cellulosic ethanol, the accelerated depreciation allowance for cellulosic biomass property and the alternative fuel infrastructure tax credit. Individuals, companies and associations that support continued development of the U.S. ethanol industry should contact members of the tax-writing committees. Remind your elected officials that Congress eliminated the ethanol production tax credit only two years ago and let them know why the cellulosic provisions and AFI provisions are important. Ask that Congress extend these provisions for five years or more rather than for one year at a time. Author:Brian Kuehl, Director of Federal Affairs Kennedy and Coe LLC 307-673-4801 bkuehl@kcoe.com
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22 | Ethanol Producer Magazine | OCTOBER 2013
Especially when Greenbelt it Patricia Woertz, Resources Corp. has anpresident, CEO and nounced successful performance testing recomes PROFIT. chairman to of Archer sults from its automated distillation module,
Daniels which is available separately or as part of a That’s why Midlands integrating Co., was named to complete sustainable energy production sysa Himark bioGas plant the U.S. Section of the tem. It efficiently generated hydrous ethanol, U.S.-Brazil CEO Fo- distilled water and fertilizer from a beer stock withrum, your ethanol plant and appointed by of 4 percent ethanol at a rate of 70,000 galWoetrz will enhance the U.S. lons per year, or 10 gallons per hour. The makes sogovernment muchtosense. the economic
serve as chair of that section. The forum was created in 2007 by the U.S. and Brazilian governments to strengthen economic and commercial ties between the two countries. relationship between the U.S. and Brazil.
system will output at a higher rate of ethanol production when feedstock originates at a higher concentration of ethanol, but can produce fuel-grade ethanol with optimum energy efficiency from low-ethanol-concentration feeds.
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Michael Best & produced as a coproduct to ethanol to the Friedrich LLP has an- range of feedstocks it uses to produce NExnounced the addition BTL renewable diesel. Trials to confirm the of Angela James as suitability of technical corn oil for the prosenior counsel in the duction of NExBTL were carried out this Environmental Practice spring. According to Neste Oil, the feedstock OUTPUT BY UP TO 10%, Group and the Energy also meets its strict sustainability criteria. Folcut your gas or electrical costs and Sustainability In- lowing an extensive evaluation, Neste Oil has James’ industry dustry Team. James is begun using technical corn oil on a commerknowledge and meetinorthe beat andand is currently sourcing feedstock background addsandlocated firm’s cial basis depth to the firm. Madison office. She has supplies from the U.S. So worked on matters related tobenchmarks. industrial regulatory compliance, air and water permitting, for the Butterworth Inc., a manufacturer of if you’re looking water quality trading, utility ratemaking and industrial tank cleaning equipment, has anenergy regulation. Prior to joining Michael nounced the introduction of the unidirecBest & Friedrich, James was a senior associate tional BC machine, which creates a two nozreturnLLP from your ethanol zle cone-shaped circular cleaning pattern with at Stafford Rosenbaum from 2000-'04 and a corporateplant, attorney atlook Madison and impact impingement. The new tank cleaning noGasfurther. machine is used to remove machining oils Electric Co. from 2004-'12. She most recently from steel surfaces in manufacturing processserved as the vice president of government es. The company has also introduced 12 mm relations with the Wisconsin Paper Council. and 14 mm LTQ machines, which are fournozzle machines typically used in sanitary apFluid Quip Process Technologies has plications, such as ethanol fermenters, where announced Andrew Whalen has joined the increased density of the cleaning pattern recompany as a process engineer. He will sup- sults in a highly efficient cleaning process. The port instillation and optimization of FQPT’s four-nozzle machines can achieve a flow rate Selective Grinding of up to 300 gpm due to specific process reTechnology systems quirements. In addition, Butterworth’s’ CAT and Brix Oil Separation Tank Cleaning Machine is a single-nozzle, programmable, fixed-in-place machine that Systems. Whalen has a gives the end user the ability to determine degree in chemical enhow much of the tank to clean. gineering from the University of Dayton.
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The U.S. Grains Council elected Julius Schaaf as chairman of its board of directors at its 53rd Annual Board of Delegates Meeting in Ottawa, Canada. Schaaf is a fifth-generation farmer from Randolph, Iowa. He has been a member Schaaf has more than 33 years of the delegation of the of experience in production agriculture. USGC and member of the Iowa Corn Promotion Board since 2003. He is past chairman of the Iowa Corn Promotion Board and has served on the research and biotech committees for the Iowa Corn Promotion Board. Michael “Blick” Blickenstaff has been named maintenance manager for Aventine Renewable Energy Inc.’s plant in Pekin, Ill. He began work in the biofuels business in 1978 at the Tate & Lyle South Plant in Lafayette, Ind., Blicken has vast experience in the and worked at the Debiofuels industry. catur, Ill., and Loudon, Tenn., plants before taking early retirement after spending 27 years with the company. In 2005, he oversaw the startup of California’s first ethanol plant, which is located in Visilia. He has also served as the owners representative and plant manager for Green Plains Renewable Energy in west Tennessee, as plant manager for Conestoga Energy Partners in Liberal, Kan., and Guardian Lima in Ohio. Most recently, he served as operations manager at Hereford Renewable Energy in Hereford, Texas. California Ethanol & Power LLC has added two senior executives to its management team. Ralph Dehrmann joined the company as executive vice president of technologies and operations. He has 25 years of experience in the management and development of sugarcane processing facilities. Prior to joining CE&P, he managed the front-end engineering design, equipment supplier se-
SHARE YOUR INDUSTRY BRIEFS To be included in Business Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to 701-746-8385, or email it to evoegele@ bbiinternational.com. Please include your name and telephone number in all correspondence.
lection and related services for a sugarcane ethanol, power and biogas plant in Sierra Leone. Steven Passantino joined CE&P as vice president of financing. He has more than 20 years of experience in accounting, finance and information technology. He was most recently the corporate controller for a material handling systems development company wholly owned and operated by Danaher Corp. East Kansas Agri-Energy LLC has added Jeff Oestmann as its new CEO. Oestmann has nearly 20 years of experience in the bioenergy and grain processing industries. His professional background includes risk management, trading, marketing and operations roles in Cargill’s grain and energy business in the U.S. and Europe. He most recently served as president and CEO of Soy Energy LLC, a biodiesel plant located in Mason City, Iowa. Oestmann has also served on the Renewable Fuels Association’s market development committee and on the Iowa Biodiesel Board. Viaspace Inc. has announced the election of Khurram Irshad to its board of directors. He will take an active role in the company and help lead additional Giant King Grass bioenergy Irshad will assist with project developments, project development. especially in Pakistan. Irshad is a citizen of Pakistan and a resident of California. He heads the agribusiness consulting firm Amaanco and is founder of Winergy Pakistan Ltd., which has developed a biogas plant at Landhi Cattle Colony in Karachi, Pakistan. He is also chairman and founder of Aquatech Infrastructures Ltd., a water and wastewater treatment company in Pakistan.
OCTOBER 2013 | Ethanol Producer Magazine | 23
COMMODITIES Natural Gas Report
Will the upward trend in prices be sustained? Sept. 3—Natural Gas prices are 55 percent lower than five years ago and the market price today, roughly $3.60 per MMBtu, feels like a bargain. Looking at a shorter timeline shows gas prices are now 29 percent higher than one year ago. As the chart shows, the market was under $3 per MMBtu one year ago and now rests above $3.50 per MMBtu. Market prices moved above $4.40 per MMBtu at the end of winter as storage inventories were drawn down due to the long and cold winter experienced over most of the nation. Moving through the summer, strong production pushed inventories back to comfortable levels, softening market prices. However, prices are still well above levels compared to one year ago. If the current trend continues, the market will move above $4 per MMBtu and may stay there on a sustained basis. The futures market seems to confirm that higher prices may occur. For example, the January 2014 price approaches $4 per MMBtu while the January 2015 price is 8 percent higher at $4.27 per MMBtu. From a producer perspective, market prices above $4 per MMBtu encourage more aggressive pursuit of incremental supply, which is necessary to
BY CASEY WHELAN
maintain a healthy supply, demand balance. While no consumer likes higher prices, it may create a degree of price stability. The key is to have a sufficiently high price to encourage development and incremental supply but not so high that economic activity is impacted.
Corn Report
Volatility the norm as new crop yield still unknown
BY JASON SAGEBIEL
Sept. 3—New crop corn was able to achieve $5 plus per bushel for a short time. Granted, the corn crop needed the heat units, however, it came abruptly and the impact was feared worse for soybeans, spilling over to corn. As the end of August approached, the market began to agree with a national yield of 154 bushels per acre, in line with the USDA’s mid-August yield prospects. Initially, more private analyst groups were calculating higher yield potential. Volatility continues, not just in the futures price but in the cash market. Basis levels have gyrated almost daily. Due to the onset of the hot and dry weather at the end of August, the perception began to circulate of a rapidly maturing crop. It will allow bushels to hit the marketplace earlier than projected, putting pressure on the cash corn market. Fundamentalists still believe corn can come under pressure with a 1.5 billion bushel carryout but corn may be a follower of soybeans. At the time of this writing, it is very difficult to predict soybean yields so the expectations of corn choppiness will continue until the bushels are in the bin. If soybean yields decline and soybean values advance, one Additional global supply at cheaper levels will limit the upside potential may expect new crop futures to find support in the mid-to-low $4s. The in corn at this time. market has not dealt with a carryout percentage this high since 2005-’06.
24 | Ethanol Producer Magazine | OCTOBER 2013
REPORT
Regional Ethanol Prices Front Month Futures (AC) $2.393 REGION
($/gallon)
SPOT
RACK
West Coast
2.89
2.85
Midwest
2.75
2.55
East Coast
2.8
2.9205 SOURCE: DTN
Regional Gasoline Prices
DDGS Report
Tight corn supply effecting market BY SEAN BRODERICK
Sept. 3—As Labor Day approached, the old crop corn supply was about as tight as it was last year at that time, and that affected both the demand and price of DDGS. Overseas buyers have continued buying to keep their pipelines full, but the convergence of old and new crop is keeping them cautious about having too much in the pipeline. Domestic buyers are only buying what they need on the very nearby, as their logistics are not as elongated as those of the overseas buyers. This year’s pace of exports to China will more than likely surpass the record amount of tons in 2010 of around 2.5 million metric tons. Container sales have been strong but there has been a fairly good amount of bulk vessels so far this summer and into the fall. Container sup-
ply will be an issue though, as soybeans and corn compete with DDGS for a finite pool of containers. Margins for domestic feeders have been pretty tough this year and, although things look marginally better for hogs and poultry, cattle and dairies continue to struggle. Lower corn prices will help them all, but it’s still possible they will continue to buy hand-to-mouth until the market breaks. DDGS prices will be affected by that process but there has been a pretty significant amount of October, November and December product traded at prices of 100 to 105 percent of Chicago Board of Trade corn. This should bode well for the plant margins going ahead if they get normal harvest basis levels, whatever normal is.
($/gallon) Front Month Futures Price (RBOB) $3.0186
REGION
SPOT
RACK
West Coast
2.9276
2.9985
Midwest
3.0926
3.639
East Coast
2.9245
3.0402 SOURCE: DTN
DDGS Prices ($/ton) LOCATION
OCT 2013
SEP 2013
OCT 2012
Minnesota
215
225
290
Chicago
255
255
310
Buffalo, N.Y.
255
255
300
Central Calif.
273
287
349
Central Fla.
275
275
338 SOURCE: CHS Inc.
Corn Futures Prices DATE AUGUST 30, 2013
(Sept. Futures, $/bushel)
HIGH
LOW
CLOSE
4.84
4.76 1/4
4.82 4.77 1/2
JULY 30, 2013
4.78 3/4
4.73
AUGUST 30, 2012
8.17 1/2
8.07 1/2
8.08 1/2 SOURCE: FCStone
Cash Sorghum Prices ($/bushel) LOCATION
Ethanol Report
Hot, dry weather impacting ethanol markets BY RICK KMENT Sept. 3—The month of August reminded everyone that summer had finally arrived. The concerns about cool and wet weather still were fresh in traders and corn producers’ minds when hot dry conditions seemed to flood over most of the Corn Belt. Sharp price shifts developed in both the corn and ethanol futures markets. Corn prices moved more than 30 cents higher over the past couple of days with concerns that the corn crop will not finish well due to the heat, resulting in lower yields.
Ethanol markets are seeing wide price shifts with higher production costs on one hand, while eroding summer demand is weighing heavily on the market. Trades are expected to continue to remain volatile during the month of September, as crop conditions and long term ethanol production plans are a significant gamble. Ethanol futures prices continue to trade in a wide range but are unable to sustain support above $2.50 per gallon, despite renewed buying activity in gasoline prices.
AUG 30, 2013
JUL 26, 2013
AUG 24, 2012
Superior, Neb.
5.32
5.52
7.44
Beatrice, Neb.
5.42
5.62
7.74
Sublette, Kan.
5.68
5.7
7.96
Salina, Kan.
5.32
5.3
7.68
Triangle, Texas
5.8
5.77
7.88
Gulf, Texas
5.42
5.41
7.64
SOURCE: Sorghum Synergies
Natural Gas Prices
($/MMBtu)
LOCATION
AUG 30, 2013
AUG 1, 2013
SEP 1, 2012
NYMEX
3.58
3.39
2.85
NNG Ventura
3.70
3.45
2.84
CA Citygate
3.96
3.71
3.20
SOURCE: U.S. Energy Services Inc.
U.S. Ethanol Production
(1,000 barrels)
PER DAY
MONTH
END STOCKS
JUN 2013
891
26,722
16,395
MAY 2013
877
27,197
16,810
JUN 2012
887
26,611
21,456
SOURCE: U.S. Energy Information Administration
OCTOBER 2013 | Ethanol Producer Magazine | 25
DISTILLED
Ethanol News & Trends
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EPA sets 2013 RFS requirements The U.S. EPA has finalized the 2013 volume requirements for the renewable fuel standard (RFS), requiring 16.55 billion gallons of biofuels to be blended in the U.S. fuel supply. Under the RFS, biofuels will comprise 9.74 percent of U.S. transportation fuel this year. The agency has also extended the compliance deadline by four months to provide greater lead time and flexibility to obligated parties. The new deadline is June 30, 2014. The standard for biomass-based diesel is set at 1.28 billion gallons, or 1.13 percent of the fuel pool. The requirement for advanced biofuels is 2.75 billion gallons of ethanol
equivalent, accounting for 1.62 percent of U.S. transportation fuel. The cellulosic standard is 6 million gallons of ethanol equivalent, or 0.004 percent of the U.S. transportation fuel pool. The remaining 12.514 billion gallons of ethanol equivalent can be met by the renewable fuel category of biofuels. In its final rulemaking, the EPA also indicated that it would use flexibilities in the RFS statute to reduce both the advanced biofuel and total renewable fuel volumes in the forthcoming 2014 volume proposal due to the expected E10 blend wall.
26 | Ethanol Producer Magazine | OCTOBER 2013
Cellulosic demo under development in India Praj Industries Ltd. has broken ground on the first integrated cellulosic ethanol demonstration plant in India. The facility will take in a variety of feedstock sources, including corn stover, cobs and sugarcane bagasse. Once operational, the plant will have the capacity to process 100 dry metric tons of biomass per day. According to Praj, the expected cost of the project is $25 million. In addition to demonstrating technical parameters of the technology, including water optimization and energy integration, the project will also develop the biomass value chain, including feedstock handling and biomass composition. Praj is working with Viraj Alcohols & Allied Industries Ltd. on the project. VAAIL, a longterm client of Praj and existing ethanol producer in India, will provide land and allied services for the cellulosic demonstration.
DISTILLED
Germany leads EU ethanol use, France top producer EurObserv’ER has released its annual Biofuels Barometer, reporting biofuel consumption in the EU grew 2.9 percent from 2011 to 2012, reaching nearly 14.4 million metric tons of oil equivalent (toe). Biofuels accounted for approximately 4.7 percent of the E.U.’s transportation fuel last year. Ethanol accounted for only 19.9 percent of biofuel consumed in Europe during 2012, with biodiesel accounting for the vast majority of the balance. Small volumes of vegetable oil and biogas were also consumed. Germany led in ethanol consumption with 805,460 toe consumed, followed by France, the U.K., Spain and Sweden. France produced the most ethanol in Europe, with 1.2 billion liters (317 million gallons), followed by Germany, Belgium and the Netherlands. According to the report, Abengoa Bioenergy had the most production capacity in Europe last year, featuring six plants and a combined capacity of 1.281 billion liters.
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Corn ethanol plant celebrates groundbreaking
A new corn ethanol plant is under construction in North Dakota. The project is the first U.S. corn-ethanol plant to break ground in five years. The 65 MMgy Dakota Spirit AgEnergy LLC plant is being built adjacent to Great River Energy’s Spiritwood Station power plant in Spiritwood, N.D., a town located in the southeast portion of the state. The $155 million project is spearheaded by the Midwest AgEnergy Group, owned by Great River Energy. The group also owns the 65 MMgy Blue Flint Ethanol plant near Underwood, N.D., which is similarly collocated with a power plant. Spiritwood Station will provide process steam to the biorefinery. The combined-heatand-power configuration is necessary for the plant’s ethanol production to meet the 20 percent greenhouse gas reduction threshold required for all new corn ethanol plants under the renewable fuels standard. The plant is expected to take in 23 million bushels of corn as feedstock annually. In addition to ethanol, the biorefinery will produce an estimated 6,900 tons of corn oil and 198,000 tons of distillers grains.
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OCTOBER 2013 | Ethanol Producer Magazine | 27
DISTILLED
ZeaChem plant registered to produce D3 RINs ZeaChem Inc. has announced the U.S. EPA confirmed the successful registration of its demonstration biorefinery in Boardman, Ore., to generate cellulosic biofuel renewable identification numbers (RINs). Earlier this year, the company successfully produced the first volumes of cellulosic ethanol and chemicals. With EPA registration now complete, cellulosic ethanol produced at the plant will qualify to generate RINs to
help meet the renewable fuel standard (RFS) volume obligations. The demonstration facility has an annual capacity of 250,000 gallons per year. Construction on the facility was completed last October. ZeaChem announced the production of cellulosic ethanol in March 2013. The plant employs a two-carbon atom technology platform for the production of cellulosic ethanol and intermediate chemicals.
With process adjustments, the technology can produce three-carbon atom chemicals. Carbon Solutions Group, a project development, environmental asset management and advisory firm in Chicago, provided registration services to ZeaChem.
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Illinois plant aims for commissioning A Benton, Ill.-based ethanol plant that was built in 2008, but never reached full production, will finally be operational this fall. The 7 MMgy Mano Metate Grain & Energy Commodities Plant, formally Ag Energy Resources, began operations several years ago, but never reached full production. The economic situation of 2008 hit the plant hard and the company never really recovered, said Steve Vardell, project engineer and project manager. He also served as the plant’s designer for the original owner. While the plant was capable of running in 2008, the former owner couldn’t get funding to operate it. As a result, the facility was ultimately shut down in 2010. A skeleton crew was onsite cleaning up the plant in August, upgrading the grain handling system and replacing some equipment damaged by a freeze during the plant’s idle period. The facility utilizes a front-end fractionation technology featuring a total milling system from Agrex. The ethanol plant will process corn starch into ethanol, while other fractionated corn products, such as corn grit or corn bran flakes, can potentially be sold for human consumption. In addition to corn, the facility may also process sweet sorghum. 28 | Ethanol Producer Magazine | OCTOBER 2013
DISTILLED August 2012: Indian River BioEnergy Center is registered by the U.S. EPA for cellulosic production
Iowa plant breaks ground on bolt-on cellulosic process
February 2011: Groundbreaking begins for Indian River BioEnergy Center
13 20
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Galva-Iowa-based Quad County Corn Processors recently held a groundbreaking ceremony for a new bolt-on cellulosic technology that will allow the 35 MMgy corn-ethanol plant to produce 2 MMgy of cellulosic ethanol. Construction on the $8.5 million cellulosic addition is expected to be complete by April 2014. The patent-pending cellulosic process, Adding Cellulosic Ethanol, was a project Travis Brotherson, plant engineer, worked on for the past four years. Two years ago the company started working to take the process from pilotand demonstration-scale to a full-scale installation at the plant, said General Manager Delayne Johnson. According to Johnson, the production process starts with the traditional grain-based fermentation process, followed by a trip through the bolt-on facility, where another round of fermentation produces cellulosic ethanol from corn kernel fiber. The ACE technology is expected to increase ethanol yield by 6 percent and boost corn oil extraction by approximately 300 percent.
July 2013: Commercial-scale production commences at the Indian River BioEnergy Center
August 2012: Commissioning begins at the Indian River BioEnergy Center
November 2012: Renewable power production begins at the Indian River BioEnergy Center
Indian River BioEnergy Center achieves commercial production Ineos Bio announced its 8 MMgy Indian River BioEnery Center in Vero Beach, Fla., began producing cellulosic ethanol at the commercial scale in late July. The first shipments of fuel from the facility were released in August. The project is a joint venture between New Plant Energy Florida LLC and Ineos Bio, a division of global chemical company Ineos. Commissioning of the first-of-kind facility began in June 2012. While power generation from the gasification unit became operational in November 2012, the Ineos Bio team spent much longer commissioning the continuous syngas fer-
mentation process to produce cellulosic ethanol. According to Ineos Bio CEO Peter Williams, a lengthy commissioning process for this type of plant is not uncommon. “It is quite normal to have a period of learning, especially with new technology,” he said. While the ethanol plant has been declared to be producing at commercial scale, Dan Cummings, Ineos Bio spokesman, noted that the company will continue to debottleneck and optimize the production process. Full production capacity is expected to be realized by the end of the year.
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FEEDSTOCK
Premium Opportunity Galva, Iowa, farmer James Doxtad plans to double his acreage of Enogen Corn in the next growing season. PHOTO: CHRISTINA KJAR
30 | Ethanol Producer Magazine | OCTOBER 2013
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FIELDGROWN
Enzymes
The rollout of Syngenta’s Enogen corn benefits both farmers growing the hybrid grain and ethanol plants using it to produce biofuel. BY HOLLY JESSEN
James Doxtad has grown 320 acres of Enogen corn and delivered it to Quad County Corn Processors for the past two years. Next growing season, he’s planning to nearly double that to the maximum amount of acres allowed, or half of his approximately 1,200acre family farm, located just miles from the 35 MMgy ethanol plant in Galva, Iowa. Doxtad called planting Enogen corn a no-brainer, considering the 40-cent premium price he gets for the corn. Plus, he was already delivering some regular No. 2 field corn to Quad County ethanol plant, of which he is a shareholder. “The ethanol plant is helping us with a better premium and we’re helping them produce ethanol more efficiently,” he tells Ethanol Producer Magazine. “So I think it’s kind of a 'you scratch my back and I’ll scratch yours,' and everybody seems to be benefiting in the long run.” Syngenta’s Enogen corn is the first grain bio-engineered specifically for the ethanol industry, with the alpha amylase enzyme necessary for dry grind ethanol production built into the grain. The corn hybrid was fully deregulated by the USDA in early 2011, paving the way for commercial growth and use at
OCTOBER 2013 | Ethanol Producer Magazine | 31
FEEDSTOCK
ethanol plants. To date, three ethanol plants have signed commercial agreements with Syngenta. Quad County was the first to pull the trigger in late 2011. By the end of 2012, another two ethanol plants had signed on, including Plymouth Energy LLC, a 50 MMgy plant in Merrill, Iowa, and Bonanza BioEnergy LLC, a 55 MMgy facility in Garden City, Kan. Quad County is the only ethanol plant currently producing ethanol using Enogen corn, while Plymouth Energy and Bonanza BioEnergy are wrapping up their first year of working with area growers and will use the grain after this year’s harvest, the company says. Another eight ethanol plants have technology trial agreements to test the grain, five of which were signed this year. In all, 65,000 acres of Enogen corn was planted this year in Kansas, Nebraska, Iowa and South Dakota, says David Witherspoon, head of renewable fuels for Syngenta. The 2012 drought did slow the rollout of Eno-
32 | Ethanol Producer Magazine | OCTOBER 2013
Enzyme Delivery Enogen corn contains the alpha amylase enzyme necessary for dry grind ethanol production. PHOTO: CHRISTINA KJAR
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gen corn somewhat. “Would we have liked to have more corn to do more plant trials? The answer is yes,� he says. Still, things are starting to pick up. By next year, the company anticipates that acreage number could go up to more than 100,000 or 120,000, depending on the success rate of current testing programs at ethanol plants.
In the Field
Nick Hatcher, a grower in southwest Kansas, says planting Enogen corn is an opportunity to maximize his revenue and corn production. In all, he planted about 60 percent of his acres in corn, about 4 percent of which is Enogen corn, destined for Bonanza BioEnergy. The facility is located about 60 miles north of Hatcher’s farm, which is further than the corn producer’s typical corn-delivery radius of 5 to 20 miles. However, Hatcher adds that he expects to grow substantially more Enogen corn in the future, should Arkalon Ethanol LLC decide to start using the corn hybrid. That facility is located only 8 miles from Hatcher’s farm and is the destination of some of the regular No. 2 corn he grows. Bonanza and Arkalon are both operated by Conestoga Energy Partners LLC. There are some things farmers must do differently when growing Enogen corn. However, both Doxtad and Hatcher say the adjustments weren’t difficult and the premium price they can get for the corn is worth it. “Once we made the commitment and understood the circumstances needed to make this happen it has become standard operating procedure for us,� Hatcher says. One of those requirements is completing paperwork, something Doxtad says isn’t an extra burden because he’s always kept detailed planting records anyway. And, farming equipment must be cleaned after Enogen corn is planted or harvested, another task that isn’t difficult to complete, especially with today’s newer equipment. Finally, harvested Enogen corn must be stored in separate bins and delivered to the ethanol plant during certain delivery windows as specified in the contract between the farmer and the ethanol plant. For example, Doxtad makes his Enogen corn de-
‘Being able to procure your enzymes from the field is a very, very cool and unique thing.’ —Mick Miller, president of Energetix LLC
liveries to Quad County on specific days in the month of February. The buffer row of regular No. 2 corn around every field of Enogen corn is the
requirement that Doxad would do away with if he could, but it’s not a deal breaker. It does take a little more advance planning but it’s not very time consuming, he said. Witherspoon adds that cleaning equipment isn’t difficult to do and takes minutes, not hours. “It’s not kernel clean,� he says. Another time-saving measure for farmers is that the corn in the buffer rows can be harvested and stored together with the Enogen
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corn field as a whole. “That’s a really big deal because if you had to store that separately, that’s difficult to do,” he says. “Mixing it with the energy corn makes it easier to handle.”
At the Plant
PHOTO: JIM EKENSTEDT, DENCO II
The Denco II LLC ethanol plant located in Morris, Minn., will begin an Enogen corn technology trial a few months after harvest, says Mick Miller, president of Energetix LLC, which manages that ethanol plant and others. “Being able to procure your enzymes from the field is a very, very cool and unique thing,” he says. “We looked at it as, it’s the next step for enzyme improvement.” The three-month trial is conducted in three parts, starting with a baseline evaluation followed by use of Enogen corn and ending with another post-Enogen corn evaluation. Miller is excited about the potential for the company. “If the Enogen corn brings value to our plant, we’re willing to work harder to capture that value and in today’s environment I think most producers are in that same boat,” he says. “What can we do, where can we put more effort in order to capture value in our facility?” In appraising the results of the trial, the company will carefully consider a long list of key performance indicators. That
includes but isn’t limited to yield, energy use, water and chemical consumption, fermentation performance, residual starch measurements and corn oil yields. “ Y o u name it,” he says, “we’ll be looking at pretty much everything.” Ethanol plants use about 10 to 20 percent Enogen corn, depending on the facility, and the rest is regular No. 2 corn. “We go into the plant and we work to adjust the blend of Enogen corn, which is really the enzyme, to what is the optimal dosage rate for that plant, the way that plant operates,” Witherspoon says. Data gathered using a propriety model during testing at an ethanol plant showed Enogen corn could result in very positive results for a 100 MMgy ethanol plant, the company says. On an annual basis, that includes potential savings of 68 million gallons of water, 10 million kilowatt hours of electricity, 350 billion Btus of natural gas and 100 pounds of CO2 emissions. Compare that to the numbers provided to EPM for a story published in the May 2011 issue, which included savings of 450,000 gallons of water, 1.3 million kilowatt hours of electricity and 244 billion Btus of natural gas, numbers that were significantly lower than the more recent figures. One of the main benefits of using Enogen corn is its power to change viscos-
Testing 1, 2, 3 Denco II LLC, a 24 MMgy ethanol plant in Morris, Minn., is conducting a three-month technology trial of Enogen corn after harvest.
34 | Ethanol Producer Magazine | OCTOBER 2013
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Family Business The Doxtad family, including, from left to right, Emily, Stella and James, is grateful for the opportunity to plant Enogen corn, James Doxtad said. PHOTO: CHRISTINA KJAR
ity in the plant. In other words, the slurry going through the plant is transformed from a gel-like substance to more like water. “The enzyme mechanics, or how it how it hydrolyzes starch is very different from any other enzyme,” he says. That makes it easier to pump through the plant, saving energy and reducing wear and tear on plant equipment. This also allows the facility to reduce water and increase solids, resulting in more fermentable material and more efficient ethanol production. The hybrid has another benefit on the corn-delivery side, Witherspoon says. Working directly with corn producers to contract for Enogen corn acres helps ethanol plants develop better working relationships with their corn suppliers. “Ethanol plants generally want to get closer to growers, they want access to corn, they want options for access to corn, and not only Enogen corn but other corn,” he says. Miller talked about this angle as well. Denco II already procures corn directly from corn growers and has been working to increase that yearly because it helps them get access to the best quality corn. If the ethanol plant does end up signing a commercial contract with Syngenta, the Enogen corn program will only push the company further along in that goal. “We’re interested in procuring as much corn as we can from the producer, direct,” he says. “We see it as a very, very good fit between the producer and the plant.”
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OCTOBER 2013 | Ethanol Producer Magazine | 35
OUTLOOK
PHOTO: SUSANNE RETKA SCHILL, BBI INTERNATIONAL
36 | Ethanol Producer Magazine | OCTOBER 2013
OUTLOOK
Uneven
CROP, S HIFTING MARKETS
Considering the prospects for the corn and ethanol markets ahead. BY SUSANNE RETKA SCHILL
The 2013 corn crop is likely to present harvest and quality challenges, but it will be most welcome after last year’s drought-reduced production. By all reckoning, it will be a big crop—though not as large as initially projected—and, after the hot, dry August in the heart of the Corn Belt, some states' prospects for binbusting crops weakened. While the final crop numbers were still a moving target at press time, the wet, late spring resulted in uneven tasseling, signaling uneven maturity at harvest. “It’s a very uneven crop,” says Bruce Babcock, the Cargill endowed chair of energy economics at Iowa State University. “It’s going to be a late crop and it’s going to take a lot of propane to dry.” There is likely to be plenty of bushels, however, he adds. With many reports of uneven stands in important corn production areas, the team with Genscape LandViewer sent soil consultant Randy Darr trekking across the Corn Belt this summer to take a closer look. In an early August webinar Darr said the 2013 crop looked tremendous. “However, it is the 6th of August and not the 6th of July. It would be perfect if it were a month earlier.” Northern Iowa and southern Minnesota experienced the biggest issues with late seeding, while the bright spots in his midsummer trip were Indiana and Ohio. Then, the weather turned dry once again. Darrel Good, agricultural economist with the University of Illinois, reports the average precipitation across Indiana, Illinois and Iowa in August was the lowest since records began in 1895. The same sort of rationing that occurred after last year’s severe drought reduced the total crop to 10.78 billion bushels is not likely to occur. “Assuming
OCTOBER 2013 | Ethanol Producer Magazine | 37
OUTLOOK
that the size of the market is near the USDA projection of 12.675 billion bushels and that year-ending stocks can be reduced to about 6 percent of consumption, the crop would have to be less than 12.7 billion bushels to require rationing. If the harvested area is near the forecast of 89.1 million acres, the U.S. average yield would need to be less than 142.5 bushels to produce a crop less than 12.7 billion bushels.” Indeed, in its September report, USDA upped its projected average corn yield to 155.3 bushels per acre for 13.845 billion bushels total, saying good yields in the South would offset reductions elsewhere. In early September, though, the LandViewer team was more pessimistic, forecasting 12.69 billion bushels. LandViewer was developed by University of Illinois’s Steffen Mueller and Ken Copenhaver, who worked with NASA on satellite-based remote sensing technologies for agriculture. Algorithms are used to bring together satellite imagery with weather data to apply 27 data
38 | Ethanol Producer Magazine | OCTOBER 2013
points such as growing degree days, night time temperatures and ground-truthing to assess crop development for projections. The team aims to provide ethanol producers with real-time information on crop prospects in a facility’s corn draw area. Right now, USDA’s projections are generally given as national numbers and state and county data isn’t available until months after harvest.
Late, Wet Quality
While the corn supply should not be an issue this year, the quality may be. The 2013 crop is being compared to 2009. “That was a wet crop and the quality was really bad,” recalls Babcock. “The problem this year is there isn’t much old crop to blend it out with.” In 2009, damaged corn with low test weight didn’t have a significant impact on yield, ISU corn quality expert Charles Hurburgh told Ethanol Producer Magazine, but did mean more spoilage in storage. In fact, low-test-weight corn can be lower in
protein, translating into higher ethanol yields. The late, wet crop that year also increased vomitoxin levels, which were important to monitor closely lest they got concentrated in the distillers grains above acceptable levels. In 2010, the National Corn-to-Ethanol Research Center did a study of corn damaged by mold and excessive heat during drying, using samples of 2009-’10 season corn supplied by Illinois River Energy LLC. The 100 percent undamaged corn yielded 3 percent more ethanol, or about 0.08 gallons per bushel. Using 8 percent damaged corn, the maximum allowed for No. 2 corn, resulted in a 0.014-gallonsper-bushel yield decrease while 22 percent damaged corn, the maximum for No. 5, added up to a 0.032-gallons-per-bushel yield loss. The study showed that, up to a certain point, it didn’t hurt to utilize damaged corn as an ethanol feedstock—as long as the plant purchased it at a discounted rate, said NCERC researcher Sabrina Trupia, in reporting the research results. As the mixture
OUTLOOK
Shifting Estimates In September, Genscape LandViewer released a map showing predicted change in corn production from 2012 to this year, based on its September yield model and predicted acres (in 1,000s of bushels). SOURCE: LANDVIEWER
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OUTLOOK
reached 50-50 ratio, however, it did start to matter. Monitoring the quality of more adequate corn supplies will be a most welcome change among corn producers who either ran out of local corn last year, or watched the basis swing widely. Basis is the spread between a local cash price and the futures, a number that in normal times is under the Chicago futures price to reflect transportation costs, although it also indicates local demand. In central Illinois, Good says the basis swung as much as $1, from 50 cents under, when looking at the January 2012 cash price compared to July 2013. “By June of 2013, that basis was 50 cents over.”
Demand Driver
The market dynamics dominated by 2012’s drought-reduced crop illustrates several shifts occurring in the corn market, with long-term implications. In past short crops, Good says, rationing happened in the domestic feed and residual market segment, which reduced its corn use while export use stayed strong. This past cycle, it was the export sector that drastically reduced consumption, turning to other countries around the globe with growing corn supplies, while domestic feed and residual consumption surprised many by staying relatively strong. With the new crop expected to be fairly large and the global corn crop expected to set a new record, “prices will be at the mercy of demand,” Good says. While the average farm price will likely be higher than expected in midsummer, the sharp increases seen in the previous year to ration supplies won’t likely be necessary this year. Reviewing each demand sector, Good reports there’s talk about expanded broiler and hog numbers in response to the prospect of lower corn prices. “Maybe we can get feed consumption back up to the 5 billion-bushellevel, which we haven’t seen for four years.” That, it should be noted, doesn’t include distillers grains, so it would actually be a much larger expansion in feed demand. Exports will rebound, he continues, having dropped to about 700 million bushels during the marketing year just ended, the lowest level in 40 years. “It’s hard to pin down 40 | Ethanol Producer Magazine | OCTOBER 2013
‘I think the American farmer has demonstrated repeatedly over time the ability to outproduce the market. I believe the long-term trend for corn prices is lower, just because of that proclivity.’ —Bruce Babcock, the Cargill endowed chair of energy economics at Iowa State University
where exports will be, bigger than last year, but not to where we were at,” he says. “We got accustomed to 1.8 to 1.9 billion bushels; USDA is expecting 1.2 at this point,” he says of the August projections. U.S. corn producers can expect more global competition in corn exports going forward. “When, in the early '70s, commodity prices moved higher, we did see the world expand corn acres quite a bit,” Good recalls. “When prices dropped, those acres didn’t go away. In 2005-’06 we saw another bump up that didn’t disappear and the expectation is that current acres won’t go away either.” Global corn producers are much like U.S. farmers, he adds. “If corn goes back to $4, we’ll still probably plant all of our land. We won’t leave anything idle.” After growing quickly for the past five years, corn use for ethanol production is leveling off due to reaching the blend wall. “We saw ethanol use backtrack this year. We’ve exported less ethanol and drawn down inventories, but we haven’t reduced domestic consumption,” Good says in summarizing the year. Looking ahead, he says, “We’ll see an uptick next year. We won’t draw down inventories much further and we expect a modest increase in E85.”
Bullish on Ethanol
Babcock is more optimistic about the potential for E85 consumption to grow. If corn prices stay low and gasoline prices stay high, E85 should be attractively priced. He’s bullish on the future of ethanol, too. “If crude oil stays at $90 to $100 a barrel, I think there’s a market for all of the corn ethanol that we can produce,” he says. “You have to get the cost of production down first, and it sure looks like we’re headed that way.” “I think the American farmer has demonstrated repeatedly over time the
OUTLOOK
Get The Most Accurate Local Corn Forecast Uneven Harvest The late, wet spring resulted in uneven corn stands. With part of the crop planted late, overdried corn and molds may be an issue this year as in 2009. PHOTO: SUSANNE RETKA SCHILL, BBI INTERNATIONAL
ability to outproduce the market,” Babcock continues. “I believe the long-term trend for corn prices is lower, just because of that proclivity. There’s lots of production possibility in other countries and U.S. farmers can produce a lot more. The strategy corn farmers ought to be looking at is to create more demand base through flex vehicles.” Growth in feed demand is limited, he explains. “People are reducing their beef consumption, which is a big user of corn, and dairy consumption isn’t growing. Meat consumption in China is primarily pork and chicken, and that’s a steady, but slowgrowing market. History has shown that corn producers outproduce their market, so I’d be focusing on ethanol market development.” With west Texas intermediate crude oil prices at $106 for October as of midAugust, and corn likely to be around $4.50 to the upper $4 level, Babcock says, “that’s a
signal to produce all-out on ethanol. I think when the new crop comes in, the ethanol plants are going to be running and making some money. And, I think the export market will be bright.” He stresses that the price advantage opportunity when corn is cheap and crude oil is high is going to drive ethanol production higher. “I think in the next five years, if the United States isn’t going to expand ethanol production, somebody else will. I’m thinking Brazil and Argentina, and perhaps coarse-grain-for-ethanol in eastern and central Europe. You can’t have cheap grain and very expensive petroleum. You can’t do it. Someone will take advantage of that, take the arbitrage opportunity and make some money.” Author: Susanne Retka Schill Senior Editior, Ethanol Producer Magazine sretkaschill@bbiinternational.com 701-738-4922
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Q&A
Corn Grower in Chief Rick Tolman examines stereotypes, praises NASCAR as industry spokespeople and pushes for a 300-bushel national yield average, as head of the National Corn Growers Association. INTERVIEW BY TIM PORTZ In late July, membership of the 56-year-old National Corn Growers Association topped 40,000, strong evidence of the organization’s relevance. Leading this enormous group of producers is CEO Rick Tolman. With corn yields trending upward, he doesn’t hesitate to point to the ethanol industry as a key driver in the innovation, growth and discovery occurring in corn production and conversion.
You and the NCGA do an incredible job educating the public about conventional agriculture and how it actually all works. Why do you think the general public struggles to understand modern agriculture? I think there are a couple of reasons. One is that by now most people are two, three or four generations removed from the farm. I think the other thing is we all eat three square meals a day—or at least we hope we all do—so it’s a very emotional thing. We are very concerned about what we eat, about our health, the health of our children and our grandchildren and so it is one of those areas where you want to be aware of what you are putting into your body. It becomes one of those levers that people who want to get you upset can easily use because it is such an emotional issue. What we’ve found is that while consumers trust farmers, they don’t trust farming. We just have to do a better job helping them understand what today’s farming is all about and that it still embodies the same principles that they remember of the farmer with pitchfork and the overalls.
42 | Ethanol Producer Magazine | OCTOBER 2013
The NCGA has invested in the American Ethanol brand. Can you talk about the importance of this effort in educating a broader audience about the value of the corn ethanol industry? We think the American Ethanol program is one of the best things we’ve ever done. We’ve had a lot of partners that we’ve done things with over the years and I can’t think of a better one than the one we have in NASCAR, in terms of delivering more than what you think you’ve signed up for. Our goal was to be able to have a venue where we could tell the ethanol story through a credible third party, and that third party is NASCAR. It has worked very well. NASCAR drivers and mechanics say, “Ethanol is a good thing. We run it in our hundred thousand dollar engines. You can run it in your engine. E15 works great. We’re getting reasonable mileage. We’ve run 4 million miles on it.” Et cetera. When hard-core NASCAR fans hear that, no problem, they’re on board.
economic presence in the nation, but it is lightly represented in Congress and among people. The food stamp piece was a way to pull the two constituencies together. We think it was a mistake and we hope it gets put back together, but it is a significant departure from what has been done historically.
How vital is the renewable fuel standard (RFS) to your constituents and American agriculture in general? Keeping the renewable fuel standard intact is one of our top, if not our top, priority right now. The reason is, it has been so beneficial not only to corn producers but to all of American agriculture. I think if you look back at the last five years when RFS2 really kicked in, we’ve had, I would argue, no better economic time period for all of agriculture than we’ve ever had despite droughts, despite all kinds of things that have gone on.
How significant is the splitting of the farm bill in the history of this piece of public policy?
Can you compare and put into context the continuing research in corn utilization in the biofuels segment and other segments that use corn?
It is very significant. Historically the reason those two programs were put together is that the farm bill has traditionally been a bipartisan, urban and rural supported piece of legislation. Unfortunately we are kind of in a new era in Congress where even this bill is not bipartisan. There is partisan bickering, partisan politics, so the splitting is—I don’t think—so much a commentary on the farm bill and food stamps as it is a commentary on partisan politics. Agriculture is a big
I think the biofuels industry is one of the most innovative industries that I am aware of in agriculture and probably anywhere else. There is innovation and change going on every day, and I think it happens so quickly that people have gotten immune to it and aren’t recognizing or giving out credit for the things that are happening. Take corn oil extraction, three years ago that was kind of a pipe dream, people were talking about it,
Q&A
and now it is pretty mainstream in the industry. That’s a pretty short time period for that to have happened.
sandy portion or a hill and you adapt your planting rates and your hybrids to maximize your opportunity. That whole technology, which is embodied in precision farming, is just starting to come into its own. So, I think we are on the verge of moving up to another plateau and I think 300-bushel national average is certainly within reach in my lifetime.
In virtually every measurable category the environmental impact of corn production is going down. What is really driving these gains in efficiency?
Last year, your constituents dealt with pervasive drought. This summer has been unseasonably cool but now we’re seeing a “flash drought” in some areas. Some analysts had been predicting a crop of more than14 billion bushels. Where do you think this year’s harvest is likely to come in?
Corn yields have risen sharply since the 1940s. Do you think you’ll see 300-bushel averages in your lifetime? I do. What is really exciting right now is there is a way of thinking differently than we have before about the field as a laboratory and what are all the variables that impact yield, not just the seed and fertilizer. What about soil health, variable planting, variable rates, changing hybrids for soil types even in the same field? You have a
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First of all, I want to make a point that, in my opinion, the farmer is the ultimate environmentalist. The second thing is, they are also businessmen and they respond to a profit incentive, so there is also a constant pressure to increase yields and reduce inputs. As we have been able to increase yield, we’ve been able to do that by holding inputs the same or reducing them and getting more output per input. That really fits well with sustainability and with environmental concerns but also with net income and profitability. It makes no sense to be sustainable if you aren’t making any money. You aren’t really sustainable. You aren’t going to be around very long.
We’ve had a lot of variability in weather, when it seems like no year is the same. This year, the crop is late because in most places it was put in late because of the wet spring and there was a lot of replanting taking place. Then, we’ve had relatively cool temperatures across the Corn Belt this summer so we haven’t had the heat units to get the corn to catch up and mature. Next, we had hot and dry weather in several key corn states. All that being said, we are still looking at a very strong harvest, especially compared to 2012. We’re not so optimistic we’ll get to 14 billion bushels because we’ve had some of the top end taken out but we think it will be a really strong harvest this year that can boost our supply.
OCTOBER 2013 | Ethanol Producer Magazine | 43
HISTORICAL COMPARISON
44 | Ethanol Producer Magazine | OCTOBER 2013
HISTORICAL COMPARISON
Tides of Prosperity, Past and Present Stepping back to compare the agricultural boom of the 1970s to the current period brings new perspective to the discussions swirling around food, fuel and the environment. BY CHRIS HANSON
After the ebbing of the tide of agricultural prosperity in the 1970s, the rural economy has again prospered in recent years. The current period of farm prosperity has many characteristics that are both similar to and distinct from the last period of prosperity, says Carl Zulauf, economics professor at Ohio State University. In a series of analyses titled, â&#x20AC;&#x153;Comparing Current and 1970 Farm Prosperity,â&#x20AC;? published in the FarmDocDaily e-newsletter, Zulauf outlines what makes the early 21st century a successful era for U.S. agriculture by comparing it to the 1970s period of prosperity. Facets of the current period include rising crop prices, relatively stable ratios of farm real estate to net cash income, gradually increasing farm expenses, growing food demand in China and a balancing act
OCTOBER 2013 | Ethanol Producer Magazine | 45
HISTORICAL COMPARISON
between crop production and environmental services. Paul Bertels, vice president of production and utilization for National Corn Growers Association, agrees that the U.S. is currently in an agriculture prosperity period. “If you look at overall wealth growth in the ag community, it has really gone up over the last three to five years.”
Multiple Market Drivers Similar to the 1970s period of prosperity, Zulauf says that in 2012 crop prices increased by roughly 200 percent, which he attributes to China’s growing demand for U.S. soybeans, the increase of crop-derived biofuel production and poor crop growing conditions. China’s contribution to the current era of prosperity is often overlooked. Zulauf points out China’s consumption has grown steadily the past 33 years. China’s calorie consumption was 68 percent of the top 10 countries with the highest per capita income in 1980, whereas it was 87 percent in 2009. Furthermore, China’s per capita vegetable oil intake increased from 25 percent in 1980 to 52 percent in 2009. Zulauf credits this growing demand as one of the key influences behind the current prosperity period and
Driving Prosperity The current period of prosperity, driven by the combined factors of China's soybean purchases, biofuel demand and below-trend crops, has lasted longer than the last such period in the 1970s. PHOTO: JOHN DEERE
rising crop prices; however, he notes China’s demand for food may grow at a slower pace in the future, thus pushing prices lower. “What a lot of people overlook, particularly what’s been driving soybeans, is just about every year we’ve set a record for exporting soybeans to China, which has been keeping soybean prices up,” Bertels concurs. “If you have $7 corn and $11 beans, you would plant so much more corn, but the Chinese have been out here buying soybeans, keeping that price up, and you kind of hit
.equilibrium of sorts in corn vs. soybean acreage.” Biofuel production, which was not a factor in the '70s, is another major driver of the current farm prosperity period. Zulauf explains that having two drivers may be the reason for the current period’s longer, increasing crop pricing trend, compared to the 1970s. He notes ethanol’s share of the total U.S. corn harvest reached 5 percent in 2001, increasing to 29 percent in 2012, despite the worst drought in decades.
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46 | Ethanol Producer Magazine | OCTOBER 2013
HISTORICAL COMPARISON
Comparing the two drivers, Zulauf says Chinaâ&#x20AC;&#x2122;s soybean demand began growing during the mid-'90s, whereas corn ethanol demand started increasing in the early 2000s. In 2005, just before the start of the current period of prosperity, Chinaâ&#x20AC;&#x2122;s soybean imports were equal to 31 million U.S. acres, whereas ethanolâ&#x20AC;&#x2122;s demand was only 8 million acres of corn. Then between 2005 and 2012, ethanolâ&#x20AC;&#x2122;s demand for corn increased to 27 million acres and Chinaâ&#x20AC;&#x2122;s demand for soybean doubled to nearly 62 million acres.
Tri-polar Dynamics The dynamic between food, fuel and environmental services in the 1970s compared to the current period of farming prosperity is notable. In the '70s, there was a significant increase in acres planted in the U.S. for various crops, such as corn, soybeans and wheat, which has not happened in the current era, Zulaf says. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s been an increase, but itâ&#x20AC;&#x2122;s much, much smaller in magnitude. In the '70s, we released all this
'If we see $4 corn and we see a very sharp demand increase because of that, we have a very different situation than if we see $4 corn and we donâ&#x20AC;&#x2122;t see much of an expansion in demand.' â&#x20AC;&#x201D;Carl Zulauf, economics professor at Ohio State University
excess capacity that we had from the set-aside programs, and furthermore, farmers added a significant number of new acres either by converting wooded land or pastures, et cetera. We did not see that this time.â&#x20AC;? Although Conservation Reserve Program acres are decreasing, Zulauf says he has not seen woodland and pasture conversions in his area. â&#x20AC;&#x153;One of the explanations for that is the wetland reserve program and the sodbuster provisions that were put into place in the 1985 Farm Bill,â&#x20AC;? he says. â&#x20AC;&#x153;And so, if you step back and think about whatâ&#x20AC;&#x2122;s going on in a broader policy perspective, U.S. society has said, â&#x20AC;&#x2DC;We value
these programs and we continue to value them, even though prices are high.â&#x20AC;&#x2122;â&#x20AC;? CRP began as a way to reduce grain supplies, Bertels says. â&#x20AC;&#x153;The thought was if we pay farmers a reasonable rent on marginally productive land, that land will come out of production and weâ&#x20AC;&#x2122;ll be able to control supply more efficiently.â&#x20AC;? Since the implementation of the program, Bertels says it has evolved into more of an environmental service concept. The recent improvements to the program that target areas with the highest environmental benefits, such as allowing farmers to continuously register areas alongside streambeds is an example, he says.
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OCTOBER 2013 | Ethanol Producer Magazine | 47
HISTORICAL COMPARISON
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‘Imagine if you kill one of these huge demand drivers for grain. There’s no guarantee that another demand will step up to take its place and you’ll see corn retreat well below $4.’ —Paul Bertels, NCGA vice president of production and utilization.
With current funding issues, Bertels expects some land now in CRP will likely become ineligible in the future, while keeping the most environmentally beneficial land in CRP. He adds that the acres coming out of CRP production have mostly been for wheat production. While it is fairly common to speak of a food vs. fuel dilemma, Zulauf says a discussion about the food, fuel and environment is a much richer and broader discussion. “We could have decided to release all the acres in CRP, to set aside the sodbuster provision, to have set aside the wetland conversion provisions, and we chose not to do that.”
When Will the Tide Recede? Projections of $4 and $5 corn prices in response to bumper corn crops might affect the current prosperity period. Although he is normally asked about $4 corn, Zulauf says it would be an “easy answer” to say it would signal the end of the current period of prosperity. History and economics dictate that it would be a situation of wait and see how demand responds. “If we see $4 corn and we see a very sharp demand increase because of that, we have a very different situation than if we see $4 corn and we don’t see much of an expansion in demand,” he explains. Other factors such as weather patterns, growing exports and farming expansion can also affect the current prosperity period,
Zulauf says. “I think the honest answer is it depends critically on what happens next year. If we have two or three years of really good production and sort of mediocre demand expansion, we are in a different world than where we are now.” Bertels says political uncertainty, such as the Farm Bill situation, might also hinder the current prosperity period. With reduced Farm Bill payments and crop insurance support, some farmers may look towards banks for production loans, which could result in being denied, or higher interest rates to cover the risk. “That can quickly cause a lot of problems in the farming community,” he says. With agriculture a capital intensive industry, the potential for higher interest rates creates uncertainty. Crop insurance has really become the farm program, particularly for corn and soybean producers, he adds. “Threats to that can become really detrimental to production agriculture.” Success in the efforts to repeal the renewable fuel standard (RFS) would also cause the prosperity tide to roll back. If the RFS is repealed, Bertels believes the petroleum industry would continue blending for a while, until the economics were no longer favorable. “Just remember what commodity prices were like in 1999 through 2004,” he says. “You had corn routinely run at about $2 a bushel, soybeans were running $4.50 to $5 a bushel. Wheat was running about $3 a bushel. So imagine if you kill one of these huge demand drivers for grain. There’s no guarantee that another demand will step up to take its place and you’ll see corn retreat well below $4.” Author: Chris Hanson Staff Writer, Ethanol Producer Magazine chanson@bbiinternational.com 701-738-4970
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POLICY
CONTRIBUTION
Analyzing the Influence of Energy Policy Five years in, the impact of federal energy legislation on commodity and retail food prices is measured. BY JAKE FERRIS
Now that the Energy Indepen- &KDQJHV LQ &3, ,QGH[ IRU $OO )RRGV 7$%/( dence and Security Act of 2007 has 3HUFHQW FKDQJH IURP RQH ILYH \HDU LQWHUYDO FRPSDUHG WR SUHYLRXV ILYH \HDU DYHUDJH been in effect for more than five years, we have more information available to assess its effectiveness and the impact this u and earlier federal energy legislation have u u had on the prices of food commodities and u U.S. retail food prices. Weâ&#x20AC;&#x2122;ll address five 2007 revision (RFS2), a regression equation questions: was based on the Renewable Fuels Associa1. Have retail food prices actually ac- tionâ&#x20AC;&#x2122;s database for capacity under construccelerated upward in the past five years? tion or expansion from 1990 to 2013 as of Yes, they have. This is evident in Table 1, Jan. 1 of each year. The independent variwhich presents the percentage point chang- ables were: 1) real profits the previous year es in the Bureau of Labor Statisticsâ&#x20AC;&#x2122; Con- for a typical dry mill plant and 2) the RFS1 sumer Price Index for All Food from one or RFS2 two years prior. Applying this five-year average to the next since 1983-â&#x20AC;&#x2122;87. equation, with reduced profits equivalent Somewhat remarkable is that these changes to ethanolâ&#x20AC;&#x2122;s excise tax exemption/blendersâ&#x20AC;&#x2122; were very close to 20 percentage points until tax credit and with the elimination of the 2008-â&#x20AC;&#x2122;12. The five-year average for 2008- RFS1 and RFS2, cut the intended capacity â&#x20AC;&#x2122;12 was 31.6 percentage points above 2003- under construction or expansion in 2007 â&#x20AC;&#x2122;07â&#x20AC;&#x201D;about 50 percent more than for the in half with no increase after 2007. The conclusion is that EISA was responsible for previous periods going back to 1983-â&#x20AC;&#x2122;87. as much as 80 percent of the expansion in ethanol production in 2007-'12.
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measure the impact. The focus is on the five crop years of 2007-â&#x20AC;&#x2122;11 compared to the five crop years of 2001-â&#x20AC;&#x2122;05 when farm prices for corn hovered around $2 per bushel. Table 2 indicates the absolute and percent changes for key agricultural commodity prices between these two five-year periods. The ending stocks of corn dropped from 15.4 percent of utilization in 2001â&#x20AC;&#x2122;05 to 11.6 percent in 2007-â&#x20AC;&#x2122;11, ranging in the latter period from 7.9 to 13.9 percent. Only two years from 1960 to 2006 had carryovers less than 7.9 percent and in only nine years below 13.9 percent. In other words, in 2007-â&#x20AC;&#x2122;11, ending stocks were at pipeline levels, just enough to provide the transition between crop years. For 2. Was the EISA the major reason eththat reason, corn prices were very sensitive anol production capacity increased in 3. Was the expansion in ethanol pro- to changing supply-demand balances. The 2007-â&#x20AC;&#x2122;12? duction the driving force in the sharp change in stock levels from 2001-â&#x20AC;&#x2122;05 acYes. To measure the extent to which the increase in commodity prices? counted for about $1.28 of the $2.49 per ethanol industry responded to profits and to It was the major cause. The problem is to bushel increase in corn prices (Table 2)â&#x20AC;&#x201D; the renewable fuel standard (RFS1) and its just over 50 percent. About 18 cents per bushel can be attributed to breakeven corn prices for ethanol production, which tended The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article to be above the market. should be directed to the author(s).
50 | Ethanol Producer Magazine | OCTOBER 2013
POLICY Jeff Wald, CEO, Kennedy and Coe
While farmers responded well to the higher corn prices in expanding harvested acreage by 15 percent, they also incurred higher production costs, mostly due to higher energy prices. About 75 cents per bushel, or 30 percent, of the $2.49 per bushel increase in corn prices can be traced to higher variable costs of production. Adding $1.28 per bushel for ending stocks, 18 cents per bushel for ethanol returns and 75 cents per bushel for higher production costs equals $2.21 out of the $2.49 per bushel increase in corn prices. This leaves 28 cents per bushel unexplained. A small part might be attributed to a weak dollar, which encouraged exports, but most of the 28 cents could be considered as speculation. A caveat is the difficulty in separating speculation from the increased inelasticity of demand when supplies are at pipeline levels.
4. How much did the increase in food commodity prices contribute to higher retail food prices? To measure the impact of higher food commodity prices on retail food prices, the calendar years of 2008-’12 were compared with 2002-’06. Even with higher feed costs, livestock producers expanded between these two periods. This includes beef, pork, broilers, turkeys, eggs and milk. Adjustments were made, and livestock prices did increase. Somewhat remarkable was that, except for milk, the increases in livestock prices were almost identical (one-to-one) to the increase in feed costs per hundredweight (cwt.), pound or dozen. Of course, these comparisons are in nominal terms and do not reflect general cost inflation. For broilers, turkeys and eggs, adjustments
Higher commodity prices added about 4.4 percent to food prices at home and about 3.0 percent to food prices away from home for a total of 3.80 percent. could be made in a relatively short time, so real gross margins over feed costs were about the same in 2008-’12 as in 2002-’06. For hogs, real gross margins were down about $3.50 per cwt. For cattle feeding and dairy, where adjustments take more time, real gross margins on cattle feeding were down about $6.35 per cwt. and for milk down about $2.30 per cwt. To put these changes in perspective, livestock producers were benefitting from $2.15 per bushel corn in crop years 2001-’05. Also, increased feeding of distillers grains replaced 80 percent of the reduction in feeding of corn in energy equivalents and offset a small reduction in the feeding of soybean meal in protein equivalents by a substantial margin. To link both crop and livestock prices to retail food prices, a portion of an econometric model of U.S. agriculture called AGMOD was employed. The analytical procedure used was to compare five-year average food prices in calendar 2008-’12, as measured by the Consumer Price Index of the U.S. Department of Labor, with the five-year average for 2002-’06 and determine the extent to which agricultural prices contributed to the increase. In the food price sector, statistical regression equations generated forecasts of 17 major CPI classifications of food consumed at home, which were translated to food consumed away
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from home and the combined index of all food. Each equation includes the price of the relevant agricultural commodity and an indicator of general inflation to measure the marketing spread between the farm or wholesale agricultural commodity price and the retail price. The regression estimates were based on annual data, typically going back to the 1970s. For example, the equation for pork includes: 1) the price of barrows and gilts and 2) the Chained Price Index for the Gross Domestic Productâ&#x20AC;&#x2122;s Personal Consumption Expenditures of the U.S. Department of Commerce, an indicator of inflation, which accounts for the marketing spread between wholesale hog prices and the retail price of pork. The equation
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for cereals and bakery products includes the farm price of wheat and the Gdppipce. The equation for salad dressing includes the wholesale price of soybean oil and the
Gdppipce. The results are displayed in Table 3. Retail food prices at home and away from home both increased about 20 percent between 2002-â&#x20AC;&#x2122;06 and 2008-â&#x20AC;&#x2122;12 as did the total (19.90 percent). Higher commodity prices added about 4.4 percent to food prices at home and about 3.0 percent to food prices away from home for a total of 3.80 percent. Viewed in another way, the 3.80 percent was 19.1 percent of the 19.9 percent hike in the CPI index for total food. As covered in Question 3, part of the increase in commodity prices can be attributed to higher production costs. This takes a percentage point off the 3.80 percent to 2.77 percent, basically transferring the impact of EISA more to crude oil prices, which doubled between the two periods.
5. What credit should be given to EISA for reducing costs of the U.S. farm program in 2007-â&#x20AC;&#x2122;11 and years to come? The higher commodity prices have reduced the costs of the federal farm programs, amounting to nearly $3.5 billion annually in crop years 2007-â&#x20AC;&#x2122;11. With the likely elimination of the direct payment feature in new farm legislation, billions more will be saved. Factoring in these savings, the conclusion is that EISA has had and will continue to have a minor impact on U.S. retail food prices, less than 2.5 percent. Details are in Staff Paper 2013-02 of the Department of Agricultural, Food and Resource Economics at Michigan State University entitled, â&#x20AC;&#x153;Impacts of the Federal Energy Acts and Other Influences on Prices of Agricultural Commodities and Food.â&#x20AC;? For a copy go to http://purl. umn.edu/150245. Author: Jake Ferris Professor Emeritus, Department of Agricultural, Food and Resource Economics Michigan State University Phone 517-337-2955 jakemax33@comcast.net
52 | Ethanol Producer Magazine | OCTOBER 2013
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Nationwide Boiler Incorporated 800-227-1966 www.nationwideboiler.com
Cellulosic Pretreatment erisolutions.com
Vecoplan, LLC 336-861-6070
www.VecoplanLLC.com
Feasibility Studies
Control Systems
BBI Consulting Services 866-746-8385 www.bbiinternational.com
ICM, Inc. 877-456-8588
Plant Optimization
Cooling Towers
ICM, Inc. 877-456-8588
Tower Performance, Inc. 800-314-1695 www.coolingtowercomponents.com
www.icminc.com
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Maintenance Software ICM, Inc. 877-456-8588
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OCTOBER 2013 | Ethanol Producer Magazine | 55
EPM MARKETPLACE Molecular Sieves ICM, Inc. 877-456-8588
www.icminc.com
Interra Global 847-292-8600
www.interraglobal.com
Vogelbusch USA, Inc. 713-461-7374
www.vbusa.com
Non Destructive Testing ERI Solutions, Inc. 316-927-4294
Size Reduction-Shredders
Vacuum Breakers
Vecoplan, LLC 336-861-6070
Vogelbusch USA, Inc. 713-461-7374
www.VecoplanLLC.com
Storage-DDGS Hoffmann, Inc. 563-263-4733
erisolutions.com
Paint & Protective Coatings Elevation Coating, LLC 763-742-2067 www.elevationcoating.com
Wastewater Treatment Services www.hoffmanninc.com
Tanks Agra Industries, Inc. 715-536-9584
www.agraind.com
Thermal Oxidizers Koch Knight LLC 330-488-1651
www.kochknight.com
www.icminc.com
Safety ERI Solutions, Inc. 316-927-4294
Truck Receiving/Dumpers erisolutions.com
Silo Cleaning
www.icminc.com
Wastewater Treatment Buckman 800-937-5548
www.buckman.com
Finance
The Specialist in Biofuels Plant Appraisals
www.icminc.com
Productivity Enhancements ICM, Inc. 877-456-8588
ICM, Inc. 877-456-8588
Appraisals
Parts & Services ICM, Inc. 877-456-8588
www.vbusa.com
Airoflex Equipment 563-264-8066 www.airoflexequipment.com
Used Equipment
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â&#x20AC;˘ Valuation for financing â&#x20AC;˘ Establishing an asking price â&#x20AC;˘ Partial interest valuation Few certified appraisers in the United States specialize in ethanol plant and related biofuels properties. The firm of Natwick Associates offers more than 50 years of worldwide experience.
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Call us for a free, no-obligation consulation today.
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Insurance ERI Solutions, Inc. 316-927-4294
erisolutions.com
Lender Representatives BBI Consulting Services 866-746-8385 www.bbiinternational.com
EPM MARKETPLACE Legal Services Attorneys BrownWinick Law Firm 515-242-2414 johnson@brownwinick.com
Marketing
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Put BetaTecÂŽ natural hop extracts to work in your fermentation process to replace antibiotics and enhance yeast propagation. IsoStabÂŽ is the natural way to effectively control gram-positive bacteria while eliminating antibiotics and harsh chemicals. Plus, antibiotic-free DDGS adds value to your co-products. VitaHopÂŽ Silver yeast nutrient enhances yeast performance and vitality, inducing faster fermentations and larger yields. Combined with BetaTecÂŽ fermentation expertise and training, these technologies will significantly increase your plantâ&#x20AC;&#x2122;s efficiency. BetaTecÂŽâ&#x20AC;Śthe natural hop to higher profits. For more information specific to fuel ethanol producers, visit www.bthp.info. 4HJ(Y[O\Y )S]K :\P[L >HZOPUN[VU +* ;! -! www.betatechopproducts.com