2015 February Ethanol Producer Magazine by BBI International

INSIDE: BRAZIL SCORES TRUE FLEX-FUEL CAR FEBRUARY 2015

EXPORTS Reaching For 1 Billion Gallons Page 28

Chinaâ&#x20AC;&#x2122;s Impact on DDGS World Page 34

New Partnerships in Market Development Page 44

www.ethanolproducer.com

THIS HOLIDAY SEASON, WE HAVE A LOT TO BE THANKFUL FOR.

THANKS FOR BEING SOME OF THE FIRST RETAILERS TO OFFER E15. Growth Energy commends CENEX, MAPCO, Minnoco, Protec Fuel and Petro Serve USA for their pioneering spirit and their efforts to expand consumer access to higher blends of renewable fuels. They are offering consumers a choice and savings at the pump, while at the same time supporting a homegrown industry that supports farmers across the country. Together weâ&#x20AC;&#x2122;re making progress towards the next generation of sustainable, renewable fuels.

Learn more at GrowthEnergy.org

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CONTENTS

FEBRUARY 2015

DEPARTMENTS 6

EDITOR'S NOTE

AD INDEX

THE WAY I SEE IT

FEATURES

More Volume, More Places By Tom Bryan

Hats Oﬀ to the American Farmer By Mike Bryan

EVENTS CALENDAR

VIEW FROM THE HILL

Time For a Reality Check On Computer Models By Bob Dinneen

DRIVE

GRASSROOTS VOICE

EXPORTS

DDGS

Regaining Ground

Beyond Boats to China

By Holly Jessen

By Tom Bryan

In 2015, will the industry again export 1 billion gallons of fuel ethanol?

Traders are cautiously optimistic about China lifting ban on Syngenta’s MIR 162

2015—The Year of E15 By Tom Buis ‘I Wish Someone Would Do Something About How Fat I Am’ By Ron Lamberty

BUSINESS BRIEFS

COMMODITIES

DISTILLED

BUSINESS MATTERS

VOLUME 21 ISSUE 2

Export Incentive Viable Option For Producers By Donna Funk

MARKETPLACE

MARKET DEVELOPMENT

USE

Opening Channels For Export

TotalFlex Capabilities

By Susanne Retka Schill

A new partnership works to reduce trade barriers and other constraints

CONTRIBUTION

Brazil’s Volkswagon Gol runs on any blend of ethanol up to E100

CORN

Swings in Corn Supply, Demand Impact Global Markets Some factors limit U.S. corn exports, while others promote growth

By Chad Hart

ON THE COVER

60 CLARIFICATION JMP, a data analysis software from SAS Institute, can import data from a variety of sources. The software was featured in “Putting Data to Work,” a story published in the January issue of Ethanol Producer Magazine.

PHOTO: KEVIN MAY, MARQUIS ENERGY

4 | Ethanol Producer Magazine | FEBRUARY 2015

Ethanol Producer Magazine: (USPS No. 023-974) February 2015, Vol. 21, Issue 2. 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.

I B E LI EVE I N

For years, we’ve been told that cellulosic ethanol is a “fantasy fuel.” And it is.

And now it’s going to change the world. For real.

So we’ve spent a decade planning, researching, and working hard to make that fantasy a reality.

Advanced Biofuels

POET-DSM.COM

EDITOR'S NOTE

More Volume, More Places There are a lot drivers behind today’s robust ethanol and distillers grains exports, but the abundance of cheap U.S. corn tops the list.

Tom Bryan

President & Editor in Chief tbryan@bbiinternational.com

Inexpensive corn, after all, yields competitively priced ethanol that easily competes in a global market hungry for octane and renewables. And because distillers grains is frequently shipped in combination cargos that include corn, ethanol’s principal coproduct often enjoys ride-along sales when corn is sold overseas. In our page-44 cover story, “Opening Channels of Communication,” we learn that America’s last two corn harvests—both huge—played into the U.S. Grains Council’s decision to pursue federal funding and authorization to promote biofuels exports. EPM Senior Editor Susanne Retka Schill explains how and why the USGC teamed up in 2014 with the Renewable Fuels Association, Growth Energy and the USDA Foreign Agriculture Service to build global markets for U.S. ethanol. The landmark effort just got under way and it began with trips to Japan, South Korea, Panama, Peru, Singapore and Philippines. In fact, Southeast Asia, writ large, is showing tremendous potential as a destination for U.S. ethanol exports, which are projected to top 800 million gallons in 2014 and could reach 1 billion gallons next year. In our page-28 feature, “Regaining Ground,” EPM Managing Editor Holly Jessen reports that Canada and Brazil remain the top takers of U.S. ethanol, but unlikely customers like United Arab Emirates and Peru, which sells ethanol into the EU, have significantly boosted their purchasing. Notably, ethanol producers that export, like Illinois-based Patriot Renewable Fuels LLC, seem to share an understanding that exporting ethanol isn’t just a discretionary, side market of their primary product, but a critical outlet for the industry as a whole. Our feature on distillers grains exports, “Beyond Boats to China,” on page 34, gauges the reactions of American traders following China’s late-2014 acceptance of MIR 162, the genetically modified corn trait at the center of the country’s temporary pseudo ban on DDGS last year. Coming off a record 10 million metric-ton-exports year, DDGS marketers say it is great news that China is poised to buy the industry’s main coproduct again, but they’re also calling out their top foreign customer for being unreliable. Trust issues aside, the end of China’s DDGS timeout means the global market for the product is bullish once more, and prices reflect it. No doubt about it, China’s renewed acceptance of DDGS represents a rebound for the product's global market, but exporters are applying a disciplined approach to this vast opportunity. Simply put, marketers don’t want to get stung by China again, and many of them now refuse to blindly overserve the world’s top DDGS importer at the expense of steady foreign and domestic buyers.

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: 6 | Ethanol Producer Magazine | FEBRUARY 2015

TWITTER.COM/ETHANOLMAGAZINE

VOLUME 21 ISSUE 1

EDITORIAL

ADVERTISER INDEX

President & Editor in Chief Tom Bryan tbryan@bbiinternational.com Vice President of Content & Executive Editor Tim Portz tportz@bbiinternational.com Managing Editor Holly Jessen hjessen@bbiinternational.com Senior Editior Susanne Retka Schill sretkaschill@bbiinternational.com News Editor Erin Voegele evoegele@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

ART

Art Director Jaci Satterlund jsatterlund@bbiinternational.com Graphic Designer Raquel Boushee rboushee@bbiinternational.com

PUBLISHING

Chairman Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com

SALES

Vice President of Operations Matthew Spoor mspoor@bbiinternational.com Business Development Director Howard Brockhouse hbrockhouse@bbiinternational.com Senior Account Manager/Bioenergy Team Leader Chip Shereck cshereck@bbiinternational.com Account Manager Jeff Hogan jhogan@bbiinternational.com Sales & Marketing Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

2015 International Biomass Conference & Expo 2015 International Fuel Ethanol Workshop & Expo 2015 National Advanced Biofuels Conference 2016 National Ethanol Conference BetaTec Hop Products Buckman CHS Renewable Fuels Marketing DuPont Industrial Biosciences Eco-Energy Inc. EcoEngineers Fagen Inc. Fluid Quip Process Technologies, LLC Growth Energy Hydro-Klean LLC ICM, Inc. Indeck Power Equipment INTL FCStone Inc. Iowa Economic Development Authority J.C Ramsdell Enviro Services, Inc. Lansing Trade Group Leaf Technologies Louis Dreyfus Mason Manufacturing, LLC Mole Master Services Corporation Nalco, an Ecolab Company Natwick Associates Appraisal Services Novozymes Pan American Hydrogen, Inc. Phibro Ethanol Performance Group POET-DSM Advanced Biofuels Renewable Fuels Association RPMG, Inc SGS North America, Inc. Solenis LLC Sukup Manufacturing Sulzer Pumps Solutions, Inc. Syngenta: Enogen The Greenbrier Companies, Inc. Thermal Refractory Tower Performance, Inc. U.S. Grains Council WestAgro Executive Brands WINBCO

42 50 52 59 15 20 13 67 51 33 43 63 2 21 11 36 32 64 56 24 25 40 37 48 49 31 17 62 19 5 41 38 47 3 53 26 8-9 68 46 30 39 57 27

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 anyone outside the United States. 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.

Please recycle this magazine and remove inserts or samples before recycling

FEBRUARY 2015 | Ethanol Producer Magazine | 7

Ironically, the latest breakthrough in the field of energy, is a field. While most innovation begins with the seed of an idea, the greatest advance in the making of ethanol starts with a seed. The first corn seed technology specifically developed to increase the efficiency of ethanol production, Enogen corn can reduce costs by up to 10% and helps generate more ethanol per bushel than any corn feedstock ever grown. Recently named AgriMarketing’s Product of the Year, Enogen is definitely making waves in the field of energy. ®

© 2015 Syngenta. Enogen®, the Alliance Frame, the Purpose Icon, and the Syngenta logo are trademarks of a Syngenta Group Company. Syngenta Customer Center: 1-866-SYNGENT(A) (796-4368). www.FarmAssist.com MW 11114036-SP 12/14

THE WAY I SEE IT

Hats Off to the American Farmer By Mike Bryan

Ground Hog Day is Feb. 2 and it will be Punxsutawney Phil's 129th prognostication. No

matter what the outcome, spring is just around the corner. Farmers across America will be getting equipment ready, buying seed and planning their planting regime for the coming year. When businesses start up, expand or undertake a new venture, one of the key factors is an analysis of risk vs. reward. Farming is one of the few industries where the risk-reward ratio often does not apply. Yet, if we think about it, farming is one industry we literally could not live without. The risk farmers take every spring is almost like taking a trip to Vegas and putting everything they own on the craps table. Despite the risk, agriculture has been one of the greatest success stories in the history of the world. The ethanol industry has been, and continues to be, the bearer of criticism for using corn as its primary feedstock. Yet with very few exceptions over the past 30 years, American agriculture has risen to the challenge of increased demand for food and fuel. American agriculture has played a significant role in reducing our dependence on foreign oil and improving our environment. In 1900, the U.S. population was just over 76 million and it took 41 percent of our workforce as farmers to feed that population. Today the population is nearly 320 million and it takes about 1.5 percent of our workforce as farmers to feed us. In the early 1900s, as many as 116 million acres were planted to corn to help feed those 76 million people. In 2014, 84 million acres of corn were planted to help feed 320 million people, plus exported

10 | Ethanol Producer Magazine | FEBRUARY 2015

worldwide to feed millions more, as well as make a significant contribution to our nation’s fuel supply. So, if you are looking for a success story, look no further. Agriculture is America’s (the world's) winning hand, despite the risk. It is important to add that all of this has been done with far fewer chemicals and less water consumption than before, farming practices that minimize erosion and research that continues to produce better and better hybrids. So, whenever I read something about food vs. fuel, it riles the hell out of me, because I know that American agriculture will, as it has for the past hundred-plus years, rise to the occasion. Every spring, farmers roll the dice and bet against the odds, and every year, food finds its way to the supermarket shelves to feed a growing global population. Ethanol has been a great boon, not only to America as a whole, but to the American farmer. It has helped stabilize prices, helped rural communities survive and helped make farming just a little less risky. So I say, hats off to the American farmer. May 2015 be a year of great success. May the rains fall, the sun shine brightly and your harvest be bountiful. That’s the way I see it.

Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

EVENTS CALENDAR National Ethanol Conference February 18-20, 2015 Gaylord Texan Resort & Convention Center Grapevine, Texas The NEC provides attendees with timely information on critical regulatory, marketing and policy issues facing the ethanol industry. Experts will speak to the current market situation, and address how we as an industry can continue to grow through innovation, new technologies and feedstocks, and by developing more diverse and global markets. 202-289-3835 | www.nationalethanolconference.com

International Biomass Conference & Expo April 20-22, 2015 Minneapolis Convention Center, Minneapolis, Minnesota 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. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries. 866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo June 1-4, 2015 Minneapolis Convention Center, Minneapolis, Minnesota 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 26-28, 2015 Hilton Omaha Omaha, Nebraska Produced by BBI International, this national 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. 866-746-8385 | www.advancedbiofuelsconference.com

VIEW FROM THE HILL

Time For a Reality Check On Computer Models By Bob Dinneen

Policy wonks and regulatory agencies have long had an affinity for predictive computer models. The

allure is understandable. Assumptions and hypothetical scenarios chosen by the user can be fed into a model, processed through a series of complex equations and algorithms, and—voila—tidy results are spit out the back end. Certainly, these models can be useful in guiding policy and regulatory development. But too often, regulators treat these models as “answer machines” and use them as tools for rigid regulatory enforcement. And, frequently, the results from these models just don’t make any sense when compared to real-world data and observations. Two prime examples of the disconnect between model results and reality have surfaced in recent months. First, a new study by economists at Iowa State University exposed the absurdity of the results from economic models used by the California Air Resources Board to estimate indirect land use change (ILUC) emissions for biofuels regulated under the Low Carbon Fuel Standard. The Iowa State study found that farmers around the world have responded to higher crop prices in the past decade mainly by using existing land resources more efficiently, not by converting forest and grassland into cropland. According to the paper, “the primary land use change response of the world’s farmers in the last 10 years has been to use available land resources more efficiently rather than to expand the amount of land brought into production. This finding is not new ... however, this finding has not been recognized by regulators who calculate indirect land use.” In response, CARB staff told stakeholders that looking at realworld land use data is “not productive.” In other words, the agency would rather regulate biofuels based on predictive model results rather than real-world outcomes. Indeed, CARB recently proposed new ILUC penalties for biofuels that entirely ignore the results of the Iowa State research in favor of new computer modeling results. Because every point of carbon intensity under the LCFS means dollars and cents to ethanol producers, CARB’s blind faith in computer modeling has real financial consequences for our industry. Fortunately, Oregon regulators working on their own LCFS program seem to understand that the real world matters. They recently elected to exclude ILUC, stating that “recent data has shown that both food (human and animal) and fuel

12 | Ethanol Producer Magazine | FEBRUARY 2015

production has increased while the amount of land farmed has stayed constant.” The second recent example of trusting models over real-world experience is a paper published by University of Minnesota researchers. Using a black box computer model and a series of questionable assumptions, the study asserts that increased ethanol use would cause higher emissions of ozone and fine particulates (PM2.5). But there’s one little problem with this finding: actual data from 222 U.S. EPA air sensor sites show that ozone and PM2.5 concentrations have trended downward during the period in which the use of ethanol-blended gasoline has dramatically increased. Ozone concentrations have fallen 33 percent since 1980, while PM2.5 is down 34 percent since 2000. In recent years, both ground-level ozone and PM2.5 emissions have dropped below their respective national standards, according to EPA. Further, there is a substantial body of evidence based on actual tailpipe testing that shows ethanol reduces both exhaust hydrocarbons and carbon monoxide emissions, and thus can help reduce the formation of ground-level ozone. After all, ethanol’s high oxygen content and ability to reduce exhaust hydrocarbons and carbon monoxide emissions is the primary reason it is used as an important component of reformulated gasoline in cities with high smog levels. In addition, studies have shown that increasing the oxygen content in gasoline reduces primary PM2.5 from the tailpipe. Again, I’m not suggesting that all computer models are useless and should be ignored. Model results can be instructive, but they should be validated with empirical data whenever possible. Computer models can and should be used to fill knowledge and data gaps, but where concrete real-world data and observations exist, they should take precedence. Sound policymaking and regulation must be grounded in reality, not hypothetical fancy. If there are data points available on actual global land use responses to higher crop prices during the biofuels era, why not see what we can learn from them? If we have air quality data from air sensors across the country, and results from actual tailpipe emissions studies, why not use that information to shape our understanding of ethanol’s impact on air quality? Models are fine, but insight and wisdom gained from real-world data and experience are simply irreplaceable. Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835

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DRIVE

2015 – The Year of E15 By Tom Buis

In unity there is strength, and there is tremendous unity within the ethanol industry. As a proud partner of

the Fuels America coalition, Growth Energy is working closely with all stakeholders in the industry to succeed and break though the blendwall. Our industry is also coming together to make 2015 the year of E15. First-generation producers, second-generation producers, farm groups, seed companies, equipment manufacturers, enzyme companies and a whole host of others have joined together in pursuit of a common goal—improving our nation’s energy security, national security, environment and economy. All this while giving consumers a choice and savings at the pump. No one individual can accomplish these ambitious goals alone. It takes a team and, unquestionably, we have the best. Each day, the strength of our voice and the reach of our story grows. Hardworking individuals in the Heartland are being heard from Washington state to Washington, D.C., as we have engaged in grassroots activism with top officials and lawmakers. You took part in our Step Up to the Plate campaign, as well as other grassroots campaigns, which energized and encouraged farmers, vendors, consumers and community leaders who benefit from our industry to speak up and advocate for ethanol. Many of you even made the journey to Capitol Hill to sit down and share our industry’s story with policymakers in person. It is essential that Congress understands how important the renewable fuel standard (RFS) is for our nation, and no one communicates this message better than you. You are the heart of our industry, and I’d like to thank everyone who took the time out of a busy schedule to advocate for the industry. It truly made a difference. With our combined efforts, no legislative changes were made to the RFS in 2014. Additionally, a terrible proposed rule from the U.S. EPA regarding the 2014 RFS renewable volume obligation (RVO) numbers was sent back to the drawing board after our industry overwhelmingly rose in unity against a shortsighted policy. That proposal would have taken our nation backward. Although the delay in announcing the 2014 RVOs is disappointing and the uncertainty created by it is frustrating, the most

important part is that EPA gets it right. We commend the agency for listening to all stakeholders and revisiting the rule. The momentum for high-performance, low-cost renewable fuels is unstoppable. Stations offering E15 will continue to pop up across the nation as we work together to make it a standard offering at the pump. Nationwide, moving to E15 will create another 136,000 American jobs that can’t be outsourced, reduce our demand for foreign oil by 7 billion gallons and reduce greenhouse gas emissions relative to regular gasoline, all while saving consumers between 5 and 15 cents per gallon at the pump. Currently, E15 is available at more than 100 stations in 15 states: Alabama, Arkansas, Florida, Illinois, Iowa, Kansas, Michigan, Minnesota, Missouri, North Carolina, North Dakota, Nebraska, Ohio, South Dakota and Wisconsin. We know that it’s only a matter of time before E15 is offered in every state in the nation, and we know that we’re going to get to that point by working together. Through efforts, like Prime the Pump, our industry is working to get higher blends into the marketplace. 2015 is going to be the year we are going to see E15 break through and break down the blendwall. Market development is critical and we are seeing continual growth and adaption of E15 by savvy retailers who understand that consumer choice and savings will drive more business to their stores. We are united by an unwavering belief in the U.S. ethanol industry and its ability to feed the world and fuel America. Together we will continue to grow, enter into new markets, create new coproducts and break down that mythical blendwall once and for all. Our friends in the oil industry may have deep pocketbooks, but we have the facts, the momentum and the numbers on our side. When we put all of our energy and resources toward a common goal, there is nothing that can stop us. All of our accomplishments would not have been possible without each and every one of our members and industry supporters, and for that, I am deeply thankful. It is a true privilege to work with such a passionate, talented and driven group of people. The dedication and determination of our industry is unmatched and will take us far. I can’t wait to see what great things we will accomplish together in 2015!

Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org

14 | Ethanol Producer Magazine | FEBRUARY 2015

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GRASSROOTS VOICE

‘I Wish Someone Would Do Something About How Fat I Am’ By Ron Lamberty

The title above is stolen from a story in the satirical newspaper, The Onion, about a guy who is disgusted that he’s hugely fat, and is even more disappointed that no one—not the government, medicine or people working at fast-food joints—seems to be doing anything to make him thin. And while I would love

for someone to make me thin, this column is about the attitude displayed in that story, not the subject. You’ll see. I promise. The series of events that drew that story from my memory bank started with a really good deal I got on a used car. I drove it to work to check it out before I let one of my kids have it, but that made me unsure I wanted to give it up. It’s really fast, has a great sound system, rear wheel drive and manual transmission, and driving a stick makes me feel superior to all the less accomplished drivers on the road. But that feeling of superiority disappeared when I got the car stuck in a snowbank recently. We got some snow at the American Coalition for Ethanol headquarters one day, and that evening, two drifts formed at the top of the driveway coming out of our garage. I got the car unstuck from one drift just in time to promptly get stuck in the other nearby drift. And when I eventually rocked the car loose from that one, I slid down the driveway and was engulfed by a much larger snowbank. Fortunately, I joined AMCM Motor Club a couple weeks earlier, and I called them to come and pull me out of the snowbank. I didn’t want to admit to family and friends that I can no longer handle my rig in a minor snowstorm. For those unfamiliar with AMCM, they are the auto club that, along with affiliated company Travelers Motor Club, issued a press release last fall, saying that despite AAA’s “warnings” and anti-E15 efforts over the past two and a half years, not one of the 18 million members of AMCM or Travelers auto clubs had ever reported a problem with E15. They even encouraged anyone with a car approved by the U.S. EPA or the manufacturer to use E15, to buy it with confidence. Sitting in the car, waiting for a tow truck, I had an opportunity

to try one more time to form a civil answer to an infuriating question that I had started and stopped answering several times that day. A member had asked for some reasons and, or statistics to convince other ethanol supporters to join AMCM Motor Club instead of AAA. Hell, that was my best reason—AMCM isn’t AAA. AMCM motor club costs $35 a year for four drivers, and AAA charges four or five times that much. And how about these stats: Number of AMCM press releases telling drivers not to use E15: Zero. Number of dollars AMCM has spent lobbying Congress to stop E15: Zero. Number of times the AMCM CEO has testified to Congress urging suspension of E15 sales: Zero. When AMCM and Travelers Motor Clubs first talked to us about their E15 findings, we encouraged them to publicize it. Ethanol supporters need that information to refute AAA’s E15 disaster “predictions,” (not a single one of which has proven to be correct, by the way). I also thought—given the number of ethanol folks who were infuriated about AAA’s anti-E15 statements and other ethanol opponents’ exploitation of those statements—that literally thousands of ethanol supporters would jump at the chance to dump AAA (if they hadn’t already) and join AMCM Motor Club. When I confidently asked AMCM how many people had taken advantage of the biofuels discount a couple weeks after AMCM’s announcement of its support for E15, it wasn’t the thousands I had hoped. It wasn’t hundreds either. It wasn’t even one hundred. It was embarrassing. In fact, the number of new AMCM “biofuels members” was less than one-third the number of emails I received over the past two years that said, “I wish someone would do something about how mad I am at AAA.” Fortunately, the tow truck arrived 38 minutes sooner than I was told it would get there. The driver hooked me up and pulled me out of the snowbank, giving me the answer to the last concern some people have mentioned. Service. AMCM’s service worked just fine. Now, I wish someone would do something to thank AMCM for their support of E15.

Author: Ron Lamberty

Senior Vice President American Coalition for Ethanol 605-334-3381 rlamberty@ethanol.org

16 | Ethanol Producer Magazine | FEBRUARY 2015

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BUSINESS BRIEFS

People, Partnerships & Deals

ond Generation Biofuels, a joint binational center led by Jawaharlal Nehru University, the Indian Institute of Technology in Bombay and Washington University.

Rockwell Automation Inc. has purchased the assets of ESC Services Inc., a global hazardous energy control provider of lockout-tagout services and solutions. Franklin, Wisconsin-based ESC Services will be integrated into Rockwell Automation’s Control Products & Solutions segment as part of its customer support and maintenance business unit.

U.S. Water Services Inc. has been recognized by the California Governor’s Office of Business and Economic Development with the California Game Changer Company of the Year Award. California facilities are aiming to reduce water use by 20 percent by 2020 in an effort to conserve freshwater resources. U.S. Water has been working with California agriculture, medical centers and businesses to integrate solutions that combine chemical, equipment, engineering, automation and service to help facilities achieve water reduction goals. The award recognizes individuals and companies that have made a significant impact on the state.

The government of India’s Department of Biotechnology, Indian corporate leaders and Washington University in St. Louis have invested $2.5 million to launch the Indo-U.S. Advanced Bioenergy Consortium for Sec-

Louis Dreyfus Commodities has announced the appointment of Mayo Schmidt as CEO, effective Jan. 5. Schmidt will succeed interim CEO Claude Ehlinger, who will continue in his existing roles of chief

DuPont has upgraded its membership to the Renewable Fuels Association and will now sit on the RFA governing board. DuPont has been an associate RFA member for more than 10 years.

Some chemical companies focus on this

financial officer of Louis Dreyfus Commodities and nonexecutive chairman of the board of Biosev. Ehlinger will also serve as deputy CEO of Louis Dreyfus Commodities. Schmidt previously served as president and CEO of Viterra Inc. and has held positions at ConAgra Foods and General Mills.

Hodes Abney The National Corn Growers Association has promoted Joe Hodes to director of development. Hodes served as marketing manager at the NCGA for seven years. In his new roles, Hodes will oversee the organization’s development, industry relations, grassroots advocacy and membership service functions, including serving as staff lead for the Grower Services Action Team and the NCGA

or that

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20 | Ethanol Producer Magazine | FEBRUARY 2015

tailoring chemistries to boost production and increase profitability — from evaporator efficiency to corn oil recovery to water treatment issues. To find out more or to schedule a system audit, contact your Buckman representative or email ethanol@buckman.com.

Agri-Industrial Council. In addition, Rita Abney has joined NCGA as the marketing administrative assistant in the St. Louis office. Abney recently served as group sales manager for the Hilton St. Louis Frontenac and will support Hodes and others in projects related to development, state relations, membership, NASCAR and grassroots activism.

The International Association for Continuing Education and Training has awarded reaccreditation status to Siemens. IACET authorized providers are the only organizations approved to offer IACET continuing education units. The accreditation period extends for five years, and includes all programs offered or created during that time. The Iowa Renewable Fuels Association has honored three Iowa state legislators leaving their posts in 2014 with the Lifetime Champion of Renewable Fuels award for their long,

distinguished careers and steadfast support of renewable fuels. The recognized legislatures include state Sens. Daryl Beall, Nancy Boettger, and Hubert Houser. Alex Toro has been named director of engineering at Aventine Renewable Energy Inc. He will lead the engineering departments of the companyâ&#x20AC;&#x2122;s four ethanol plants, including Toro a 100 MMgy wet mill plant and a 60 MMgy dry mill plant in Pekin, Illinois, and a 110 MMgy dry mill plant and a 45 MMgy dry mill plant in Aurora, Nebraska. Toro serves as a technical resource in all aspects of operations, project engineering, capital investment, environmental compliance, process improvements and expansion projects. Most recently he served as director of process engineering for Solazyme Inc. He also previously worked for Aventine, which was then known as Williams Bio Energy.

Ag Growth International, a manufacturer of portable and stationary grain handlings, storage and conditioning equipment, has launched a multilingual version of its website, providing information in both English and Russian. The site allows customers to flip easily from both languages while accessing AGIâ&#x20AC;&#x2122;s complete product portfolio as well as information on worldwide site installation projects the company has participated in. Visitors to the site will also be able to easily access details to reach the right sales person for their inquiries. AGIâ&#x20AC;&#x2122;s website will soon be available in Portuguese and Spanish as well. Dynamic Recycling LLC has announced it has made several upgrades to its distilled spirits plant in Abingdon, Virginia. The company revamped the facilityâ&#x20AC;&#x2122;s distillation column reboiler process and increased flow through the facilityâ&#x20AC;&#x2122;s mechanical vapor recompression evaporator. The plant converts liquid wastes, including waste beverages, into renewable fuels.

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FEBRUARY 2015 | Ethanol Producer Magazine | 21

COMMODITIES

Prices & Market Analyses

Natural Gas Report

Natural gas price trends encouraging for consumer Dec. 19—Domestic dry gas production stairstepped its way to new output records month after month in 2014, easing concerns about inventory levels and quietly raising questions about the sustainability of prices above $4 for 2015. Weak demand to start the winter was sufficient to start prices tumbling by mid-December. However, despite the bearish picture for the start of the New Year, crumbling oil prices suggest serious headwinds for ongoing supply growth, perhaps as early as the second half of 2015. The upcoming year is looking encouraging for the consumer of natural gas but the assessment is not an unqualified positive. In the short run, however, it’s hard to imagine a better scenario for the end-user. While supply growth is putting downward pressure on prices in the short term, there is a dark cloud lurking on the horizon. One of the key factors driving the fantastic gains in U.S. natural gas production has been the colocation of natural gas with other hydrocarbons that are priced based on the value of crude. With West Texas Intermediate Crude prices tumbling from over $100 per barrel to below $60 per barrel, the incentive to drill for crude has taken a substantial hit, and the gas market can

by Ben Straus

expect to feel the reverberations as associated gas production falls. Identifying the timing of the impact of lower crude prices on gas production is uncertain, but as supply growth slows, and demand catches back up, upward pressure on prices will return to the gas market.

Corn Report

Corn market expected to hover around $4 Dec. 19—The corn market has been on a bull run since the low was posted at the end of September. Corn consumptive end-users were experiencing profitable margins but the reallocation of commodity prices has seen forward profitability decrease. The end result may limit upside opportunities of corn. Other factors influencing corn have been China’s acceptance of GMO feed grains and oilseeds and political and economic issues impacting Eastern Europe. Furthermore, rapidly declining energy prices could limit upside potential for corn. The USDA left corn acreage and yield unchanged in the December report, thus total supply was steady at 15.668 billion bushels. Usage was relatively unchanged except there was an increase of 10 million to the food, seed and industrial sector, excluding ethanol. Ultimately carryout fell just under the 2 billion bushel mark. Corn usage for ethanol was left unchanged at 5.15 billion bushels versus 5.134 billion bushels a year ago. World corn carryout increased by 0.7 mmt to 192.20 mmt. This compares to 172.84 mmt a year ago and 137.80 mmt in 2012/’13. Traders will be looking for anticipation of changes to acreage and yield in the January USDA report. Leading up to that report be ready for some choppy and volatile trades. The managed money has increased length into the fourth quarter and positioning may be critical to the mar22 | Ethanol Producer Magazine | FEBRUARY 2015

by Jason Sagebiel ket after the New Year. But there is a legitimate fundamental to support downside pressure: the cash market. Robust demand and slow producer movement may limit downside opportunities. Traders expect this market to stay on either side of $4.

Regional Ethanol Prices ($/gallon) Front Month Futures (AC) $1.6150

DDGS Report

Spot

Rack

West Coast

1.775

1.950

Midwest

1.750

2.048

East Coast

2.070

2.449 SOURCE: DTN

DDGS priced well above corn Dec. 19—Just before Christmas it looked as though the Chinese had given the market an early present with the announcement of the approval of MIR 162. As of this writing, there has been no official pathway presented to obtain import container permit, but the market is trading as though that is right around the corner. The market had begun its appreciation in value at the end of the first week in December, with the bulk market rising about $40 a ton, with widespread buying. Now, several weeks later, we are starting to see some stalling out of prices in the delivered markets like California, which had been demanding DDGS due to lack of competitive protein prices. Imports of things like canola meal from both Canada and Europe have dropped the basis about $75 a ton. Mexico, however, had not seen that kind of move, and still have been buying a lot of rail DDGS. There still has not

Region

Regional Gasoline Prices ($/gallon) by Sean Broderick

been many, if any, container bookings to China, but the market is expecting it in the first quarter. Looking ahead, we will have to see how the domestic market reacts to the price run up. DDGS is now priced well above the price of corn, in some places 120 to 130 percent (up from 90 percent in November). Another factor is how well railcars move in the system. Local trucks have been a huge discount to rail netbacks for ethanol plants due to the inability of plants to load everything out on rail. However, if cars move quicker—and we have seen them start to—it is less tons that must be sold to that local market. In the end though, the speed of the Chinese market’s ability to begin shipping product again with regularity is going to influence prices the most.

Front Month Futures Price (RBOB) $1.535 Region

Spot

Rack

West Coast

2.013

1.683

Midwest

1.988

1.837

East Coast

2.083

1.752 SOURCE: DTN

DDGS Prices ($/ton) LOCATION

Feb 2015

Jan 2015

Feb 2014

Minnesota

160

215

Chicago

195

125

245

Buffalo, N.Y.

200

130

250

Central Calif.

242

195

287

Central Fla.

225

160

281 SOURCE: CHS Inc.

Corn Futures Prices

(Dec Futures, $/bushel) Date

High

Low

Dec 19, 2014

4.11 1/4

4.05

4.10 1/2

Nov 24, 2014

3.85 3/4

3.78 1/4

3.80 1/4

Dec 19, 2013

4.31

4.24 1/4

4.30 1/2 SOURCE: FCStone

Cash Sorghum ($/bushel) Location

Ethanol Report by Rick Kment

Gasoline prices influence ethanol market Dec. 19—Ethanol supplies are becoming much more manageable at the end of the year. This has lessened concern about gaining access to needed gallons and sparked aggressive price pressure in all ethanol markets. Ethanol futures prices have fallen 64 cents per gallon over the past month. This has buyers, sellers and analysts looking away from the corn market and more at RBOB gasoline and energy market moves.

Currently, spot month ethanol prices are still holding an 8-cent premium to the spot RBOB gasoline contract. This relationship is likely to erode after the first of the year, as demand for ethanol will start to lessen if ethanol supplies are not priced under gasoline market prices in the long term.

Dec 19, 2014

Nov 20, 2014

Dec 19, 2013

Superior, Neb.

4.61

4.21

4.19

Beatrice, Neb.

4.21

3.68

4.01

Sublette, Kan.

4.22

3.55

4.18

Salina, Kan.

4.60

4.18

4.34

Triangle, Texas

4.13

3.81

4.23

Gulf, Texas

5.88

5.43

5.33

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu) LOCATION

Sep 30, 2014

Dec 26, 2014

Dec 26, 2013

NYMEX

4.12

3.01

4.43

NNG Ventura

3.99

2.84

4.76

Calif. Citygate

4.40

2.83

4.62

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production (1,000 barrels) Per Day

Month

End Stocks

Oct. 2014

924

28,641

17,265

Sept. 2014

919

27,577

18,660

Oct. 2013

903

27,995

15,569

SOURCE: U.S. Energy Information Administration

FEBRUARY 2015 | Ethanol Producer Magazine | 23

DISTILLED

Ethanol News & Trends

DOE funds 2 feedstock logistics projects

The U.S. Department of Energy has awarded $7 million to two projects aimed at developing and demonstrating ways to reduce the cost of delivering biomass feedstocks to biorefineries. The State University of New York-College of Environmental Science and Forestry of Syracuse was awarded $3.5 million to lower the delivered cost of short rotation woody crops; rapidly, accurately, and reliably assess feedstock quality, and improve harvest and preprocessing operations to produce feedstocks that meet key biorefinery specifications. An additional $3.5 million was awarded to the University of Tennessee of Knoxville, where researchers will study how blending feedstocks could play a role in increasing the amount of available feedstock within a given delivery radius. The project will develop and demonstrate a stateof-the-art biomass processing depot to reduce sources of variation along the supply chain of multiple, high-impact biomass sources and deliver a consistent feedstock optimized for performance.

US ethanol industry sets new production records In December, the U.S. Energy Information Administration announced that the U.S. ethanol industry had set a new monthly average production record in November, with production averaging 963,000 barrels per day during the month. The previous monthly average production record was set in December 2011, with an average production level of 959,000 barrels per day. On a weekly basis, three new production records were set in the final weeks of 2014. The first was set in November, with produc-

tion averaging 982,000 barrels per day the week ending Nov. 21. The previous weekly average record of 972,000 barrels per day was set the week ending June 13. The weekly record set in November, however, didnâ&#x20AC;&#x2122;t last long. In December, EIA data indicated three new weekly records were set. Production averaged 988,000 barrels per day the week ending Dec. 5, 990,000 barrels per day the week ending Dec. 12, and 992,000 barrels per day the week ending Dec. 19.

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DISTILLED

Novozymes releases Eversa enzyme

Nonjacketed legacy DOT-111 Jacketed legacy DOT-111 Nonjacketed CPC-1232 Jacketed CPC-1232 Total

Ethanol

Crude oil and other flammable liquids

27,037

47,880

16,429

751

24,937

37,383

27,899

126,719

SOURCE: THE BRATTLE GROUP

Report predicts high cost of DOT rail rule A report prepared by The Brattle Group, an economic research firm, shows that the proposed U.S. Department of Transportation rule on rail tank cars could cost the economy as much as $60 billion. That includes billions of dollars in costs to the ethanol industry. According to the report, the proposed regulation would have substantial costs for the ethanol industry, not only for retrofitting the existing tank car fleet, but in added costs as product movement shifts to trucks during the modification process. The report forecasts the impact to the ethanol industry will reach its peak in 2019, with costs reaching nearly $5.3 billion during that year. The costs are expected to decline as retrofits proceed, however. Within the report, the authors predict annual costs to the ethanol industry could remain above $1 billion through 2021.

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Novozymes has launched Eversa, a new enzyme for the conversion of lower-grade oils, such as waste cooking oil or corn oil, into biodiesel meeting the same trade specifications as biodiesel created through traditional chemical processing. “The flexibility of the enzymatic biodiesel process creates new opportunities for ethanol producers to optimize revenues from extracted corn oil by making biodiesel onsite while also accepting waste greases from their local community,” said Frederik Mejby, Novozymes marketing director, grain processing. “The process can be easily bolted onto the back end of their existing facility with minimal additional capex (capital expenditure).” The idea of enzymatic biodiesel is not new, said Mejby, but the costs have been high. “Eversa changes this and enables biodiesel producers to finally work with waste oils and enjoy feedstock flexibility to avoid the pinch of volatile pricing,” he added. Some advantages of the enzymatic biodiesel production process include lower energy requirements, and the elimination of a chemical catalyst, which Mebjy said can lead to safer working conditions for plant operators.

Flammable liquids tank car fleet projected for 2015

After a decade of presence within the industry through Fermentis, Lesaffre is proud to launch Leaf Technologies a business unit dedicated to serve the fuel ethanol and bio based chemicals producers. With Leaf Technologies we are starting a new path in our development with the will to offer our partners more

specialized products and services, to continue innovating in the field of first and second generation ethanol and to exceed the industries expectations. Based on our expertise in genetics, scaling up, fermentation, yeast production and through technical support we will be focused on turning science into industrial reality. FEBRUARY 2015 | Ethanol Producer Magazine | 25

DISTILLED

Trestle Energy’s fuel pathways win approval in British Columbia

A new approach developed by Trestle Energy LLC to driving down the carbon intensity of corn ethanol has received approval from the British Columbia Ministry of Energy and Mines. Trestle Energy has announced three of its pathways were given approved carbon intensities of 29.10, 29.68 and 35.66 grams CO2 equivalent per megajoule (CO2e/MJ). That compares with an average rating of 55 CO2e/MJ for the 15 Midwestern ethanol producers that have received carbon intensity ratings under British Columbia’s Renewable and Low Carbon Fuel Requirements Regulation. The ratings are comparable with the 33.31 CO2e/MJ carbon intensity rating given to Peruvian sugarcane-ethanol producer, Maple Biocombustibles. While Trestle Energy President Jamie Rhodes was unable to release details of the approach, he did indicate the pathways leverage carbon intensity reductions in the agricultural sector.. The company has a pathway petition pending with the U.S. EPA and has applied for a carbon intensity rating under the California Low Carbon Fuels Standard.

USDA awards advanced biofuel payments, announces bioenergy grants

Ethanol producers that received more than $10,000 in Advanced Biofuel Payments include: Arkalon Ethanol LLC Aventine Renewable Energy Inc. Bonanza Bioenergy LLC

On Dec. 2, the USDA announced Central Indiana Ethanol LLC more than $5.6 million grant payments to 220 producers under the Advanced BioDiamond Ethanol LLC fuel Payment Program. An additional $4 Kansas Ethanol LLC million in grants were awarded though Paciﬁc Ethanol Holdings Co. three programs supporting bioenergy initiatives under the USDA’s National InPrairie Horizon Agri-Energy LLC stitute of Food and Agriculture. OrganiPratt Energy LLC zations that received NIFA funds include Western Plains Energy LLC South Dakota State University, Iowa State University and the Biodiesel Fuel EducaWhite Energy Inc. tion Program. SOURCE: USDA Nearly 20 ethanol producers received payments through this round of the Advanced Biofuel Payment program. The program, which was established by the 2008 Farm Bill, provides payments to eligible producers based on the amount of advanced biofuel produced from renewable biomass, other than corn kernel starch. Since the program began, the USDA has made more than $280 million in payments to more than 350 producers.

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26 | Ethanol Producer Magazine | FEBRUARY 2015

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DISTILLED

New distillation technology ready for pilot-scale testing A new ethanol distillation technology under development by Distillation Technologies Inc. is ready for pilot-scale testing. CEO Dick Burton and his brother Sam Burton have spent seven years developing the technology, which is trademarked Bubble Spray Distillation. According to the company, the proof of concept was achieved at bench scale with the help of the Midwest Research Institute and Aerosol Research and Engineering. A patent has been received for the ethanol distillation concept, and a second patent covering a method for water purification is pending. Burton said the distillation system operates at 104 degrees Fahrenheit, producing 99.5 percent alcohol in one pass. The system has been calculated to achieve energy savings of 75.6 percent when compared to standard distillation systems. With the proof of concept established at bench scale, the brothers are looking for partners to test the concept at pilot scale.

Q3 clean energy and clean transportation jobs No. of jobs

No. of job announcements

6,094

849

Manufacturing

9,892

Other

2,049

Sector Renewable Energy Biofuel

SOURCE: ENVIRONMENTAL ENTREPRENEURS

E2 quarterly report shows strong growth for biofuel jobs Environmental Entrepreneurs (E2) recently released its third quarter clean energy jobs report, reporting that 18,035 clean energy and clean transportation jobs were announced in 23 states during the quarter. This includes 849 jobs in the advanced biofuel sector, which is the second-highest quarterly performance for the sector since E2 began tracking jobs in 2011. According to E2, the top nine states for clean energy job announcements during

the quarter were Nevada, New York, California, Colorado, North Carolina, Michigan, Connecticut, Louisiana and Texas. Illinois and Maryland tied for tenth. The single largest biofuel announcement came from Sierra Biofuels, which is building a 10 MMgy biorefinery in McCarran, Nevada.

FEBRUARY 2015 | Ethanol Producer Magazine | 27

EXPORTS

ACCESS TO RAIL: Patriot Renewable Fuels, located near Annawan, Illinois, less than 150 miles from Chicago, is situated on an Iowa interstate short line that connects to Class I railroads. Its products, some for export, ship to the Gulf Coast and the East Coast. PHOTO: CHICAGO STREET PHOTOGRAPHY

28 | Ethanol Producer Magazine | FEBRUARY 2015

EXPORTS

Regaining Ground Year-end U.S. fuel ethanol exports are expected to exceed 800 million gallons, second only to the record-breaking 1.19 billion gallons exported in 2011. By Holly Jessen

Since startup in 2008, 10 percent or more of the ethanol produced at Patriot Renewable Fuels LLC has been exported. Judd Hulting, plant commodity manager, emphasizes the plant’s proactive strategy to exports. It’s an approach he believes more ethanol producers need to adopt. “We need to be more proactive and do what we can to open new markets, expand markets and educate, whether it’s the consumer in America or the consumer in any of these destination markets,” he says. The 130 MMgy plant exports the majority of the distillers grains produced there and the amount of fuel ethanol exported is growing. To handle production of anhydrous ethanol for export markets and also meet domestic specifications, the company has installed additional mole sieves. “We continue to believe exports are very important, not only for our business but for the whole ethanol industry,” he says. Patriot Renewable Fuels has participated in U.S. Grains Councilled trade missions overseas and has hosted foreign distillers grains buyers at its plant, something Hulting would like to also offer to

FEBRUARY 2015 | Ethanol Producer Magazine | 29

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EXPORTS

â&#x20AC;&#x2DC;Based on what we know today, we would expect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.â&#x20AC;&#x2122;

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fuel ethanol buyers from other countries. â&#x20AC;&#x153;Youâ&#x20AC;&#x2122;ve got to go out there and meet those customers, face to face, shake their hand, and at the same time, welcome them back to your plant and your local community and develop that trust,â&#x20AC;? he says. Green Plains Inc. is another ethanol producer that sells its fuel into the export market. During the companyâ&#x20AC;&#x2122;s Oct. 28 third-quarter financial results call, Todd Becker, president and CEO, said a minimum of 15 percent of its fourthquarter ethanol production had already been sold into export markets. â&#x20AC;&#x153;We have volumes sold and destined to India, the Philippines, Brazil and other developing countries, along with our normal buyers like Canada and others,â&#x20AC;? he said. â&#x20AC;&#x153;Interestingly enough, we're booking export sales into 2015, extending into the third quarter.â&#x20AC;? This is not typical, he said, adding that Green Plains has more gallons booked ahead for export than itâ&#x20AC;&#x2122;s had in the history of the company. Becker also talked about how the specs for export gallons actually result in slower production speeds for Green Plains. â&#x20AC;&#x153;I don't think people think about that, but there is definitely an inverse relationship because of the water spec that we have to produce,â&#x20AC;? he said during the call.

Ideal Combination

Itâ&#x20AC;&#x2122;s been an interesting year for exports for the industry as a whole. â&#x20AC;&#x153;We have seen demand growth in a number of existing markets, places where we have

been exporting for the last several years, but we have also seen the emergence of several new markets,â&#x20AC;? says Geoff Cooper, senior vice president of the Renewable Fuels Association. Looking at the data through October, the latest numbers available at press time, year-to-date exports sat at 669.3 million gallons, roughly 40 percent higher than exports through October in 2013. By the end of the year, the U.S. ethanol industry is expected to export about 803 million gallons, the RFA estimated, considering that exports are typically up in the fourth quarter, following seasonal patterns. â&#x20AC;&#x153;I think we could be as high as 825 or 830 million gallons, somewhere in that range,â&#x20AC;? Cooper said in December, adding he expects continued growth in 2015. â&#x20AC;&#x153;Based on what we know today, we would expect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.â&#x20AC;? On the import side, only 67.5 million gallons of ethanol from other countries had come into the U.S., through October. In fact, imports have averaged less than 7 million gallons per month. This puts the U.S. in the net exporter category, a title it had held 14 months consecutively at that time. Cooper pointed to two factors for growth in exports. One is the price of ethanol, which created favorable blending economics for the high-octane fuel. A second stimulant is demand created in countries with renewable energy programs. â&#x20AC;&#x153;In

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SPECIAL DELIVERY: CHS Inc. contracts with independent ship owners to transport ethanol to overseas markets. The tankers, like the one shown here, delivering to Brazil, haul a mixture of vegetable oils, ethanol, caustic soda and other chemicals.

• • • •

Valuation for financing Establishing an asking price Expert witness testimony Partial interest valuation

PHOTO: CHS INC.

many cases, their local or domestic capacity isn’t adequate to meet the requirements or targets of those programs so the alternative is to import from countries that have surplus capacity,” he says. Max Thomasson, director of global ethanol trading at CHS Inc., sees the same thing. “There’s been an increase in exports with the cheap price of ethanol on the forward curve, which is brought about mostly by relatively cheap corn,” he says. CHS has offices in Brazil, Switzerland and Singapore, and exports U.S. ethanol to Brazil and Asia, primarily the Philippines. “That demand has grown by about 12 percent, year on year, for the last three years, which is driven by government mandates in the Philippines,” he says, adding that the company has exclusive marketing agreements with eight ethanol plants and also owns the 133 MMgy plant in Rochelle, Illinois. After

first sourcing from those nine plants, CHS purchases ethanol from third-party sellers for export.

By the Numbers

Like last year, Canada is on pace to be the No. 1 export destination for U.S. ethanol, Cooper says. Through October, the nation’s neighbor to the north was the destination for 44 percent of total U.S. exports. Brazil was in the No. 2 slot, importing nearly 80 million gallons through October, nearly double the total for last year. “We don’t really know exactly how things are going to go with Brazil until we know what their sugar crop looks like every year, and their market dynamics, whereas Canada has been much more consistent,” he says. Exports to Canada, Brazil and the European Union helped the U.S. cross the record-setting 1 billion gallon mark in

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FEBRUARY 2015 | Ethanol Producer Magazine | 31

EXPORTS

'If we can get more U.S. ethanol into Singapore, where gas is formulated for that part of the world, I think thatâ&#x20AC;&#x2122;s a big opportunity.'

2011. In all, about 800 million gallons went to those three markets alone, Cooper says. Then, exports dropped 38 percent from 2011 to 2012 and another 16 percent from 2012 to 2013. Two of the biggest impacts were a rebound in the Brazilian sugar and ethanol sector and the EU tariff placed on ethanol imported from the U.S.

Cooper

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5HQHZDEOH )XHOV _ (WKDQRO *URXS 32 | Ethanol Producer Magazine | FEBRUARY 2015

Interestingly, U.S. ethanol is still making its way to the EU, most of it via Peru, which doesnâ&#x20AC;&#x2122;t have to pay the tariff, Cooper says. In 2013, Peru was the fifth largest market for U.S. ethanol. Although the numbers are down somewhat this year, the country does continue to import U.S. ethanol, the majority of which then ends up in the EU. Itâ&#x20AC;&#x2122;s a pattern of shuffling products around that develops as a result of trade barriers and restrictions on free trade. â&#x20AC;&#x153;Obviously the solution would be to not have any of those tariffs or trade barriers and let ethanol flow to where it makes sense, based on the economics,â&#x20AC;? he says. Despite the tariff, a small but growing number of gallons is going directly from the U.S. to the EU. By the end of this year itâ&#x20AC;&#x2122;s expected to end up at about 50 million gallons. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s almost double from where we were last year, but still a long way from the high-water mark,â&#x20AC;? Cooper says, adding that 250 million gallons of U.S. ethanol were exported to the EU in 2011. Looking ahead, lower gas prices at the end of the year may erode demand in export markets where ethanol was being blended due to the price, Cooper says. However, ethanol is also blended for its octane content. For example, through October, the United Arab Emirates had imported 68 million gallons of U.S. ethanol. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s about twice what they did last year, so they very likely will be the No. 3 market in 2014,â&#x20AC;? he says, adding that the catalyst is the countryâ&#x20AC;&#x2122;s oxygenated fuel requirement. Ironically, the country is a member of OPEC and has its own crude oil resources. In addition, a handful of countries are rapidly opening up as new markets for U.S. ethanol, Cooper says. On the top of that list is South Korea. In 2013, the country imported 4 million gallons of ethanol and itâ&#x20AC;&#x2122;s on pace to bring in 31 million gallons by the end of this year. Tunisia is another interesting new market. Until October, when the country imported 11.3 million gallons

EXPORTS

U.S. Ethanol

Exports

in million gallons

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

54.6 74.6 46.8 63.4 47.3 62.7 36.8 150.2 157.8 113.3 396.8 1193.1 738.7 619.0 830.0

*projected (range of 810-850)

of U.S. ethanol, Tunisia had only imported U.S. ethanol in three separate months. Cooper believes there is plenty of opportunity for future growth both in existing markets like Canada and new and emerging markets. One example of the latter is China. It’s the second largest market for

gasoline in the world, second only to the U.S. “They’ve put their toe in the water on ethanol imports, and we just think there is a huge opportunity to forge a long-term trade relationship with China,” he says. He also mentioned Singapore as a market to watch. It’s a major crude oil refining hub for Southeast Asia. “If we can get more U.S. ethanol

into Singapore, where gas is formulated for that part of the world, I think that’s a big opportunity,” he says. Author: Holly Jessen Managing Editor, Ethanol Producer Magazine 701-738-4946 hjessen@bbiinternational.com

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FEBRUARY 2015 | Ethanol Producer Magazine | 33

DDGS

GOING FORWARD: Randy Ives, director of ethanol services at Gavilon, says the industry must manage contract performance risk on future DDGS exports to China. PHOTO: IWEN EXPOSURES

34 | Ethanol Producer Magazine | FEBRUARY 2015

DDGS

Beyond Boats To China After halting distillers grains imports late last year, the world's top DDGS buyer is poised to resume business, but on what terms? By Tom Bryan

The prospect of China reissuing distillers grains import permits bodes well for the product's American exporters, but Randy Ives isn't ready to gloat about it. “We

have to be cautious,” says the longtime DDGS marketer and director of ethanol services at Gavilon. “The uncertainty from China has put the industry in a tough position in the past. Collectively, we need to take additional steps to manage the contract performance risk that’s been an issue before.” Ives and other DDGS exporters are necessarily guarded about China’s decision in late December to lift its ban on Syngenta’s MIR 162, the genetically modified grain trait at the center of the country’s three-month-long constriction on U.S. corn and DDGS. “Of course, it’s huge news for distillers grains, but that doesn’t instantly return them to the pedestal of being an important trade partner to the ethanol industry and to the U.S. ag industry as a whole,” Ives says. Ives is one of many U.S. DDGS marketers who greeted the late-December announcement from China with incredulity and a stern vow to not get stung again. Less than two years after carrying out a questionable anti-dumping probe that severely disrupted the international DDGS market, China’s feed regulators claimed to have discovered traces of then-banned MIR 162 in cargos of both corn and DDGS in late 2013 and throughout 2014. By mid-September, China was fully enforcing the ban, quarantining large quantities of U.S. corn and DDGS on its docks and turning shipments away at sea. American exporters, logistics providers and Chinese importers together lost millions as communication was lost, contracts were broken and DDGS prices slid more than $100 a ton. By October, imports to China were nil as the commodities world waited for a resolution. As painful as China’s fourth-quarter DDGS timeout was, Ives says, the market displayed incredible resilience and American traders remained buoyant through it all. “Our product’s global market is larger, more distributed and more stable than it used to be,” Ives says. “We have buyers in 80 countries now, so when China stepped out last fall, customers in other nations stepped in and have stayed. On top of that, we knew China would come back. We just didn’t know when.”

FEBRUARY 2015 | Ethanol Producer Magazine | 35

DDGS China’s sudden acceptance of MIR 162 was reportedly accelerated by pressure from the U.S. government as well as an internal push from China's feed millers. Whatever the cause of the decision, it is clearly welcome news for American producers and marketers of distillers grains. By Christmas, the announcement’s buzz alone had caused DDGS prices to rise $70 a ton. Traders warn, however, that the MIR 162 resolution is not a panacea for every challenge they face in China. “There are other problems, other barriers, in play yet,” Ives says. “We’re still trying to figure out what the running rules are and what other technicalities we will have to abide by.” Ives says selling DDGS into China could change. Some exporters might start demanding deposits, for example, asking for up to 20 percent down before shipment. Changes on China’s end may include volume requirements, or DDGS import allocations. In the past, importers have sought and received permits based on shipment orders they had already placed. “That could possibly change, where importers could be required to have an import permit in hand before buying the product,” Ives says, explaining that tighter control over permits could buy China time to work through its grain reserves. Still, the end of the MIR 162 ban does mean that DDGS exports in 2015 have the potential to exceed the record volumes sold in 2014, according to Alvaro Cordero, manager of global trade at the U.S. Grains Council. “Despite how 2014 ended in China, distillers grains had a fabulous year—a record year—

36 | Ethanol Producer Magazine | FEBRUARY 2015

and we’ll probably do it again,” says Cordero. “By October, when China started to shut down, we had already achieved higher annual DDGS export sales than we had for the entire previous year.” In fact, DDGS exports for calendar year 2014 not only set a new annual record, but surpassed the long-anticipated 10 million metricton mark for the first time in history. While November and December sales were not available at press time, DDGS exports had already reached 9.96 million metric tons—more than any previous year’s total by almost 200,000 metric tons and more than a quarter of the nearly 37 million metric tons produced in the U.S. last year. Sales of DDGS exclusively to China reached 4.24 million metric tons, just 5 percent short of the record set in 2013. “That’s remarkable considering that it happened in less than 9 months,” Cordero says. Cordero, a former commodities trader, says he understands the unease DDGS marketers have about losses they incurred because of China’s actions. However, he says, the wide margins made on DDGS sales in early 2014 more than offset those hits. “If you sum up the money that was made when prices were good, bad and ugly in 2014, the industry came out of it in a positive position,” Cordero says. “Yes, it was hard for a while, but put this in perspective: It was a few bad months.” Marketers like Sean Broderick of CHS Inc. were somewhat reticent about the DDGS market prior to China’s acceptance of MIR 162. Those bearish positions started to flip when the ban was lifted, Broderick says, telling

TRADE TALK: Alvaro Cordero of the U.S. Grains Council says profits from high DDGS prices in early 2014 should have made up for losses later in the year. PHOTO: USGC

Ethanol Producer Magazine before Christmas that DDGS marketers were bullish but treading carefully. “We are cautiously optimistic about this having seen the pitfalls of pricing ourselves out of so many markets,” Broderick says. “Any distillers grains that gets into China right now is going to be valuable. Their desire

DDGS to bring it in is going to be pretty huge, but itâ&#x20AC;&#x2122;s going to contrast with our desire to protect ourselves. The industry will probably load a lot of boats to China this year, but we also have to keep the interests of our other customers in mind.â&#x20AC;? At peak, China was importing almost 20 percent of all distillers grains produced in dry form in the United States. â&#x20AC;&#x153;Thatâ&#x20AC;&#x2122;s sort of insane,â&#x20AC;? Ives says. â&#x20AC;&#x153;If we want to do whatâ&#x20AC;&#x2122;s best for the industry, we need to continue to diversify our demand base.â&#x20AC;? Broderick says, however, that diversification is hard when China is willing to pay more for DDGS than the rest of the world. â&#x20AC;&#x153;You just canâ&#x20AC;&#x2122;t ignore it despite your best efforts,â&#x20AC;? he says.

Huge Price Swings

DDGS exporters are entering 2015 with a wind at their backs, having worked fervently to find new destinations for DDGS when China wasnâ&#x20AC;&#x2122;t accepting the product in the fourth quarter of last year. Losing the China market spurred traders, under pressure, to sell the product at whatever prices worked for opportunistic buyers. At its lowest price point last year, DDGS was available for 70 percent the price of corn. That was a stark contrast to the productâ&#x20AC;&#x2122;s market value before China blocked imports. â&#x20AC;&#x153;We were in a very tight year where protein was high-priced and people were willing to pay a premium for distillers,â&#x20AC;? Ives explains. â&#x20AC;&#x153;We werenâ&#x20AC;&#x2122;t 85, 95 or 105 percent the price of corn, we were 150 percent the price of corn on some spot sales.â&#x20AC;?

CLIMBING AGAIN: Sean Broderick, left, and Steve Markham of CHS Inc. look at DDGS prices as the product's market value sprang up in December before and after China dropped its ban on MIR 162. PHOTO: CHS INC.

Those big pricesâ&#x20AC;&#x201D;at times hitting $350 per ton FOB to New Orleansâ&#x20AC;&#x201D;drew criticism from both new and established buyers. â&#x20AC;&#x153;The domestic guys had a problem with it. Thailand had a problem with it. It was hard to blame them for pushing back, but all we could say was â&#x20AC;&#x2DC;China will take it,â&#x20AC;&#x2122;â&#x20AC;? Ives says. â&#x20AC;&#x153;The demand was that huge.â&#x20AC;? Before China virtually stopped importing DDGS in October, it was averaging nearly 500,000 tons a month through August and trending toward 6 million metric tons on the year. By September, restrictions had tightened and just 167,000 tons officially got through

customs before rejections started in earnest the following month. By the time it was over, every major U.S. exporter had been adversely effected. Chinese importers also took big hits. Some traders estimate that as much as $600 million worth of DDGS was stranded in quarantine on Chinese docks in the thick of the restrictions. Back in the U.S., marketers worked their contacts hard and gradually sold down about 1.5 million metric tons of DDGS originally contracted for China. â&#x20AC;&#x153;It all happened pretty fast,â&#x20AC;? Ives explains. â&#x20AC;&#x153;Marketers that owned product at $200 a ton at the plant were faced with buyers in China

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DDGS that couldn’t perform on their contracts. It was difficult to find destinations for DDGS and financial losses incurred were considerable.” Today, U.S. DDGS exporters are hinting at taking action to go after those broken contracts in China. “Regardless of what happened, they still bought it and we still have a valid contract that says we owe them a bunch of distillers at that price,” Ives says. “We intend to negotiate some sort of payment for it.” SOMEHOW, SOME WAY: Purina Animal Nutrition's Jason Charles says the DDGS market was in a state of improving health even before China positioned itself to resume imports. PHOTO: GAMUT ONE STUDIOS

38 | Ethanol Producer Magazine | FEBRUARY 2015

Predictable Comeback

Prior to China’s acceptance of MIR 162, DDGS values “at the plant,” or the contracted prices paid to producers, had already rebounded to $125 to $150 a ton. “The Northern Hemisphere market is actually quite strong,” Jason Charles, senior trading manager with Purina Animal Nutrition LLC, said in midDecember, explaining that the DDGS market was in a state of improving health even without the help of its largest foreign customer. “When China went away, we had a half million tons of distillers to do something with. Somehow, some way, it all started moving.” Charles said the industry went through about 60 days of “not knowing what direction it was going” as DDGS initially contracted for China slowly found buyers elsewhere. “Thirty days ago, the bid-ask CIF NOLA was $130 on $155. Today, it’s $215 on $230,” Charles said in December, explaining that prices at the time were already lifting as China showed signs of opening back up. Looking back, Broderick agrees that the removal of excess DDGS from the market, along with improved logistics and a general sense of optimism was boosting prices before China lifted its ban on MIR 162. Broderick says the sheer speculation that China would start issuing import permits in the spring was giving DDGS a boost. Just before and immediately after the MIR 162 announcement, DDGS prices shot straight up. “We’re already back where we were when China was going full bore,” Broderick says. “In mid- to late-December, we went from $110 FOB-Illinois to $185. “That’s a huge move, and it was driven by bulk shipments out of the Gulf (of Mexico).” Before the Dec. 22 announcement about MIR 162, China’s commodities import inspection agency, the General Administration

DDGS of Quality Supervision, Inspection and Quarantine, gave no outward indication that it was preparing to allow U.S. corn and DDGS back into the country. However, Ethanol Producer Magazine learned in late December that one major U.S. exporter had been allowed to ship 50,000 tons of DDGS to China, a vessel originating out of the Gulf. Several more shipments were planned for January. That limited activity got people talking. “Our importers called us and said a resolution was coming but nobody really had facts. It was all innuendo,” Ives says. “I really didn’t expect anything to happen until spring and then there it was.”

In Europe, where DDGS is difficult to import because of EU restrictions on genetically modified corn, only Ireland, Turkey and Spain remain significant buyers of the product. Turkey, however, rejected three shipments of DDGS in late November and early December, supposedly on the basis of the cargos being contaminated with an unapproved genetic corn trait. Ireland made a resurgence in buying when DDGS prices came down to 80 percent the price of corn in October. “Those low prices really brought back customers,” Ives says. “It’s amazing how fast everyone started putting on new sales around the world when

the prices came down. Customers in countries that hadn’t used a pound of DDGS in six to nine months came back pretty quickly.” Bargain DDGS prices, while short-lived, may have even gained the attention of buyers in prospective markets like the southern states of Mexico where, Cordero says, there is a large untapped market. “The potential there is enormous at more than 1 million metric tons of DDGS,” he says. “They have 4 million head of cattle or more.” Nicaraugua, too, has huge growth potential with more than 5 million head of cattle. “They already buy DDGS—very little and just

Portfolio Broadens

China’s renewed acceptance of DDGS represents a huge opening for the product's global market, but exporters are applying a disciplined approach to the opportunity. While China consumes 50 percent of all DDGS exports, Cordero says it is important to remember how critical other large, medium and small markets are. Since October, for example, Mexico has been the world’s top DDGS importer as China momentarily left the picture. In fact, America’s free-trade partner to the south was trending toward 1.5 million metric tons of DDGS imports at the end of 2014. “Mexico stepped up pretty seriously in the fourth quarter,” Broderick says. Cordero says 13 of the world’s top 15 DDGS importers increased their consumption of the product last year. “Mexico was up 21 percent. Japan was up 36 percent. Korea ended up more than 70 percent,” he says. “Look around the world. Look at exports to the U.K., Columbia, Thailand and Indonesia. They’re all up by two digits.” Charles says North Africa is another bright spot for DDGS exports. “Algiers, Algeria and Morocco are getting additional traction,” he says. Egypt, too, is a growing market for distillers grains. Cordero says importing corn into Egypt has opened a door for more DDGS. “Once corn starts moving into these markets, combination cargos become a reality,” he says, explaining that low corn prices allow exporters of DDGS to enter markets where they have been losing market share to other feeds in recent years. “Once we walk in with corn, we’re going to walk in with those combination cargos that include distillers,” he says.

We’re fueling ethanol exports around the world. Since 1960, the U.S. Grains Council has worked globally to find and build market opportunities for corn, sorghum and barley growers. Today, those opportunities include selling ethanol produced in America’s heartland to customers around the world who want to diversify their fuel sources and reduce their environmental footprints. When trade works, the world wins.

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FEBRUARY 2015 | Ethanol Producer Magazine | 39

DDGS

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for poultry—so we just need to educate their beef industry,” Cordero says. “These almost untouched markets, which are barely on our charts today, could bring a lot of stability to our industry.” The global DDGS market will be much less susceptible to disruptions if the USGC can successfully build more midsize markets outside of China. “Japan and South Korea are consistent 500,000-metric-ton markets,” Cordero says. “Those steady buyers help us sustain drops like the one we just experienced.” In fact, Ives says, every DDGS-importing nation is critical to the market’s total non-U.S. sales volume. “Somebody cares about every one of those countries, all the way down to the bottom of the list,” he says. “Somebody is trading to Panama, even though they only take 12,000 tons a year.” Cordero agrees, saying that the USGC’s principal goal is to build a broader global marketplace, as well as a larger one. “Some of these nations that buy DDGS are individually small, but they all add up,” he says. “And most of them are growing their purchases.” In fact, the only notable nongrowers in 2014 were Canada and Morocco. Canada, typically a top-three international buyer of DDGS, only imported 327,000 metric tons through October and was surpassed by South Korea, Vietnam, Japan and Turkey. Canada’s 2014 buying was down 20 percent while Morocco had dipped by nearly a third.

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Marketers of DDGS expect the product's price to stay around 110 to 120 percent the price of corn in 2015, but they’re remaining conservative with their predictions. “I am not really bullish on any feed or coarse grain going into the next six months,” Charles says. “It all comes down to feedstock and in the U.S. we are going to have close to a 2 billion-bushel corn carryout and a 400 to 425 million-bushel bean carryout into August. This in itself is bearish enough, but when looking at massive global stocks, one becomes additionally bearish. We are harvesting every ninety days around the globe. It’s a revolving door. Things change often and volatility calls for vigilance.” Broderick says the global demand for distillers grains will stay strong in 2015 and the market will be ready to supply China when it starts issuing new import permits and fully reenters the market. “In the end, it all depends on their reserves,” he says. “They have the ability to switch things on and off very quickly. The demand is over there and it sounds like the demand exists right now for it.” Cordero believes that, with low corn prices encouraging combination cargoes, this year’s DDGS exports could easily match 2014 numbers. “If you ask me, that would be a great thing,” he says. “With the way we ended last year, it would be awesome if we achieved the same or better numbers in 2015.” Author: Tom Bryan Editor In Chief, Ethanol Producer Magazine 701-746-8385 tbryan@bbiinternational.com

Louis Dreyfus Commodities 40 | Ethanol Producer Magazine | FEBRUARY 2015

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42 | Ethanol Producer Magazine | FEBRUARY 2015

FEBRUARY 2015 | Ethanol Producer Magazine | 43

MARKET DEVELOPMENT

ETHANOL AFLOAT: Located on the Illinois River, Marquis Energy (shown at the back left) utilizes barges to ship its ethanol down the Mississippi River system, through Houston and on to international destinations. PHOTO: MARK MARQUIS, MARQUIS ENERGY

44 | Ethanol Producer Magazine | FEBRUARY 2015

MARKET DEVELOPMENT

Opening Channels For Export Trade missions set out to identify opportunities and constraints in ethanol export markets. By Susanne Retka Schill

The U.S. Grains Council is teaming up with Growth Energy, the Renewable Fuels Association and the USDA Foreign Agriculture Service on a new four-way partnership in ethanol export market development.

There’s a big difference between trade and market development, says Tom Sleight, CEO of the U.S. Grains Council. “Marketing is seizing on current activity. There are some curious markets that have developed in the current ethanol scheme that are quite good, but somewhat built on curiosities in market access. For instance, the Philippines brings in ethanol and sends some of that blended fuel up to China, which actually has a current ban on the importation of ethanol as ethanol. The United Arab Emirates is a big, strong importer of ethanol right now, mainly because of octane reasons. Norway is a fairly good market right now, because of some of the curiosities of biofuel policies in the European Union. All these current markets are very important. We want to maintain them. But we want to get after those core constraints that exist in markets that prohibit them from growing.” Those may be trade barriers, internal policies or other market constraints, he explains. By year-end, three trade teams organized by the U.S. Grains Council visited six countries to assess those opportunities and constraints:

FEBRUARY 2015 | Ethanol Producer Magazine | 45

MARKET DEVELOPMENT

Japan, Korea, Panama, Peru, Singapore and Philippines. Eric Mosbey, general manager of Lincolnland Agri-Energy LLC, was on the team that visited Japan and Korea. “The purpose was to learn as much as possible about market opportunities in these countries. I think we learned there are potential opportunities, but we do have a lot of work to do, just as we do here in the U.S., on education and selling the benefits of our product. There are potential doors to open, but they’re not going to open on their own.” Alex Marquis, logistics manager at Marquis Energy LLC, was part of the team that visited Peru and Panama. Opening channels of communication is an important first step, he says, “developing relationships and connections with the key players, be it government officials or private entities, in Peru, Panama and these other areas where the U.S. Grains Council is sending representatives on these trade missions. Being able to share information and outline where things are and where things need to go.” The initiative has been in the making for two or three years, Sleight says. “It’s been an ongoing conversation with our constituents, corn states, agribusiness members and the ethanol industry, including Growth Energy and the Renewable Fu-

‘I would encourage any producer to participate in these trade missions that they’re going to have. That’s where the expertise comes from and that’s what the grains council is relying upon. Having the expertise to represent us well is important.’ els Association.” The big corn harvests of the past two years, growing year-end stocks and increased competition globally for corn exports entered the conversation, he says. “A lot of discussion within the corn sector started to gravitate towards, ‘should we be looking a lot more aggressively at export market development for ethanol?’” Long a promoter of distillers grains exports around the world, the USGC needed two more things to happen. First, the Farm Bill had to make it through Congress to reauthorize and fund the Market Access Program, a public-private partnership for export market development through the USDA Foreign Agriculture Service. The final piece was the formal authorization that FAS resources and MAP funding could be

used for biofuels, announced by Secretary of Agriculture Tom Vilsack at the Commodity Classic last winter. A steering committee was formed to cement the four-way partnership among USGC, FAS, Growth Energy and RFA and an advisory committee of USGC members was formed with Ray Defenbaugh, CEO of Big River Resources LLC, appointed chair. “We have been working on this for a considerable amount of time as an effort between the ethanol producer organizations, independent producers as well as the grains council,” Defenbaugh says. “We could see it coming.” Unusual weather events, primarily the drought, shortened the corn crop, he recalls, taking the pressure off for a couple years. “But we knew that wouldn’t last and when we got back to normal, we would have a surplus of grains. A good use of that is for value-added products such as ethanol.” The grains council was ready to move. “We started in April,” says Ashley Kongs, manager of ethanol export programs at USGC, “putting together a list of countries and creating profiles as to where they currently stand with biofuels policies, if they’re exporting, if they have a mandate, what the environment for renewable energy is there, how focused they are on looking for alternative sources of energy. We created this

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MARKET DEVELOPMENT

USGC Ethanol A-Team

Ray Defenbaugh, Big River Resources LLC, chairman Chad Willis, Minnesota Corn Research & Promotion Council Joel Williams, Archer Daniels Midland Co. Keith Truckor, Illinois Corn Marketing Board Phil Thornton, Illinois Corn Marketing Board David Spickler, Blue Flint Ethanol LLC Rick Schwarck, Absolute Energy LLC Darrel McAlexander, Iowa Corn Promotion Board Alex Marquis, Marquis Grain Inc. Duane Kristensen, Chief Ethanol Fuel Inc. Greg Krissek, Kansas Corn Commission Kent Kleinschmidt, Illinois Corn Marketing Board

map of the ethanol markets that we wanted to look at and, from there, we decided to highlight some of the countries that most interested us in the initial stage of exploring the markets.” The three trade missions were planned for the end of the year, plus USGC was able to add an ethanol component to a USDA market development mission to China conducted in May. The trade teams have been quite small, just five or six people. The list includes Kongs, a USGC regional or coun-

Paul Jeschke, Illinois Corn Marketing Board Jim Galvin, Lakeview Energy LLC Kathy Frahm, Farm Credit Services of America Jay Fischer, Missouri Corn Merchandising Council Dale Drachenberg, Didion Inc. Greg Dare, Illinois Corn Processing LLC Kimberly Clark, Nebraska Corn Board Steve Bleyl, Green Plains Inc. Eric Baukol, Heron Lake BioEnergy LLC Erick Erickson, USGC Jim Stuever, Missouri Corn Merchandising Council Dick Gallagher, Iowa Corn Promotion Board

try director, an ethanol producer or two, and a staff member from an ethanol organization partner. The groups have met with academics, government officials and potential buyers in each of the countries.

First Look

The trip to Japan and Korea was first. Korea uses industrial ethanol, but no fuel ethanol, says Kongs. “We talked to policy marketers and researchers in Korea about why that is.” Japan has an E3 blend limit,

not a mandate, she continues, but has done little ethanol blending. “They’ve done a limited-scale ethanol trial in Okinawa. They have about 100 filling stations where E3 gasoline is on sale. But it’s only in that one area and it hasn’t spread to the rest of the country.” Food security is a big issue for densely populated countries like Japan and Korea, says Mosbey. “The spike in prices all the way back in 2008 really turned those countries off,” he says. “We’ve had a lot of improve-

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FEBRUARY 2015 | Ethanol Producer Magazine | 47

MARKET DEVELOPMENT ments and efficiency gains in the industry in the last five to seven years, but theyâ&#x20AC;&#x2122;re still using old, outdated information.â&#x20AC;? Ethanol can help these two densely populated countries with other issues, Mosbey suggests. â&#x20AC;&#x153;The one thing those countries do need is a cleaner fuel, and carbon emissions are definitely on their minds. Ethanol has to stay in the conversation for them because of that.â&#x20AC;?

Peru and Panama have very different dynamics regarding biofuels. Panama adopted an E5 mandate in 2013 that has since been suspended, leaving a sour taste with the public when it emerged that some government officials might have personal interests in Panamaâ&#x20AC;&#x2122;s sole ethanol plant. Panamaâ&#x20AC;&#x2122;s past experience with ethanol also left some unfavorable impressions. There was a price disconnect that put the price of etha-

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nol too high, Marquis reports. The key to introducing ethanol more successfully will be education of the general public and government officials on the benefits of ethanol and what it can do, he says, benefits such as clean emissions, high octane, the potential price benefits and the boost it gives to transportation fuels. Where Panama is using no ethanol right now, Peru has a 7.8 percent blend rate. â&#x20AC;&#x153;Theyâ&#x20AC;&#x2122;re using ethanol, theyâ&#x20AC;&#x2122;re importing it,â&#x20AC;? Marquis says. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s encouraging that thereâ&#x20AC;&#x2122;s a base to build off. Coming from Marquis Energy where we produce and ship ethanol domestically and globally, we want to see that 7.8 percent grow.â&#x20AC;? The trade missionâ&#x20AC;&#x2122;s task was to learn more about Peruâ&#x20AC;&#x2122;s industry and trade. Peruâ&#x20AC;&#x2122;s domestic ethanol production has grown in recent years, though it still doesnâ&#x20AC;&#x2122;t meet the countryâ&#x20AC;&#x2122;s needs. On top of that shortfall, Peruâ&#x20AC;&#x2122;s sugarcane-based ethanolâ&#x20AC;&#x2122;s low-carbon rating attracts European buyers, making room for imported ethanol from the U.S. While countries like Japan and Korea could benefit from the lower carbon scores of U.S. ethanol, the benefits of ethanol imports wouldnâ&#x20AC;&#x2122;t be as significant for Peru in that area, given the low-carbon scores of its own production, Marquis says, though ethanol might be attractive for another reason. â&#x20AC;&#x153;The benefits might be seen for the refiners and also for the consumers more on the octane rating,â&#x20AC;? he says. â&#x20AC;&#x153;We learned the refiners are blending their gasoline to a 95 octane rating before blending in the ethanol.â&#x20AC;? The last trade mission in December sought to learn more about what appears to be a very promising Southeast Asian market with visits to Singapore and the Philippines. Singapore, for instance, is a refining hub and trade center for the region and could potentially become a destination for more U.S. ethanol. The Philippines has an enforced E10 mandate that its four ethanol producers fall short of meeting. Last year, the country imported 51 million gallons of U.S. ethanol, making it the second largest market after Canada. The countryâ&#x20AC;&#x2122;s domestic industry lacks the scale and efficiencies necessary to be competitive in the

MARKET DEVELOPMENT global ethanol market, and availability of feedstock remains one of its largest constraints. The USGC reports the Philippine Department of Energy has ambitious plans to continue to ramp up the ethanol blend rate which has moved from E5 to E10 over the past two years and is set to reach E20 by 2020.

Steps Ahead

Sleight explains the market assessment initiative for ethanol follows the formula the council has successfully used since it began in 1960 to develop a coordinated, strategic market development strategy. “We go and start talking to our contacts, the current people who may be importing, talking about policy barriers and constraints to market access, be that price or policy or whatever,” he says. He is pleased with the initiative’s progress in the first year. “It’s happening quickly, it’s going well, and it’s going better than I thought it would be. It’s going faster than I thought it would,” Sleight says. The next steps for the steering committee representing the four partners—USGC, FAS, Growth Energy and RFA—will be to evaluate what’s been learned, decide whether a few more countries need initial assessment missions and where to focus 2015 efforts, as well as plan for 2016. “When the U.S. Grains Council builds market develop programs, our directors overseas are always taught to think strategically,” Sleight says, “to think in sequential steps, identify constraints and plan activities to address those constraints and implement those. It’s a marriage between our ability to create export market development strategies combined with RFA and Growth’s technical and marketing expertise. It makes a really strong partnership.” The USGC used about $125,000 worth of programming for fiscal year 2014, which ended Sept. 30, and has earmarked about $500,000 for export market development activities in 2015. The budget and goals for 2016 will be determined in the next few months as well. Recalling his several trips with the USGC in promoting distillers grains exports around the world, Defenbaugh adds,

“I would encourage any producer to participate in these trade missions that they’re going to have. That’s where the expertise comes from and that’s what the grains council is relying upon. Having the expertise to represent us well is important.” “It’s been really great to take producers and ethanol industry folks on these missions,” Kongs concurs. “It’s been really helpful to be able to involve them in discus-

sions when we go and meet with policymakers in Korea or trading houses or groups in Japan and Peru and Panama. It’s been really helpful to have that hands-on experience in the room.” Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine 701-738-4922 sretkaschill@bbiinternational.com

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FEBRUARY 2015 | Ethanol Producer Magazine | 49

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FEBRUARY 2015 | Ethanol Producer Magazine | 53

USE

BASIC POPULARITY: Volkswagen do Brasil has built the Gol since 1980. The economical subcompact meets the needs of Brazilian consumers, including running on any blend of ethanol, up to E100. PHOTO: VOLKSWAGEN DO BRASIL

54 | Ethanol Producer Magazine | FEBRUARY 2015

USE

TotalFlex Capabilities

Volkwagen Gol sets shining example for flex-fuel vehicles. By Susanne Retka Schill

The Volkwagen Gol is a subcompact with admirable capabilities. It runs on any blend ethanol up to E100, automatically adjusting the engine for differing blends. Plus, a unique system solves the problem with cold starts on straight ethanol. VW calls it a TotalFlex vehicle. Unfortunately for U.S. ethanol supporters, it’s only available in Brazil and handful of neighboring countries. John Voelcker is one American who’s gotten a close look at the Gol. The editor of Green Car Reports, he test-drove the Gol in Brazil. “Given that this was a smaller and simpler vehicle for an audience that is less demanding in some ways than wealthier North American buyers, I was curious to see if there were compromises,” he says. “I couldn’t find any. It behaved exactly as I expected it to. The responsiveness, the engine behavior did exactly what it should do. There was no stumbling, none of that—it’s a perfectly modern car that was able to accommodate different liquids in its tank. I think that’s a huge accomplishment.” In writing about his trip to Brazil to test drive the Volkswagen, Voelcker told his readers, “While many North Americans may not know it, Brazil presently leads the world in deploying biofuels for road vehicles. Specifically, a majority of cars sold in Brazil—especially lower-price, high-volume models built in the country—can run either on gasoline or pure ethanol.” That wasn’t always the case. “Brazil has had two waves of ethanol cars,” Voelcker tells Ethanol Producer Magazine. “The first ones in the late ’70s and early ’80s were pretty substandard compared to today’s cars and to gasoline cars at the time.” Most used carburetors or poor fuel injection systems when compared to today’s fuel injectors that benefit from 30 years of improvements in computer software, microprocessing speed and sensors, he explains. “You couldn’t have made the car we have today, 30 years ago. Those cars were only ethanol, they weren’t flex fuel. Wave two has been flex fuel, which in the states we define as E85 but in Brazil can be up to E100.” The base fuel in Brazil is anywhere from

FEBRUARY 2015 | Ethanol Producer Magazine | 55

USE Gol 1.0 liter Total Flex (2 door) PERFORMANCE Acceleration

E22

E100

1-100 km/h (in seconds)

13.4

12.9

0-1,000 meters (in seconds)

35.5

35.1

80-120 km/h, 5th gear (in seconds)

19.6

18.7

163

165

Top Speed (km/h)

Gol 1.6 liter Total Flex (2 door) PERFORMANCE Acceleration 1-100 km/h (in seconds) 0-1,000 meters (in seconds) 80-120 km/h, 5th gear (in seconds)

Top Speed (km/h)

E22

E100

9.9

9.7

31.6

31.3

12.9

188

190

SURE START: The heating element for the engine fuel rail in a Volkswagen Gol enables easy starting on E100 in cold weather in Brazil. PHOTO: JOHN VOELCKER, GREEN CAR REPORTS

SOURCE: VOLKSWAGEN DO BRASIL

E20 to E25, he adds. “I didn’t ask about G100 [straight gasoline], because it wasn’t relevant.” When Brazil adopted stricter emissions controls, VW moved away from carburetors to fuel injection and catalytic converters. “That technology enabled the flex-fuel capability, but still they’re doing it as inexpensively as they can, while maintaining reliability,” he explains. “The goal was to make a car that could run on gasoline or ethanol or any combination of the two without the driver really noticing. What has enabled that is modern sensors and engine control software.” “Modern emissions control equipment on engines is really remarkably sophisticated,” he continues. “You have three-way catalytic converters that monitor each combustion cycle, in effect, and

56 | Ethanol Producer Magazine | FEBRUARY 2015

adjust on the fly.” The current Gol can discern what fuel is coming into the engine and adjust its combustion programming accordingly. “Two lambda sensors in the exhaust system—one before the catalytic converter, one after—continuously monitor the oxygen content of the exhaust. Their input lets the engine-control system choose one of roughly 2,000 different combustion maps to optimize power, smoothness, and fuel efficiency. And the car remembers what fuel it has in its tank, so it effectively resets its engine programming after each fill-up.” The first wave of ethanol cars were known to be temperamental starters in cold temperatures, and most included a small, ancillary gasoline tank for cold starts that consumers would forget to keep full. VW eliminated that by building a heating element directly

NO G100: Basic fuel in Brazil ranges from E20 to E25. PHOTO: JOHN VOELCKER, GREEN CAR REPORTS

into the fuel-injection rail. In cold weather, as soon as the driver’s door opens, the car uses battery energy to heat up the element even before the driver turns the key. It heats up the fuel enough to eliminate the problem with ethanol starts. A Volkswagen do Brasil spokesman explains the Gol was developed for the Brazilian market, where the lowest temperature observed is about minus 5 Celsius (23 degrees Fahrenheit). At that temperature and using hydrated ethanol, the VW Gol starts within two seconds. Hydrated ethanol, he goes on to explain, is used for cars designed to handle E100. It contains between 4 and 5 percent water. “Obviously, this water is not burnt in the combustion of ethanol, but its presence increases the octane number of the fuel, which allows for a higher compression ratio, increasing the performance and efficiency of the vehicle. However, the presence of water also

increases the corrosion of ethanol, forcing the use of stronger metals.” Built since 1980, the VW Gol has been Brazil’s most popular vehicle for 27 years, Voelcker reports, with Volkswagen do Brasil building more than 7.5 million. “The one thing to remember about Brazil is that it is not as affluent a car market as the U.S., so the Gol, which is extremely popular in Brazil, is what we would consider a subcompact that does not include a number of the safety or entertainment features we would expect in even a low-priced subcompact,” the Green Car Reports editor says. “It’s a car designed specifically for Brazil and a handful of nearby markets.” Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine 701-738-4922 sretkaschill@bbiinternational.com

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BUSINESS MATTERS

Export Incentive Viable Option For Producers By Donna Funk

In the past four years, U.S. ethanol exports have increased 47 percent. If you're one of the many producers

who sell ethanol internationally, you may qualify for the Interest Charge-Domestic International Sales Corp. export incentive. To encourage export activity in the global market, the government incentive rewards businesses for global reach and impact by offering up to a 20 percent lower tax rate for certain types of products sold internationally. The export incentive is a great way to manage tax impact and preserve cash, ultimately returning value to shareholders. Under this tax strategy, the exporter pays commissions to the IC-DISC. The commissions are deductible as an ordinary business expense by the exporter. The IC-DISC then pays a qualified dividend to the shareholder or shareholders of the IC-DISC. Generally, the ordinary tax rate for income on exports of inventory items is about 34 percent. The IC-DISC lowers this, generating approximately 15 percent savings, an incredible strategy for selling a product in the global market. While a huge benefit, the rules are complex. There are qualifications that must be met in order for international sales to qualify as export sales eligible for IC-DISC treatment, as well as certain thresholds that must be met and maintained as they relate to classes of stock, minimum capital, asset levels, etc. It is important to know and understand all the details, but also important to remember that once you understand them, it is not hard to create and maintain the IC-DISC structure to maximize the tax benefits associated with it. The IC-DISC benefit is recognized by the Internal Revenue Service and has withstood scrutiny in the past. Like all good things seen as too good to be true, it comes under attack occasionally and is therefore targeted for repeal. So far, the benefit has been accepted widely enough to withstand the attacks.

58 | Ethanol Producer Magazine | FEBRUARY 2015

If you are exporting just once or inconsistently, the incentive might not be a good option for your business. But for those producing a product manufactured in the U.S. and exportedâ&#x20AC;&#x201D;and can prove it was exportedâ&#x20AC;&#x201D;it could be considered a qualifying activity. For instance, one K-Coe Isom ethanol client began exporting several years ago. We monitored export activity for about three years and, when the plant reached a significant export volume level, we recommended they implement the IC-DISC strategy. Currently, the company exports about 35 percent, or about 40 million gallons, of its total production and is maximizing its tax savings. Given the trend, K-Coe Isom expects ethanol export activity to continue at varying levels based on competitive market conditions, making this incentive a viable option for even more ethanol producers. We are working with many clients who export due to ethanol being such an attractive, low-cost, carbon molecule. By helping establish the right structure, and ensuring they are complying with the rules and regulations as defined by the IRS, they are realizing the tax advantages of the export incentive. To determine the benefit for your specific circumstance and if the export incentive is worth pursuing, consult with your financial services partner. Authors: Donna Funk, CPA Principal, K-Coe Isom 800-303-3241 funk@kcoe.com

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CORN

Swings in Corn Supply, Demand Impact Global Markets Record global supplies and increased competition limit growth for U.S. corn exports in the short-term. By Chad Hart

The past several years have been a wild ride in the corn market, from the record high prices in 2010, 2011 and 2012 to the record high production of 2013 and 2014. Itâ&#x20AC;&#x2122;s been a tale of swings, in both supply and demand. One of the demand areas that has swung the most

is export demand. As the U.S. is the worldâ&#x20AC;&#x2122;s major producer of corn, often the rest of the world looks to the U.S. to source its feed grains. But several factors have come together to limit potential corn exports. Global supplies have grown, more players have entered the export markets, and global demand is precarious, as much of the global economy is still moving more slowly than expected.

CONTRIBUTION: 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 should be directed to the author(s).

60 | Ethanol Producer Magazine | FEBRUARY 2015

CORN

Table 1. Global Corn Production 2010/11 World U.S. Argentina Brazil Canada China EU India Mexico Russia South Africa Ukraine

32,887 12,447 992 2,260 474 6,978 2,294 855 829 121 430 469

As Table 1 outlines, global corn production has increased dramatically over the past few years. Those record high prices from 2010 to 2012 created a strong incentive for producers around the world to grow more corn and the producers responded. World corn supplies are up nearly 20 percent over the past five years. And the expansion has truly been global with the U.S., Brazil, China, EU, Russia, South Africa and Ukraine all experiencing double-digit growth. In fact, the corn expansion in the Black Sea region has been tremendous, with corn production more than doubling in the region. World corn production has reached record levels the past two years. Thus, global corn markets are dealing with a lot more corn than usual. And, much of this added production has been targeted for export markets. Argentina and Brazil ramped up corn exports to fill in the hole left in the global corn market by the drought in the U.S. in 2012. Russia is projected to export roughly 25 percent of its corn crop. Ukraine will likely export over half of its corn production. So the global marketplace has a number of new important shops open for business. At the same time, many of the major corn importers have raised more of their own corn as well, limiting the amount of corn needed to be brought in country.

Factors Limiting Growth

As Figure 1 on the next page shows, U.S. corn exports this year are running slightly behind last yearâ&#x20AC;&#x2122;s pace. The U.S. corn market saw a drastic pullback in export demand with the 2012 crop, given the drought and the $7-per-bushel price that accompanied it. Since then, the rebound in corn exports has been significant, but

2011/12 2012/13 (million bushels) 34,965 12,360 827 2,874 447 7,589 2,682 857 737 274 502 899

34,170 10,755 1,063 3,208 514 8,095 2,317 876 850 323 487 824

2013/14

2014/15

38,947 13,925 984 3,122 559 8,602 2,527 953 905 457 583 1,216

39,037 14,407 866 2,953 453 8,484 2,897 827 905 472 531 1,063

the market is still well below record levels. Global corn consumers have come back to U.S. corn, but the availability of corn from other markets dampened the response. The record year for corn exports was 2007-â&#x20AC;&#x2122;08, when roughly 2.4 billion bushels crossed the U.S. border. Current estimates for the 2014-â&#x20AC;&#x2122;15 crop year put exports in the 1.75 billion bushel range. So there is a lot of potential room for growth in export demand. But record global supplies and increased competition are limiting that growth. Another factor working against U.S. corn exports is the strength of the dollar. As corn and energy prices have weakened over the summer and fall, the dollar has been strengthening. Since July, the U.S. dollar index has increased by approximately 10 percent. That strength is coming from concerns about the growth of global economies. As economies around the world slow, investors look for a safe haven, and the dollar is still seen as that. As the dollar strengthens, it makes U.S. goods, like corn and ethanol, look more expensive relative to the same products from other countries. However, the impact of the dollar is not uniform across the globe. Some countries do not feel the swings in the value of the dollar as they fix or peg the currency exchange rate. These countries are mainly smaller economies from Asia and Africa, but China was the last major economy to peg its exchange rate. Most countries and economies, however, do feel the value swings in the dollar and, therefore, react to the strengthening of the dollar via lower export demand. A third factor working against U.S. corn exports over the past year has been the trade dispute between China and the U.S. over genetically modified corn. While that dispute is coming to an end,

FEBRUARY 2015 | Ethanol Producer Magazine | 61

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it was a significant disruption to the corn export market. In the fall and early winter of 2013, China was the third-largest export market for U.S. corn, accounting for roughly 10 percent of exports at the time. The dispute reduced China’s corn purchase from the U.S. to near zero, as Figure 2 shows. The temporary loss of the Chinese market limited the potential for export growth.

Factors Promoting Growth

There have been other factors, however, that are promoting growth in U.S. corn exports. The major one at the moment is the expansion of trade with partners under trade agreements. Trade

agreements with Asian and Central and South American countries continue to pay dividends for corn exports. Just as Mexico grew to be a major corn trade partner after the signing of the North American Free Trade Agreement, Colombia, Peru and South Korea are growing corn markets for the U.S. after the signing of trade agreements with those countries. And, the general reduction in U.S. corn prices over the past two years has boosted export prospects. In the short term, the corn outlook is for a slight reduction in corn exports for the 2014 marketing year (Sept. 1, 2014, to Aug. 31, 2015), with the large global supplies and the strength of the dollar being the overriding factors. But longer term, U.S. corn exports are projected to rise during the next decade. In mid-December, USDA released a preliminary view of its long-term agricultural projections. Those projections showed corn exports growing from 1.75 billion bushels for the 2014 marketing year to 2.5 billion bushels in 2024. Much of this projected growth is based on improving global economic conditions, larger populations and slowly rising corn prices and production. On a percentage basis, we currently export about 12 percent of the total U.S. corn crop. By 2024, USDA projects weâ&#x20AC;&#x2122;ll export roughly 17 percent of the crop. The U.S. is still the dominant player in the global corn market. We produce approximately one-third of the worldâ&#x20AC;&#x2122;s corn. And as the USDA projections indicate, export markets will remain a crucial outlet for U.S. corn for years to come. Author: Chad E. Hart Associate Professor of Economics/Extension Economist Iowa State University chart@iastate.edu 515-294-9911

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