March 2014 Ethanol Producer Magazine

INSIDE: THE QUEST FOR 500-BUSHEL CORN MARCH 2014

Growing

Expenses Illuminating the High Cost of Corn Farming Page 38

Plus: Why Broad Effects of

RFS Curtailment Outweigh Near-Term Concerns Page 28

And:

Inside Green Plains Renewable Energy's Corn Storage Strategy

Page 36

www.EthanolProducer.com

BROUGHT TO YOU BY GROWTH ENERGY. From advocating for ethanol on Capitol Hill, to validating higher ethanol blends through NASCAR®, to calling out Big Oil with a national television campaign, Growth Energy is there for the producers and supporters of the ethanol industry.

We know we’re in a battle, but we’re ready for the fight.

Learn more at GrowthEnergy.org

Austin Dillon and Austin Dillon’s autograph are trademarks of Austin Dillon. All trademarks and the likeness of the No. 39 racecar are used under license from their owners.

NASCARh is a registered trademark of the National Association of Stock Car Auto Racing, Inc.

CONTENTS

MARCH 2014

DEPARTMENTS 6

EDITOR'S NOTE

7

AD INDEX

10

THE WAY I SEE IT

11

EVENTS CALENDAR

12

VIEW FROM THE HILL

14

DRIVE

VOLUME 20 ISSUE 3

FEATURES

Corn Price, Production Cost Questions Abound

By Tom Bryan

Has Ethanol Become the Fly in the Punch Bowl?

By Mike Bryan

Give Me a Renewable Future

By Bob Dinneen

28

36

2014: The Year of E15

By Tom Buis

MARKET

STORAGE

16

GRASSROOTS VOICE

The long-term consequences of restraining ethanol blending eclipse today’s worries.

By Tom Bryan

Green Plains’ transition to outdoor corn storage is paying off.

By Susanne Retka Schill

18

EUROPE CALLING

20

BUSINESS BRIEFS

22

COMMODITIES

24

DISTILLED

46

BUSINESS MATTERS

48

TALKING POINT

50

MARKETPLACE

Volunteer, Professional Lobbyists Aim for EPA Turnaround

By Brian Jennings

Obligation Outcomes

Piling It On, Strategically

Don't Fix What's Not Broke

By Robert Vierhout

New SEC Rules Change the Landscape for Raising Capital

By Joseph F. Leo Taking the Helm of the Distillers Grains Technology Council

By Kurt A. Rosentrater

38

44

INPUTS

YIELD

Corn’s price has come down, but its high production costs haven’t—yet.

By Chris Hanson

With average corn yields growing larger, are today's anomalies tomorrow's norm?

By Chris Hanson

Production Price Up ON THE COVER John Deere S690 combines harvest corn at dusk.

PHOTO: DEERE & CO.

4 | Ethanol Producer Magazine | MARCH 2014

Fields of Dreams

Ethanol Producer Magazine: (USPS No. 023-974) March 2014, Vol. 20, Issue 3. 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.

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EDITOR'S NOTE

Corn Price, Production Cost Questions Abound Throughout the 60-day public comment period on the U.S. EPA’s proposed reductions to 2014 renewable volume obligations (RVOs), the agency received thousands of pleas from American farmers and biofuels producers who voiced a litany of concerns over curtailed biofuels blending. Retreating from the schedule of the renewable

Tom Bryan

President & Editor in Chief tbryan@bbiinternational.com

fuel standard, they said, could delay E15 implementation, interrupt E85 infrastructure, destroy advanced biofuels market incentives, and discourage innovation and investment.

Many of them also said lowering the blending requirement would reduce the price of corn.

In this issue, we look closely at the latter assertion—that reducing 2014 RVOs might put downward pressure on corn prices—while also examining the high cost of corn production. We discover that certain farming expenses, like land rents, may be decreasing this year, but perhaps not enough to make up for the possibility of $4 corn. As EPM Staff Writer Chris Hanson reports in our page-38 cover story, “Production Price Up,” the bloated outlays of growing ethanol’s principal feedstock, including the cost of fertilizer, seed, acreage and accelerated machinery depreciation, have probably ushered in a higher breakeven point for growers.

With greater production expenses and new breakeven points in mind, we look at the relationship between corn’s market price and lower-than-statutory ethanol blending.

In “Obligation Outcomes,” on page 28, we see that industry observers think ethanol blending—up to 10 percent—is so deep-seated into America’s transportation fuel supply that even removing the RFS wouldn’t stop it now. So reducing RVOs this year would do little to corn prices, they say, but it would stall advanced biofuels, prolong the E10 blend wall and, along the way, score a victory for Big Oil. This month’s focus on corn also takes us inside Green Plains Renewable Energy’s corn storage strategy. On page 36, EPM Senior Editor Susanne Retka Schill reports that Green Plains is aiming for an enormous storage capacity, large enough to provide its 12 ethanol plants with a 45- to 60-day feedstock supply.

Increased storage capacity will be compulsory for a lot of folks if Dave Nanda’s corn yield predictions come to fruition. As Hanson reports in “Fields of Dreams,” on page 44, the crop consultant’s vision for 500-bushel-per-acre corn may soon be in reach. If today’s award-winning yields do become tomorrow’s average crops, it sure will be interesting to see what it does to the price of corn and the cost of its production.

FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: 6 | Ethanol Producer Magazine | MARCH 2014

TWITTER.COM/ETHANOLMAGAZINE

ADVERTISER INDEX VOLUME 20 ISSUE 3

EDITORIAL President & Editor in Cheif 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

2014 International Biomass Conference & Expo

47

2014 International Fuel Ethanol Workshop & Expo

51

2014 National Advanced Biofuels Conference & Expo

26

2015 National Ethanol Conference

13

BetaTec Hop Products

17

Buckman

20

Cloud/Sellers Cleaning Systems

49

CHS Renewable Fuels

53

DuPont Industrial Biosciences

15 3

Fagen, Inc.

Staff Writer Chris Hanson chanson@bbiinternational.com Copy Editor Jan Tellmann jtellmann@bbiinternational.com

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

Fuel Ethanol Industry Directory

34

Fluid Quip Process Technologies, LLC

32

Gamajet Cleaning Systems, Inc.

30

Growth Energy

2

Hydro-Klean LLC

5

ICM, Inc.

11

Inbicon

8-9

PUBLISHING

INTL FCStone, Inc.

42

Chairman Mike Bryan mbryan@bbiinternational.com

KC Supply Co. Inc.

24

Kennedy and Coe, LLC

45

Lakos Separators and Filtration Systems

41

Methes Energies

25

Nalco, an Ecolab Company

43

Phibro Ethanol Performance Group

52

POET-DSM Advanced Biofuels

19

RPMG, Inc.

33

Sukup Manufacturing Co.

35

Tower Performance, Inc.

31

Victory Energy Operations, LLC

40

Vogelbusch USA, Inc.

21

Wabash Power Equipment Co.

37

WINBCO

27

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 Chip Shereck cshereck@bbiinternational.com Account Manager Kelsi Brorby kbrorby@bbiinternational.com Marketing Director John Nelson jnelson@bbiinternational.com Circulation Manager Jessica Beaudry jbeaudry@bbiinternational.com Traffic & Marketing Coordinator Marla DeFoe mdefoe@bbiinternational.com

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or service@bbiinternational.com.

Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to hjessen@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

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COPYRIGHT Š 2014 by BBI International TM

MARCH 2014 | Ethanol Producer Magazine | 7

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THE WAY I SEE IT

Has Ethanol Become the Fly in the Punch Bowl?

By Mike Bryan

I thought perhaps that I should write something in this column about the current renewable fuel standard issue and then realized that probably everything that can be said, has been said and, likely, many times over. Then I began to wonder how we got into

this position in the first place.

In the early years, ethanol was viewed by many as the darling of the dance, the future of domestic energy and the savior of rural America. Somehow along the way, we became the fly floating in the punch bowl. I’m not exactly sure how it happened, but the unbridled exuberance that built this industry has begun to wane and the passion that once drove us on to great things has become the staid love of a 30-year marriage.

What’s changed? Ethanol still is the finest domestically produced renewable fuel in the world. It continues to pump billions of dollars into the rural economy, contributes to a cleaner environment and creates thousands of jobs. In fact, ethanol remains the unchallenged champion of renewable liquid fuels.

On the other hand, many things have changed. The production process of ethanol is 50 percent more efficient today than it was at its inception. We get 20 percent more ethanol from a bushel of corn than we did in 1985. In terms of production efficiency, ethanol has made greater advancements than oil. So while the basic premise of ethanol has not changed since the very beginning, the energy efficiency, the cost of production and the resulting environmental contributions have changed dramatically.

If we examine where we are today compared to where we were 30 years ago, we can emphatically say that the reason ethanol was introduced in the first place has not changed and the production process has substantially improved. So why, one has to ask, have we suddenly become the fly in the punch bowl?

10 | Ethanol Producer Magazine | MARCH 2014

It’s easy to blame Big Oil and, make no mistake, if we peel back the onion on much of our industry’s problems, we will find millions of dollars with oil stains on them. But I think it goes deeper than that. I think we have never really sold the public on ethanol. You see, most people in the city think food comes from the supermarket, they simply do not equate food on the table with farming and the financial risks that farming entails. To ask them to try and understand why ethanol helps the farmer, who feeds the people, who think milk comes from a carton, may be a bridge too far.

I think that we need to examine some of our strategies of the past to better assess where we are today. We are in a battle for the life of this industry with a competitor that has polluted our environment, had a multitude of environmental disasters and driven the price of driving nearly out of reach of many Americans, while they rake in hundreds of billions of dollars in profits, and we’re losing!

Why? Because we don’t have the general public on our side. We have the farming community, at least most of them, but we have not convinced the general public that ethanol is important to agriculture, important to the environment and, as a result, is important to them.

We can beat Big Oil, as we have in the past, but as we move forward, part of the go-forward strategy, even at this late date, has to be to a stronger emphasis on selling the merits of ethanol to the public. I know this is a timeworn effort that never seems to go anywhere, but if we are going to win the war, we need more troops than just farmers.

That’s the way I see it!

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

EVENTS CALENDAR Bioenergy Project Development Seminar March 24, 2014 Orange County Convention Center Orlando, Florida Co-located with the 2014 International Biomass Conference & Expo, being held in Orlando, Florida the Bioenergy Project Development Summit is designed to walk attendees in a stepwise fashion through the project development life cycle this pre-conference seminar will feature presenters with deep experience in moving projects out of the concept phase and into the construction phase. Attendees will learn about early project feasibility work, the role that economic developers and host communities can and soul play, how project capital is accumulated and the importance of a quality off take agreement.

866-746-8385 | www.biomassconference.com

International Biomass Conference & Expo March 24-26, 2014 Orange County Convention Center Orlando, Florida Organized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. This event is the world’s premier educational and networking junction for all biomass industries.

866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo June 9 -12, 2014 Indiana Convention Center Indianapolis, Indiana Now in its 30th year, the FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.

866-746-8385 | www.fuelethanolworkshop.com

National Advanced Biofuels Conference & Expo October 13-15, 2014 Hyatt Minneapolis Minneapolis, Minnesota Produced by BBI International, this event will feature the world of advanced biofuels and biobased chemicals— technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. With a vertically integrated program and audience, this event is tailored for industry professionals engaged in producing, developing and deploying advanced biofuels, biobased platform chemicals, polymers and other renewable molecules that have the potential to meet or exceed the performance of petroleum-derived products.

866-746-8385 | www.advancedbiofuelsconference.com

VIEW FROM THE HILL

Give Me a Renewable Future

By Bob Dinneen

There has been significant fascination with the fracking fever in North Dakota, where towns are booming and unemployment is falling. Indeed, politicians are tripping over themselves

trumpeting the economic and energy success of America’s newfound energy bonanza. And while we should all be encouraged by the increased employment, I would caution some of those caught up in the irrational exuberance of the boom that there may all too soon be the devastating reality of the bust. After all, oil is a finite resource. And tight oil supplies procured through fracking can be fleeting.

Fracking does a hit and run. It’s a case of fast, furious and forgotten. Ethanol, on the other hand, is not a grab and go industry, it is here for the long haul. Ethanol is a renewable energy resource, which means our jobs, our investment and our commitment to the community is renewable also. Ethanol facilities create permanent structures, offering stable jobs and engraining themselves as an integral part of the local community. A recent analysis conducted for the Renewable Fuels Association by ABF Economics, “Contribution of the Ethanol Industry to the Economy of the United States,” shows that ethanol is enhancing America’s economy by creating jobs, raising the national gross domestic product (GDP), increasing household income and contributing to federal, state and local tax revenue.

The positive results found in this analysis are most certainly due to the hard work of community-based ethanol producers, hard-working employees and local farmers sharing the goal of creating a green, renewable, environmentally friendly alternative to oil production.

They don’t leave town when the well runs dry. They plant another crop, distill some more ethanol and continue to invest in the community.

After crunching the numbers, the analysis found that the ethanol industry created and sustained 386,782 jobs in 2013. The data shows that in 2013 the industry created

12 | Ethanol Producer Magazine | MARCH 2014

86,504 direct jobs, 87,164 indirect jobs, and 213,113 induced jobs. Ethanol-related jobs encompass many sectors of the workforce including agriculture, mining, construction, manufacturing, transportation and public utilities, wholesale and retail trade, services and government. Jobs are hard to come by, especially in rural America, but these jobs do more than just provide income to individuals and families. They provide stability, encourage community involvement and further rural revitalization.

The numbers also show the ethanol industry’s contribution—$30.7 billion—to household incomes. This extra household income can make all the difference for families in need. The extra income helps families pay bills on time, enroll kids in extracurricular programs or pay for much needed household essentials.

The ethanol industry invests in rural communities and is here for the long haul. The data finds that last year the industry contributed $44 billion to the national GDP through ethanol production, construction, agriculture, and research and development. The industry also gave back more than $4.5 billion in federal taxes and $3.8 billion in state and local taxes that will go to pay for firefighters, first responders and local schools.

Look, every job is important. But where would you rather live? Do you want a community that enjoys a stable economic footing, or one tethered to a well with a limited and costly lifespan? Do you want a neighbor you can count on to be there through thick and thin, or one whose bag is always packed in anticipation of the next gusher? Do you want a secure energy and economic future, or are you satisfied with the fix fracking offers?

To me it’s pretty simple: let the frackers frack, but give me a renewable future.

Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835

SAVE THE DATE!

20TH ANNIVERSARY

FEB. 18-20, 2015

GAYLORD TEXAN RESORT & CONVENTION CENTER GRAPEVINE, TX

DRIVE

2014: The Year of E15

By Tom Buis

2014 marks the fifth anniversary of Growth Energy’s filing with the U.S. EPA to allow the sale of ethanol fuel blends up to 15 percent (E15). Though the year is still young, we are seeing E15 popping up everywhere. More and more consumers are finding the fuel at their local pumps and are excited to see the savings while knowing they are getting an American-grown fuel.

Retailers from across the country are aggressively expanding the availability of E15 and higher blends. It is now found outside the Corn Belt—great proof that consumers are choosing what is best for their vehicles and their wallets.

Minnoco recently began offering E15 in the Corn Belt and Murphy USA is planning to sell E15 in Arkansas with plans to expand the fuel option throughout the year.

But most impressive, Mapco announced in January that it will be selling E15 at all nondiesel fueling dispensers at its new build and select megastore locations starting this year, with the goal of having 100 megastores offering E15. These megastores are the flagship store operations for Mapco and represent a significant volume opportunity for E15.

Currently, E15 is available in 12 states across the country and the number is set to grow rapidly. The reason for the sudden boom in E15 is simple. Consumers want the higher octane and better performing fuel that offers savings and choice at the pump.

Consumers also love knowing that they are contributing to the energy independence of our country and are supporting our farmers and rural communities. Ultimately, this is definitive proof that consumers and retailers want a choice when it comes to the fuel they are buying or selling.

Big Oil can no longer claim consumers do not want E15 or that retailers do not wish to sell these higher ethanol blends.

This is proof that the so-called blendwall is nothing more than a self-erected barrier that Big Oil has used to prevent the

14 | Ethanol Producer Magazine | MARCH 2014

widespread use and adoption of biofuels in the commercial marketplace to protect its market share and lock on the liquid fuels transportation market.

Big Oil knows its arguments are falling flat, and is now trying to change the topic, misleading consumers by making false claims such as ethanol causes engine failure in extreme cold weather and implying that “misfueling” is a major risk to the consumer. As a sign of desperation, Big Oil is questioning the intelligence of its own customers by suggesting the American public is incapable of following simple instructions to avoid the possibility of vehicle misfueling.

Does Big Oil really have such little confidence in consumers’ ability to choose for themselves, or is it simply trying to protect market share and excessive profits at the expense of our citizens? I believe the American public is able to understand the real facts and citizens are capable of developing their own opinions.

In another sign of weakness, Big Oil paid for and trotted out a nonscientific, nonreviewed study to scare its customers about the safety of E15, the most tested fuel blend in history, only to be rebuked by the U.S. Department of Energy and the National Renewable Energy Laboratory for the weakness of the testing methodology and conclusions. E15 has been tested and approved for use in automobiles and light trucks 2001 and newer, representing about 80 percent of all motor vehicles on the road today.

This year, Growth Energy will continue educating and working with fuel retailers and consumers to expand the biofuel market because of the economic, environmental and national security advantages these fuels produce. It is an exciting time for the ethanol industry and I could not be more enthused about the new opportunities that lie ahead Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org

GRASSROOTS VOICE

Volunteer, Professional Lobbyists Aim for EPA Turnaround

By Brian Jennings

The American Coalition for Ethanol hosts an annual grassroots fly-in because we recognize the most effective lobbyists aren’t lobbyists at all. The best lobbyists are ordinary people

who passionately care about an issue. That’s why volunteer lobbyists such as farmers, livestock producers, retailers selling E15 and E85, bankers, mayors, and Main Street business owners have signed up to join us in Washington on March 2526 to show and tell their stories about why ethanol is important and we should keep the renewable fuel standard (RFS).

If we are to get the attention of the administration and Congress that they shouldn’t mess with the RFS, we’re going to need your unique, personal stories of how ethanol has made a positive difference in your life. I hope to see you at the ACE fly-in this year.

And speaking of lobbyists, please don’t get me wrong.

Lobbyists play an important and useful role in shaping public policy. I’m a registered lobbyist and have been for 10 years.

Moreover, ACE is represented by a professional D.C. lobbyist named Jonathon Lehman. The first-hand experiences that Jonathon and I have as former congressional staffers provide us unique insight into how to influence public policy.

For example, Lehman has been working on behalf of ACE to turn the U.S. EPA around on its misguided proposal to reduce the RFS in 2014, based upon his first-hand experience as a congressional staffer who worked on the original RFS. As counsel to Senate Majority Leader Tom Daschle, it was his responsibility to craft the RFS and negotiate its language as part of the 2005 Energy Bill.

As part of that effort, he fought the attempts of the oil industry to insert poison pills into the RFS. That poison language—at that time championed by Reps. Tom Delay and Billy Tauzin at the behest of the oil industry, and rejected by Congress in 2005—now sits before us in nearly identical form as the proposal from EPA.

16 | Ethanol Producer Magazine | MARCH 2014

One of those poison pills was language to provide MTBE liability protection to oil companies. (MTBE is the oxygenate methyl tertiary butyl ether.) Congress rejected MTBE liability protection. As a result, MTBE was removed from the fuel stream in a matter of months and investment flowed into the renewable fuels industry on the promise that the RFS would drive real change in the marketplace.

The other provision oil companies were holding out for in 2005 was language in the House version of the Energy Bill that would allow biofuel infrastructure, or lack thereof, to be an excuse for EPA to reduce or waive the RFS. The House bill would have allowed EPA to waive the RFS based on “inadequate domestic supply or distribution capacity to meet the requirement.” The Senate version of the legislation allowed EPA to waive the RFS if it were proven to “cause severe harm to the economy,” or “if there is an inadequate domestic supply.” Nothing in the Senate bill referred to distribution capacity or infrastructure. When the dust settled and the final RFS language was negotiated, the Senate version prevailed and oil companies would not be allowed to use infrastructure (i.e. distribution capacity) as an excuse not to comply with the RFS. More importantly, EPA would not be able to use infrastructure as an excuse to waive or reduce the RFS. Congress explicitly rejected giving EPA the ability to waive the RFS based on infrastructure concerns to ensure the RFS did what Congress wanted it to do—push the highly concentrated oil industry into allowing renewable fuels to fill more than 10 percent of the market. Unfortunately, EPA has turned its back on congressional intent.

But thanks to ACE members and others, who helped provide thousands of comments to EPA, we’ve made a compelling case to try and help EPA come to its senses. We should see a final RFS rule for 2014 very soon, and we’ll determine what steps are necessary to take in preserving the RFS and consumer choice once that final rule is published by EPA. Author: Brian Jennings Executive Vice President American Coalition for Ethanol 605-334-3381 bjennings@ethanol.org

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EUROPE CALLING

Don't Fix Whatâ&#x20AC;&#x2122;s Not Broke

By Robert Vierhout

There is a fierce debate in Brussels taking place on what the post-2020 energy and climate policy should look like. The incumbent

Commission is in a rush to get endorsement for what it has in mind before it will be replaced later this year.

The rush is not entirely clear especially because what the Commission has in mind will raise lots of opposition. Not in the least by the European Parliament that is completely being sidelined. Also, some bigger member states have raised the flag about what the Commission is planning.

The current rules, which the EU is on track to achieve, include a nonbinding target for 20 percent energy efficiency, a 20 percent greenhouse gas (GHG) reduction target and a 20 percent renewable energy target, with a subtarget for 10 percent renewable energy use in transport, of which biofuels are expected to be the main technology used to meet the target.

The Commission wants to replace this policy by a nonbinding overall GHG emission reduction target. No more targets for renewable and no longer a subtarget for transport.

A weird decision, considering that the present policy delivers quite well. Also weird if one knows that GHG emissions from the transport sector still account for 25 percent of all GHG emissions in the EU. The current climate and energy policy adopted in 2009 has been a success story: so why fix what is not broke?

On the contrary, the EU needs the current renewablesin-transport policy now more than ever. EU dependence on imported oil is increasing. The EU transport sector is 94 percent dependent on oil, 84 percent of which is imported.

Reliance on such massive quantities of imported oil hampers Europe's current and long-term economic competitiveness.

In 2012, the EU oil import bill was 315 billion euros ($430 billion), an astonishing and crippling amount of money.

European ethanol helps address these challenges. With ethanol also proving cheaper at the pump in many EU member states, it is the No. 1 option to reduce transport emissions effectively and cheaply.

However, it appears that, influenced by the failed and dysfunctional indirect land use change (ILUC) debates last year,

EU policymakers are hesitant to set new rules for renewables in transport. The twisted irony of the EUâ&#x20AC;&#x2122;s ILUC debate is that the political fallout will mean the real losers are European producers who produce biofuels that are sustainable and do not cause negative ILUC effects.

It seems that some people in the Commission have no memory. The first biofuel law from 2003 did not have mandatory targets: the entire policy was voluntary, indicative.

It was five years later, under the same president that the Commission concluded that the voluntary measures did not deliver the intended result. And so it proposed a binding target for renewable energy in transport. Now it seems the Commission wants to reverse the policy once again. For an investor this is equal to unsound policymaking.

The companies I represent are anxious about the constantly changing policy rules. One day they are told to invest, but the next day the rules change. The typical ethanol plant takes about 15 years to depreciate on its initial investment. That means that many of the new plants built in Europe since 2009 will not pay back their investments until after 2020. If a different 2020 policy framework is put in place, these investments will not be fulfilled. Investments will dry up.

The Commission does not seem to realize how capital intensive building an ethanol plant is and that building a second generation plant is at least double the cost of a conventional one. Who will invest under these unclear conditions? Indeed, no one. Hurray for the fossil fuel industry because we will need more fossil fuel than ever before after 2020.

The Commission's proposals are the first steps in a process that is of vital importance. It is an opportunity to send clear signals to the market that there will be a stable, longterm vision for renewable energy use in European transport.

With the European Parliament having already recognised the importance of sustainable biofuels in the EU fuel mix after 2020, the Commission must now reciprocate.

An important lesson should be learned from the ILUC discussion: the perfect should not be the enemy of the good.

Itâ&#x20AC;&#x2122;s not too late. The Commission can still pick winners by backing those biofuels, like EU ethanol, which are truly sustainable more than any kind of fossil fuel.

Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org

18 | Ethanol Producer Magazine | MARCH 2014

BUSINESS BRIEFS People, Partnerships & Deals

U.S. Water has announced the award of its third U.S. patent covering the use of its pHytOUT technology in ethanol production.

The technology is designed to control mineral deposit scaling in ethanol processing equipment, reducing back-end fouling and greatly reducing sulfuric acid use. In addition to reducing acid costs, the pHytOUT technology can improve ethanol quality and enhance plant safety.

Westmor Industries LLC has announced a new product for refined fuel and biofuel railcar loading. The ball-joint vapor plate allows for articulation at the vapor seal, eliminating vapor seal problems that result from load arm articulation inefficiencies when top loading. Test sites reported an improvement over fixed vapor plate designs. Most railcar loading plates are mounted in a fixed position on the end of a load arm.

Premium Plant Services, a Hibbing, Minn.-based industrial cleaning company, has added Elizabeth Call as its new sales account executive. Call, based out of Dubuque, Iowa, is responsible for continued Call growth of PPSâ&#x20AC;&#x2122;s client base with ethanol and biodiesel plants, as well as expanding business into other industries.

Call was formerly an advertising account executive at Biomass Products & Technology and Energy-Tech.

Ergon Inc. has announced that its wholly owned subsidiary Ergon Ethanol Inc. has acquired Bunge North America Inc.â&#x20AC;&#x2122;s share of the former Bunge-Ergon Vicksburg LLC ethanol plant in Mississippi. Ergon now owns 100 percent of the 54 MMgy facility and has changed its name to Ergon Biofuels LLC.

Denco II LLC has added Jason Resler as the maintenance manager of its Morris, Minn., facility. Reslerâ&#x20AC;&#x2122;s primary responsibilities include overseeing the day-to-day maintenance activities of the plant and managing Resler some of the onsite contractor work. He is also working to increase the reliability of the facilityâ&#x20AC;&#x2122;s assets. Prior to joining Denco, Resler was employed as a maintenance supervisor at DTZ, a UGL company.

Australia-based Elk Petroleum Inc. recently announced it has finalized and executed a binding agreement with Nebraska-based Bridgeport Ethanol LLC. Under the agreement, Elk Petroleum will purchase carbon dioxide generated at Bridgeportâ&#x20AC;&#x2122;s 50 MMgy ethanol plant and use it for enhanced oil recovery projects.

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Commitment makes the best chemistry.

The Distillers Grains Technology Council has selected Kurt Rosentrater to be its next executive director and CEO. Rosentrater, a faculty member at Iowa State University in the agriRosentrater cultural and biosystems engineering departments, has spent the past decade researching various aspects of ethanol coproducts, from production to end-use market opportunities. He led the USDA Agricultural Research Service’s only program devoted to distillers grains research from 2004-’11.

Rosentrater succeeds Charlie Staff, who recently retired after serving as CEO and executive director for 17 years.

The National Corn Growers Association has announced the winners of its 2013 National Corn Yield Contest. A new all-time high yield of 454 bushels per acre was set by David Hula of Charles City, Va. In addition to Hula, four entries surpassed the 400-plus bushel per acre mark, including Johnny Hula of Charles City, Va.; Double ‘SA’ Farms Inc. of Hart, Texas; Randy Dowdy of Valdosta, Ga.; and Dowdy Farms/Curtis Davis/Renato Lamas of Valdosta, Ga.

Air Products has signed a long-term agreement for the production of liquid carbon dioxide with Big River Resources Boyceville LLC in Boyceville, Wis. Air Products will operate a facility to produce 250 tons per day of liquid carbon dioxide. Production is expected to begin early this year. Air Products also recently signed an agreement with Southwest Iowa Renewable Energy LLC to build a facility to produce 400 tons per day of liquid carbon dioxide at SIRE’s Council Bluffs, Iowa, plant.

Bloomington, Minn.-based Advanced BioEnergy LLC has joined the U.S. Grains Council. The company has two ethanol production facilities with a combined capacity of 85 MMgy. Together, the plants produced approximately 225,000 tons of dried distillers grains with solubles annually. E Energy Adams LLC has also joined the USGC. The company currently operates a 50 MMgy plant in Adams, Neb.

result of expansive forces of superfluids and carbonic acid hydrolysis. Additional fiber separation is achieved by ejecting biomass through mechanical input devices.

Flint Hills Resources is helping two local volunteer fire departments purchase stateof-the art rescue equipment. The Iowa Falls Volunteer Fire Department will upgrade its emergency services with the purchase of an aerial ladder truck. Earlier in the year, the company donated funds for the purchase of new gear bags to store and transport firefighters’ equipment. Overall Flint Hills donated $5,000 to the fire department last year. An additional $2,500 donation was made to Menlo Fire and Rescue to support the purchase of new grain bin rescue equipment. In 2013, Flint Hills Resources donated more than $100,000 to local fire departments across the U.S. to enhance their operations.

Aphios Corp. has announced that it was granted U.S. Patent No. 8,540,847 entitled “Methods and Apparatus for Processing Cellulosic Biomass,” for its Aosic enabling technology platform. In the Aosic process, biomass is contracted with superfluids, such as carbon dioxide with or without small quantities of polar solvents. Fibers are made more accessible as a

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COMMODITIES

Prices & Market Analyses

Natural Gas Report

Depleted natural gas inventories may not recover until fall Jan. 20—Cold-depleted inventories have supplanted supply growth as the market focus for natural gas. Prompt prices that traded comfortably between $3.50 and $3.80 from late summer through November rocketed higher, surpassing the previous one-year high to close at $4.538 per MMBtu in late December. The month’s heating demand was more than 7 percent above normal on a populationweighted total degree day (TDD) basis. In other words, it was a heck of a lot colder than normal. I’ve heard Eskimos have many words to describe snow. After the recent cold stretch we have a new phrase, as the term “polar vortex” entered the lexicon as the way to say “it’s cold.”

The spiking heating demand was reflected in natural gas inventory levels. December’s all-time record for storage withdrawal in a single week, at 285 billion cubic feet (Bcf), was eclipsed a month later with a 287 Bcf withdrawal that disappointed expectations of 300 Bcf. January’s end promised a third big shot of cold air. Storage inventories were expected to dip below 2,000 Bcf by Jan. 31, bringing inventories roughly 750 Bcf below last year. Storage typically bottoms out near the end of March at around 1,600 Bcf, rising to 3,800 Bcf by summer’s end. Under current conditions, even reaching 3,800 Bcf by November seems unlikely, unless a strong run of warmerthan-normal weather allows inventory recovery. In response, prices

by Ben Strauss

have pushed up above $4.50 for the prompt NYMEX contract. That will be sufficient to limit natural gas consumption for power generation, but the demand reduction implied by fuel switching may also not be enough to rebuild inventories. Thus, prices will likely stay elevated through summer.

Corn Report

Corn stocks rebuild, even as USDA projects smaller-than-expected supply, carryout Jan. 20—Corn values shot higher following the USDA January supply/demand projections. Traders expected a more bearish outlook, and were surprised at the smaller supply and carryout. USDA projected corn production at 13.925 billion bushels, lowering yields by 1.6 bushels from the previous month for a final yield of 158.8 bushels per acre. The market was expecting 160 bushels per acre, topping 160 for the third time in the past 10 years. Dec. 1 corn stocks totaled 10.4 billion bushels, well above last year. September to November disappearance was greater than expected, implying more corn usage.

USDA increased projected feed use to 5.30 billion bushels, compared to 4.335 billion bushels last year. Ethanol demand is expected to increase by 50 million bushels this marketing year for a total of 5 billion. With higher feed demand and more coproduct supply, distillers grains exports and animals on feed will likely increase.

The total U.S. corn supply is pegged at 14.781 billion bushels and demand at 13.150 billion bushels, creating ending stocks of 1.631 billion. The 12.4 percent carryout-to-use ratio is a very comfortable level that will limit upside movement in corn. The bars in the illustration 22 | Ethanol Producer Magazine | MARCH 2014

by Jason Sagebiel

depict carryout and the stocks-to-use ratio, illustrating the recovery in stocks which has led to lower prices and generated further demand domestically and globally. It will also lead to fewer planted acres this next spring as producers weigh other commodity returns, however.

Regional Ethanol Prices ($/gallon) Front Month Futures (AC) $1.888 Region

Spot

Rack

West Coast

2.575

2.850

Midwest

2.080

2.300

East Coast

2.350

2.574

DDGS Report

SOURCE: DTN

DDGS value relative to corn drops closer to 100% Jan. 20—The threat mentioned earlier regarding the Chinese AQSIQ (the General Administration of Quality Supervision, Inspection and Quarantine) came to fruition in January, with reports of several thousand tons of U.S. DDGS imports quarantined. Although small as a percentage (over 1 million tons were exported to China in November), it nonetheless gave exporters pause about continuing fall’s torrid pace. The hesitation dropped the market significantly—almost 30 percent some places—and although the market rebounded, the nervousness remains.

Clearly, not everyone is spooked, as there have been purchases for second-quarter delivery to China.

Domestic feeders are not complaining about the export glitch. After seeing

Regional Gasoline Prices ($/gallon)

Front Month Futures Price (RBOB) $2.620

by Sean Broderick

delivered prices run up to 140 percent of the value of delivered corn, the drop in exports forced more product into domestic markets, bringing prices closer to 100 percent. The delivered rail markets are still suffering from poor performance due to congestion and weather-related issues, so their values did not drop as quickly. These issues benefit local feeders, since that is where plants turn when rail turnarounds are slow and container trucks are not showing up.

It appears as though the days of 140 percent the value of corn for DDGS are behind us, at least near-term. With the Chinese New Year upon us, it is not clear how quickly we will get a resolution on China’s intentions. Whatever happens will impact 2014.

Region

Spot

Rack

West Coast

2.601

2.752

Midwest

2.523

2.627

East Coast

2.613

2.837 SOURCE: DTN

DDGS Prices ($/ton) Location

Mar 2014

Feb 2014

Mar 2013

Minnesota

185

215

260

Chicago

214

245

282

Buffalo, N.Y.

220

250

275

Central Calif.

260

287

325

Central Fla.

252

281

309 SOURCE: CHS Inc.

Corn Futures Prices

(March Futures, $/bushel) Date

High

Low

Close

Jan 22, 2014

4.29

4.24 1/2

4.26 1/4

Dec 23, 2013

4.36

4.31 3/4

4.34 1/4

Jan 22, 2013

7.34 3/4

7.26 1/4

7.28 1/2 SOURCE: FCStone

Cash Sorghum ($/bushel) Ethanol Report

Location

Early 2014 brings greater ethanol price stability Jan.20—Ethanol production continued to increase through the end of 2013 and ethanol producers are expected to continue this trend through the first quarter of 2014. With no signs of corn prices moving outside the current range of $4.20 to $4.35 per bushel, however, there is not expected to be much long-term shift in either production levels or buying interest.

Seasonal strong demand has passed and currently most buyers have not started to entertain strong summer demand support.

This could allow ethanol prices to wander between $1.75 and $1.90 per gallon in the futures market through most of the spring.

The fact that ethanol producers are posting moderate to strong margins and little volatility now exists in either the corn or

by Rick Kment

energy markets during early spring months is creating a calming effect for most ethanol buyers. It is expected that short-term market shifts will continue to be the main focus in early 2014. Weekly Energy Information Administration reports continue to create the most aggressive shifts in the market, as traders use the figures in their short-term views of the market, affecting commercial interest moving in and out of the market. The biggest factor so far in ethanol markets will be projections of corn planting and building strength in the economy. Any economic strength seen through the first quarter of the year is expected to result in increased gasoline demand, sparking higher ethanol usage.

Jan 16, 2014

Dec 19, 2013

Jan 25, 2013

Superior, Neb.

4.20

4.19

6.98

Beatrice, Neb.

3.98

4.01

6.80

Sublette, Kan.

4.14

4.18

7.00

Salina, Kan.

4.37

4.34

7.06

Triangle, Texas

4.20

4.23

7.10

Gulf, Texas

5.33

5.33

7.48

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu) Location

Nov 29, 2013

Jan 22, 2014

Jan 22, 2013

NYMEX

3.95

4.67

3.56

NNG Ventura

3.90

6.87

3.92

CA Citygate

4.01

4.77

3.76

SOURCE: U.S. Energy Services Inc.

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

Month

End Stocks

Oct 2013

903

27,995

15,771

Sep 2013

852

25,564

16,040

Oct 2012

806

24,976

18,626

SOURCE: U.S. Energy Information Administration

MARCH 2014 | Ethanol Producer Magazine | 23

DISTILLED Long-term miscanthus trials achieve impressive yields, beat switchgrass Illinois researchers recently reported results gathered from 10 years of miscanthus field trials that show significantly higher yields than switchgrass grown in side-by-side trials. The average annual yield of miscanthus grown in seven Illinois locations over an 8 to 10 year period was 10.5 tons per acre. Switchgrass yields were only 4.5 tons per acre.

“If cellulosic comes on stream, these yields would be competitive with corn on poor land,” said Stephen Long, University of Illinois plant biology and Institute for Genomic Biology professor.

Long and his colleagues have calculated the total land areas needed to produce enough miscanthus to meet the renewable fuels standard (RFS) mandate for cellulosic ethanol in 2022.

They determined it would take 17 million acres of miscanthus or 39 million acres of switchgrass.

To put that in perspective, the continental U.S. is comprised of about 2 billion acres, with 20 percent of that used in row-crop agriculture.

Ethanol News & Trends Corn Just Short of 14 Billion Bushels 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Planted Acreage (million acres) 78.33 93.53 85.98 86.38 88.19 91.94 97.16

Harvested for Grain (million acres)

95.37

87.67

70.64 86.52 78.57 79.49 81.45 83.99 87.38

Production (billion bushels) 10,531.12 13,037.88 12,091.65 13,091.86 12,446.87 12,359.61 10,780.30 13,925.15

Yield (bushels per acre) 149.1 150.7 153.9 164.7 152.8 147.2 123.4 158.8

SOURCE: USDA

USDA reports record corn crop, RFS reduction would increase surplus In its January World Agricultural Supply and Demand Estimates report, the USDA reported a record corn harvest of 13.9 billion bushels, with an average yield of 158.8 bushels per acre. The projection of corn use for ethanol was increased over the prior month, reaching 5 billion bushels, approximately the same usage seen in the 2011-’12 marketing year.

“This report represents the best and worst of times,” said Bob Dinneen, president and CEO of the Renewable Fuels Association.

“American farmers are to be congratulated for their history-making hard work and success.

Sadly though, misguided decision-makers at EPA and elsewhere in the administration are on the brink of punishing these same farmers by undermining demand. Now is absolutely the wrong time to reduce the renewable fuel standard (RFS) volumetric targets,” he continued, noting corn prices have already dropped below the farmers’ cost of production.

Your Trusted Source for Conveying Equipment & Safety Supplies

1-800-527-8775 24 | Ethanol Producer Magazine | MARCH 2014

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www.kcsupply.com

DISTILLED

Sweetwater, Pacific Ethanol partner on cellulosic ethanol Rochester, N.Y.-based cellulosic sugar producer Sweetwater Energy Inc. has announced an agreement with California-based ethanol producer Pacific Ethanol Inc. The agreement supports the construction of a 3.36 MMgy cellulosic biorefinery at Pacific Ethanol’s Stockton, Calif., plant.

Sweetwater Energy will use its patented, decentralized process to convert locally available cellulosic material into a sugar solution that Pacific Ethanol will ferment into cellulosic ethanol.

“An important part of our growth strategy is to take advantage of the flexibility of our plant infrastructure to process diverse feedstocks such as sugar, corn, sorghum, and now sugars produced from cellulosic material. The Sweetwater platform moves us towards producing next-generation renewable fuels while providing additional flexibility in sourcing, reducing feedstock costs and enhancing plant operating margins,” said Neil Koehler, CEO of Pacific Ethanol.

Sweetwater also has agreements in place with Colorado-based Front Range Energy and Wisconsin-based Ace Ethanol.

Prices, Pump Numbers Connected E85 Price

Number of New E85 Stations Needed

800 million gallons of additional ethanol consumption

$2.32 $2.71

0 500

2 billion gallons of additional ethanol consumption

$2.10 $2.60

3,000 3,500

CARD analysis: Overcoming the blend wall with E85 A report published by Iowa State University’s Center for Agricultural and Rural Development has demonstrated that the U.S. could meet the renewable fuel standard’s (RFS) statutory 2014 volume requirements through greater use of E85. While no additional infrastructure investments would be needed in the form of additional E85 fueling locations, the price of E85 would have to be priced moderately lower and the use of carry-over renewable identification numbers (RINs) would be required.

In 2015, the report predicts that the statutory RFS volume requirements could be met through a combination of additional E85 stations and moderately lower E85 prices. In addition to helping meet RFS requirements, the analysis predicts adding E85 locations would reduce the price of RINs. The report, titled “Feasibility and Cost of Increasing U.S. Ethanol Consumption Beyond E10,” was authored by ISU economists Bruce Babcock and Sebastien Pouliot.

MARCH 2014 | Ethanol Producer Magazine | 25

DISTILLED

South Bend, Ind., plant undergoes retrofits in anticipation of restart A 100 MMGy ethanol plant in South Bend, Ind., purchased by Noble America South Bend Ethanol LLC, a subsidiary of Noble Americas Corp., in mid-2013 is expected to resume operations later this year following the completion of retrofits underway by ICM Inc. The facility, formerly owned by New Energy Corp., has been idle for more than a year.

“The initial retrofit activity is intended to be a starting point to improve ethanol yield, energy efficiencies and facility automation,” said Bill Paulson, director of ICM plant services and general manager of ICM affiliate Energy Management Solutions Inc. Retrofit activities kicked off in December and could be complete as soon as May. Once initial improvement activities are complete, Paulson said the current plan is for EMS to commence operations of the plant under a contract with Noble Americas. “EMS, ICM and Noble America will then evaluate the priorities for additional retrofit activities, which may include more advanced ICM processing technology upgrades,” he said.

GTL announces NexGen Frac technology A new fractionation technology is designed to solve starch loss and coproduct purity problems associated with current standalone dry fractionation technologies without presenting the complexity and cost of whole kernel wet milling. The technology, known as NextGen Frac, is under development though a collaboration of GTL Resources USA Inc. and Quality Technology International Inc.’s subsidiary QTI-AMG LLC. "We believe that the NextGen Frac process will be a game changer in the corn biorefining space by substantially improving coproduct values, reducing ethanol production costs, and opening up the potential in corn biorefining to produce next generation biochemicals and biofuels from differentiated corn fractions," stated Richard Ruebe, CEO of GTL and Illinois River Energy LLC. According to GTL, the NexGen Frac process produces a more pure starch; Glutenol, a high-protein distillers grain; NeutraGerm, a high-oil corn germ product; and ProBran, a new animal feed coproduct made from the separated corn bran and surplus condensed distillers solubles.

Plethora of Products

SOURCE: QUALITY TECHNOLOGY INTERNATIONAL INC.

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26 | Ethanol Producer Magazine | MARCH 2014

DISTILLED

Iowa maintains production level Ethanol production in America’s highestproducing state held steady in 2013. The Iowa Renewable Fuels Association reported that the state’s 42 ethanol plants produced 3.74 billion gallons last year, roughly matching production in 2011 and 2012. The state accounts for approximately 28 percent of all U.S. ethanol production.

While ethanol production held steady in 2013, the state's output is expected to increase this year as three cellulosic ethanol plants located in the state begin coming online. DuPont is developing a 30 MMgy cellulosic ethanol plant in Nevada, Iowa. Another 20 MMgy of cellulosic ethanol capacity is under development by PoetDSM Advanced Biofuel LLC in Emmetsburg, Iowa. Finally, Quad County Corn Processors is developing 2 MMgy of cellulosic capacity at the site of its 35 MMgy ethanol plant in Galva, Iowa.

“With the record U.S. corn harvest in the bin and new production facilities coming online, there is hope that Iowa can once again expand ethanol production. But hanging over that potential like a gray cloud is the EPA proposal to cut the [renewable fuel standard],” said Monte Shaw, executive director of the IRFA.

Nonexistent Relationship

Report: 2013 RIN prices did not affect gas prices An analysis performed by Informa Economics Inc. has determined that the price of renewable identification credits (RINs) did not affect retail gasoline prices during 2013. Informa used statistical methods to explore any causal relationship between RIN prices and retail gas prices, and found that although both RIN and gas prices increased and remained elevated midyear, the changes occurred for different reasons. In fact, the analysis showed that

the increase in gasoline price early in 2103 actually predated the increase in RIN prices.

Informa’s analysis also investigated the cause of higher gasoline prices, finding that the primary driver of retail gasoline prices is the price of crude oil. Secondary factors include changes in the spread between domestic and international crude prices and changes in U.S. demand, which varies seasonally.

MARCH 2014 | Ethanol Producer Magazine | 27

MARKET

SURPLUS SUSPICIONS: With the 2013-’14 U.S. corn carryover exceeding 1.6 billion bushels, some fear that curtailing ethanol blending this year could add to the crop’s stockpiles and draw down prices.

28 | Ethanol Producer Magazine | MARCH 2014

MARKET

Obligation

Outcomes

Curtailing ethanol blending this year may have a moderate effect on near-term corn prices, while broader, long-term consequences loom.

By Tom Bryan

Considering the gale of criticism the EPA received for proposing to lower U.S. biofuels blending for 2014, it would be ironic if the federal agency’s action was intended to shield ethanol from a Congress that’s growingly indifferent to the renewable fuel standard (RFS).

Strange as it sounds, Wally Tyner thinks it’s probably happening. “They are trying to get Congress out of it,” says the Purdue University agricultural economics professor. “They are trying to do something, administratively, that would prevent some in Congress from doing what they’d like to—and that’s kill it. I think EPA is trying to get Congress off its back and let the RFS survive.”

With the end of the intense 60-day public comment period on the EPA’s proposed 2014 renewable volume obligations (RVOs), Tyner is among observers who partly reject the agency’s suggested reductions to this year’s biofuels blending quota.

He says the EPA’s proposal to lower the entire advanced biofuels pool to compensate for absent cellulosic volumes is justified. Cutting back on corn ethanol, however, makes little sense to Tyner. In fact, he says, the severity of EPA’s advised blending ranges suggest the agency is trying to parent biofuels with tough love to keep Congress assuaged.

Tom Buis doesn’t see it. “If they are trying to protect the RFS, they went about it wrong,” says the CEO of Growth Energy. “If they were trying to save us, I would say thanks but no thanks.”

The EPA proposed in mid-November that 2014 RFS blending requirements be set at or near 15.2 billion gallons, with roughly 2.2 billion gallons coming from advanced biofuel and the rest—about 13.1 billion gallons—coming from what’s commonly referred to as conventional biofuels, predominantly corn ethanol. The EPA published the draft proposal to the Federal Register the day after Thanksgiving, but conjecture about its impact began more than a month earlier when the proposal was leaked. At the epicenter of the RVO debate is the question of how a deferred biofuels blending schedule would check the nation’s biofuels vision and cause injury to American agriculture, which is now highly reactive to the supply and price of corn. It’s hard to disagree that less demand for corn would lower the crop’s price. What is game for speculation, then, is the depth of the EPA’s RVO reductions, the significance of the cuts on corn demand, and the downward pressure it might put on the crop’s price.

MARCH 2014 | Ethanol Producer Magazine | 29

MARKET Leading the conjecture wave, Bruce Babcock offered his opinion on the potentially lower RVO a few days before the EPA’s official proposal was released. The Iowa State economics professor, along with graduate assistant Wei Zhou, determined that limiting the requirement for ethanol blending to 13 billion gallons—rather than ramping up to the statutory 14.4 billion gallons in 2014 and then 15 billion gallons in 2015—would ultimately lower corn prices by about 5 percent, or 25 cents per bushel. That price dip is economically meaningful to corn farmers and livestock feeders, Babcock and Zhou said, but it is small compared to the price swings the market has experienced since 2006. “We wanted to know what a lower RVO would do to corn price, and it isn’t real large,” Babcock says. “It’s something, but it’s not huge.”

Waiting for the EPA’s final RVO decision now, Babcock stands behind his predictions.

He says that his November analysis assumed, for the sake of simplification, however, that ethanol exports and imports would be zero, or cancel each other out. “If we had accounted for higher demand in exports, we would have come up with an even smaller impact on corn prices,” he says.

Breaking Down Bushels

FCStone’s Jason Sagebiel says it’s true that a sudden slack in demand would contribute to the U.S. corn carryout and draw down prices. “If you take 1.3 billion gallons of ethanol off the market, that would be equivalent to 464 million bushels of corn,” Sagebiel says, using a big number for effect and not accounting for corn-offsetting distillers grains volumes. “With a carryout of 1.6 billion bushels, that takes you up to 2 billion bushels, so it would theoretically have a negative impact on corn prices.”

Sagebiel and others say the actual reduction in market demand will probably be smaller than 464 million bushels, however.

Regardless of where the EPA sets its blending requirements, the U.S. oil industry will consume no less 13.2 billion gallons of ethanol this year, says Darrel Good, a professor of agricultural and consumer economics at the University of Illinois at Urbana-Champaign.

“That’s a given. No matter where the mandated amount is, we’ll blend 10 percent,” he says.

Good is among academics who say lowering the nation’s ethanol blending require-

30 | Ethanol Producer Magazine | MARCH 2014

ment in 2014 would not significantly threaten corn prices. He says it was never likely that liquid gallons of corn ethanol would, alone, be used to meet the 14.4-billion-gallon conventional biofuels blending floor in 2014.

Rather, obligated parties would have filled the billion-plus-gallon gap with a combination of higher ethanol blends, biodiesel and the utilization of amassed renewable identification numbers (RINs). “We wouldn’t have blended 14.4 billion gallons of ethanol in 2014,” he says. “We would have used a combination of alternatives. So what you’re doing by rolling back the mandate is taking away a little bit of the market that [higher ethanol blends] would have gotten. And in terms of ethanol, you’re not losing 1.2 billion gallons, but rather a small portion of that.”

Good says the decrease in corn demand should correspond to the volume of E85 blending that would occur this year if the 14.4-billion-gallon RVO were preserved. “In terms of the corn market, what’s lost is the difference between what we will do and what we would have done on E85,” he says. “Let’s say 250 million gallons of ethanol for E85 could have been mustered up. That’s about 90 million bushels of corn. That’s not a big number. However, it could become a big number moving forward because we wouldn’t be pushing higher blends like we would if RVOs were maintained.”

Babcock estimates a slightly higher number. “It’s about 135 million bushels,” he says, explaining that the hit to the ethanol market could equal less than 1 percent of the current 13.9 billion bushel corn crop.

Additional ethanol volume support will come from exports, Good says, explaining that ethanol is experiencing an improved trade balance because corn and ethanol prices are low. The combination of cheap corn and a curtailed RVO also discourages imports of ethanol into the U.S. “Under the scenario we are facing, it would be a pretty expensive alternative to import Brazilian ethanol,” Good says, referencing a year-end USDA report that virtually disregarded the EPA’s probable RVO curtailment and pegged corn for ethanol at a record 5 billion bushels in 2014.

Babcock also expects export demand to soak up some of the excess ethanol capacity on the market in 2014. “It just goes to figure when you have such a spread between gasoline and ethanol prices,” he explains.

BIN BUSTER: U.S. farmers produced a record 13.9 billion bushels of corn in 2013-'14. The USDA expects 5 billion bushels of it to be used for the production of ethanol, distillers grains and corn oil.

Buis readily admits that the impact of spinning back the RFS is uncertain. “The result could range from tremendous to minimal,” he says. “But either way, it’s not going to be favorable to the American farmer.” The record 2013-’14 corn crop was produced under mediocre conditions with delayed plantings.

Ordinary growing conditions in 2014 could lead to a megabumper crop, Buis says. “With the productivity of today’s farmer, and with normal weather, we will have an even greater supply of corn,” he says. “That supply builds up over time, and the larger the carryover gets, the lower price becomes, unless you have demand out there to take care of it.”

New Normal Questioned

Whether U.S. farmers can make a profit growing corn when the crop’s price is at or below $4 a bushel is debatable, but it’s a fact that the crop’s production costs have risen dramatically in the past five years. According to the USDA, the average American farmer now spends $655 per acre, factoring in the cost of land, to produce corn. That suggests growing corn barely makes economic sense at today’s prices. Babcock and Good caution, however, that some corn production costs are coming down. “[$655 an acre] is only true if land rents and other farming costs stay high,” Babcock says, explaining that any land rents renegotiated this winter were probably lowered.

Good agrees that land costs should be dropping. “If we see corn prices maintain in the $4 or less range, it will pull land down,” he says, adding that fertilizer costs should be lower this year, too, while the price of seed may stay fixed.

Sagebiel says sub-$4 corn in 2014 is a possibility, but he thinks the trading community’s reaction to the EPA’s initial RVO proposal was more negative than the prolonged market response may be. Good agrees that the response to a lower ethanol blending requirement may not be severe because it is generally assumed that 5 billion bushels of U.S. corn will be used for the production of ethanol and ethanol coproducts in 2014. “Beyond the initial kneejerk market reaction, I think the market understands that we’re not going to use less ethanol this year,” Good says.

Longer-term, corn should stay in the “new normal” price range of $4 to $4.50 per bushel, Tyner and Good agree. “The default expectation is that corn will hover in that low to mid-$4 range. We’ll see deviation from that—up or down—on the supply side. Bumper crops will drag prices below that level, and production problems will pull prices above that level.”

Buis isn’t so sure. He says a curtailed RFS will put downward pressure not just on corn, but other crops as well. “If a rising tide lifts all boats, a sinking tide also brings them down,” he says. “High corn prices bring all commodities up, but if farmers start to back off corn and switch to other crops due to excess supply, you’ll see overproduction in other areas.

The key is to establish consistent domestic demand.”

Babcock agrees that $4 to $4.50 corn only makes sense when there is strong government support for ethanol production. “You need that bright signal,” he says. “The opportunity to turn cheap corn into ethanol as a substitute for gasoline makes sense at $4.25, but if the

MARKET government isn’t [consistent in its support], you can get oversupplied with corn fairly quickly. There’s nothing to keep corn at $4.25 other than ethanol. I don’t know what else is out there. You can clearly oversupply the food and feed market, and if ethanol is frozen, the price of corn could go down dramatically.”

High Blends Hit Hardest LAND LET UP: Including the cost of land, the average American farmer spends $655 per acre to produce corn. Most experts believe land rents, fertilizer and other inputs will be coming down in 2014, however, in response to the crop’s currently low price.

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32 | Ethanol Producer Magazine | MARCH 2014

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Babcock says everyone should stop worrying about the near-term price of corn and, instead, focus on the broader implications of curtailing the RFS. He says keeping the ethanol blending requirement low cuts the legs out from under next-generation biofuels. “If EPA’s decision stands, and you don’t push through the blend wall, where’s cellulosic ethanol going to go?” Babcock asks.

Tyner, Good and Babcock all agree that a lower 2014 RVO will also harm higher ethanol blends, E85 in particular. “The real impact of a 13-billion-gallon RVO is that it kills any incentive to blend more E85,” Tyner says.

“They’re going to blend E10 up to the max because they have an economic incentive to do so, but they don’t necessarily have an incentive to grow the E85 market.”

The probability of RFS curtailment will slow or stop new E85 infrastructure development. But even if flex-fuel vehicle production and E85 pump installation halted completely, Tyner says, there is enough infrastructure in place today to meet a 15-billion-gallon ethanol RVO with E10 and E85 alone. “With the 70-cent-per-gallon difference between ethanol and gasoline, and with 30-cent RINs, there is enough wiggle room to grow the E85 market,” he says. “But it won’t happen if this 13-billiongallon RVO holds. I think 14.4 was a bit high, but something higher than 13 is needed.”

Babcock agrees that higher ethanol blends are in immediate jeopardy under a reduced RVO scenario. “What we will lose in 2014 and beyond is the push for E85,” he says. “That may be a small impact in 2014, but it becomes a growing impact as you go forward.” Babcock believes that the statutory 14.4 billion-gallon conventional biofuel blending requirement could have been met in 2014 by using carryover RINs and increasing E85 consumption. “You could meet 14.4,” he says. “13.8 is easy. But if EPA stays behind 13, there’s no incentive to use flex-fuel vehicles,

MARKET there’s no incentive to push E85, and there’s no growth potential for renewable fuels at all.”

Buis, of course, believes the EPA should stand by the statutory schedule of the RFS and require 14.4 billion gallons. “We can produce it,” he says. “There is plenty of room for it in the marketplace. There is an excess of RINs and we’re on the cusp of getting more and more retailers to move to E15.”

The academics are less bullish. Tyner, for one, says he’d like to see the EPA place the ethanol blending floor at 13.8 billion gallons.

“At 13.8, E85 use would happen in greater volumes and you could overcome the blend wall.”

Tyner adds that he is perplexed by the EPA’s proposed 2014 ethanol RVO range of 12.7 billion gallons to 13.1 billion gallons because the number is so unforceful that it defies the role of a government mandate. “The EPA is basically ratifying what the market has already done, rather than pushing industry to work more renewable fuels into the mix,” he says. “If they keep the number at 13 billion gallons, they kill any incentive to grow [higher blends]. That’s the biggest concern I have with this proposal.”

gas is being used.” In addition, Good says, the threat of legal challenges might dissuade the EPA from overstepping. “If you’re going to curtail the mandate, at what level would the reductions be legally challenged by the ethanol industry?” he wonders. “Would there be a point where all the parties say, ‘That’s not what we wanted, and we don’t think EPA has the authority to do this, but it’s large enough where we’re not going to press on with a legal challenge?’”

In addition to increased gas consumption,

Tyner says, there is reason to believe the EPA will raise RVOs to acknowledge the potential for higher level blends. “I think they’ll consider the comments everyone put in,” he says. “I think they really do want to get this right. They just went a little too far with the draft. It’s a draft. I think they’ll respond to comments and end up higher than 13.”

Author: Tom Bryan Editor in Chief, Ethanol Producer Magazine 701-738-4916 tbryan@bbiinternational.com

Wait and See Time

The EPA’s public comment period on the RVO proposal ended Jan. 28. It’s not clear how long the agency will take to digest industry feedback and make its decision. “I think they genuinely want to get it out as soon as possible because they’re beyond the deadline,” Buis says, “But we really have no idea how long it will take.”

In the meantime, the experts can only guess where the EPA will land. “There is still a lot of uncertainty about what the EPA will do, but I think the uncertainty ranges between 13 billion gallons and 13.8 billion gallons,” Babcock says. “I don’t think they’ll go above 13.8, so that’s an 800-million-gallon degree of uncertainty—just for the domestic market— which is about 1 percent or 2 percent of the corn crop.”

Good says he is “optimistic” about what the EPA might decide this spring. “Gas consumption is on the rise,” he says. “That may not affect the EPA’s decision, but it creates an opportunity for ethanol. I wouldn’t be surprised if the EPA rolls its numbers up somewhat to, if nothing else, just reflect that more

MARCH 2014 | Ethanol Producer Magazine | 33

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STORAGE

Bluffton, Ind. Ord, Neb.

Central City, Neb.

Superior, Iowa

CORN MOUNTAINS: Green Plains Renewable Energy is adding 45 to 60 days of storage in permanent outdoor corn-pile systems being installed at its 12 ethanol facilities.

Aeration is used to keep the corn in condition, plus negative air pressure helps to keep the covers tight in windy conditions to protect the piled corn.

PHOTO: GREEN PLAINS RENEWABLE ENERGY

Piling It On, Strategically Green Plains extends corn storage to a 45- to 60-day supply.

By Susanne Retka Schill

Todd Becker says his job is to reallocate as much of the middleman margin as possible to the company’s bottom line. So

it may have seemed odd when in the fall of 2012, the company he leads as CEO, Green Plains Renewable Energy Inc., sold 83 percent of its grain storage capacity.

Becker explains that the company wasn’t abandoning the strategy of being a first-handler of corn. The elevator system was making money and reducing risk. “But it wasn’t fully integrated in our supply chain,” he says. “We didn’t actually ship a lot of corn out of our facilities to our ethanol plants. A couple of years ago, we said, ‘We love the grain business, but what if there’s a better way to skin the cat?’” The company decided there is. Green Plains sold 12 grain

36 | Ethanol Producer Magazine | MARCH 2014

elevators in Tennessee and Iowa to another ethanol producer with a good-sized grain business—The Andersons—for $133 million. “We had 38 million [bushels of] storage and we sold them 32.6 million [of it], but we’re not leaving the agriculture handling business,” Becker says. “We’re just going to reallocate that capital so it more closely aligns with our supply chain, with direct access to our ethanol production.”

The transaction worked well for both parties. Green Plains freed up capital and The Andersons extended its asset base in Iowa and into Tennessee. “We got to reallocate some resources in a different way, and we bought more ethanol plants,” Becker says. “We found a value we could sell at. They found a value they could buy at, and it worked for both of us. It was as important to them as it was for us.”

At a cost of between 50 cents and $1 a bushel, Green Plains is building permanent systems using an old strategy—piling corn outside. Installed first at Green Plains facilities in Fergus Falls, Minn., Riga, Mich., and Bluffton, Ind., the new grain storage systems are high velocity, high volume.

“They’ve got walls, we cover and put air on them to keep the quality,” Becker explains.

“And we have them right in line with assets—we have the roads already, got the rail, the scale, the people and a lot of land.”

Making better use of infrastructure is one advantage of the system, but there are others. With the first-handler margin ranging between 20 cents and 40 cents per bushel, being able to capture that margin on a larger proportion of grain purchases adds some long-term stability to the margin structure. The piles allow the company to buy more corn at harvest, when prices are

TWO TAKES: Becker says Green Plains’ grain company revenue comes from first-handle margin and carry, while its ethanol plants make earnings on the crush.

typically the lowest, although there have been opportunities to refill the piles in the winter when prices were advantageous, Becker adds. Green Plains is also planning to add grain dryers at some facilities so they can handle more wet corn in future seasons. “We probably won’t keep [the corn] a whole year,” he adds, saying once the piles are opened, they want to move it all. “So you have to think about logistics and supply chain.”

Outdoor storage can increase the odds of corn going out of condition, but Green Plains currently mitigates that risk by buying dry corn and building aeration into its piles. The outdoor piles sit directly on the ground, rather than concrete or blacktop, so Green Plains relies on its ethanol plants’ screening systems to remove foreign material from the grain before grinding.

While the outside piles are boosting potential corn supplies at the ethanol facilities from the typical 10-day to a 45or even 60-day supply, the ethanol plants actually don’t own the extra stored corn, but rather Green Plains’ grain division.

“The ethanol plant typically buys corn and sells ethanol,” Becker says. “The grain company buys corn and sells corn futures. The grain company wants to earn the first-handle margin and carry, where

the ethanol plant wants to earn the crush.

They’re two separate distinct businesses.

When the corn gets picked up from the ground after the economic incentive to hold the corn is gone, if the ethanol plant is the best bid, we’ll send it to the ethanol plant. If it’s not the best bid, we’ll truck to somebody else’s demand.”

The piles at the first three facilities quickly paid for themselves. By the end of this year, the company expects to have 37 million bushels of storage across the system, almost recreating the storage sold in 2012 and at a quarter of the cost or better. The goal is to be at 50 million bushels by the end of 2015.

“People are watching what we’re doing,” Becker says. “We get a lot of calls from plants asking how to do this.”

Building the piles isn’t the biggest issue, he adds. 50 million bushels of storage capacity at $4 corn potentially requires a hefty $200 million line of credit. “You need to have the capability to finance the inventory and make the margin calls while you’re holding the corn,” he advises. “The easiest and cheapest part of it is to build the pile.”

Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine 701-738-4922 sretkaschill@bbiinternational.com

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INPUTS

PRODUCER PURCHACES: Higher farm income in recent years has driven record sales of combines, tractors and other farm equipment. Depreciation on machinery has spiked, however, and lower corn prices threaten to discourage major expenditures this year.

PHOTO: JOHN DEERE & COMPANY

38 | Ethanol Producer Magazine | MARCH 2014

INPUTS

Production

PRICE UP

Cornâ&#x20AC;&#x2122;s value has retreated, but the costs of fertilizer, seed, land and machinery remain high. Have inflated expenses reset the breakeven point for American growers?

By Chris Hanson

MARCH 2014 | Ethanol Producer Magazine | 39

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An old adage about commodities promises that nothing cures high prices like high prices. If itâ&#x20AC;&#x2122;s true, American farmers

must wonder if and when the inflated costs of fertilizer, seed, land and other corn inputs will come down. Sustained high corn prices have driven production costs up and, some say, reset the cropâ&#x20AC;&#x2122;s breakeven point north of $4.20 a bushel.

The outlays of producing corn, however, remain high, justified by the $6 and $7 corn of the past two years. â&#x20AC;&#x153;When you have high sustained prices, the factors of production get valued higher,â&#x20AC;? says Edward Allen, agricultural economist for the U.S. Department of Agricultureâ&#x20AC;&#x2122;s Economic Research Service.

Iowa State University agricultural economics professor Bruce Babcock agrees, saying the demand by corn farmers for seed, fertilizer and equipment have all risen sharply in recent years. â&#x20AC;&#x153;When demand goes up, the price at which these companies can charge goes up, and so they did,â&#x20AC;? Babcock says.

In fact, the increased costs of producing corn on a per-acre basis since 2005 are dramatic and well documented, says Gary Schnitkey, a professor and farm management specialist at the University of Illinois at Urbana-Champaign. Schnitkeyâ&#x20AC;&#x2122;s analysis shows that the rising cost of fertilizer, seed and land rents, in addition to greater agricultural machinery depreciations, are the top drivers of higher corn production costs. In fact, many experts say, the bloated costs of those and other inputs have ushered in a higher breakeven point for corn producers.

Fertilizer Should Follow

In central Illinois, the average cost of fertilizer was $78 per acre in 2005. That number grew more than 150 percent to $200 per acre in 2012. Fortunately, the cost of fertilizer is elastic and responsive to the price of its own inputs. â&#x20AC;&#x153;Youâ&#x20AC;&#x2122;ve had some developments that suggest fertilizer prices are going to come down,â&#x20AC;?

PRICE PULL DOWN: Babcock believes the costs of land rents and fertilizer should come down in 2014.

PHOTO: IOWA STATE UNIVERSITY

Babcock says. â&#x20AC;&#x153;There is no reason anhydrous ammonia prices should be as high as they are.â&#x20AC;?

Anhydrous ammonia prices should follow natural gas prices, whichâ&#x20AC;&#x201D;despite this winter's spikesâ&#x20AC;&#x201D;have decreased over the past three years, Babcock contends.

New fertilizer and anhydrous ammonia plants sprouting up in the Corn Belt should take advantage of relatively low natural gas costs and start to draw down prices for corn growers, he adds.

Fertilizer prices tend to also follow both corn acres and corn prices. â&#x20AC;&#x153;The last couple of years, you had high acreage planted, so the demand for fertilizer is particularly strong,â&#x20AC;? Allen says. â&#x20AC;&#x153;Youâ&#x20AC;&#x2122;re trying to maximize your yields and not be worried about savings and costs. When prices drop significantly, the demand for things like fertilizer can drop off because producers are more careful on how they use it, and they apply it more sparingly.â&#x20AC;?

Fertilizer prices do appear to follow corn prices, agrees Darrel Good, a professor of agricultural and consumer economics at the University of Illinois at Urbana-Champaign. When corn prices increase, the cost of fertilizer trends upward

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COSTS CLIMB: In central Illinois, an area that produces some of Americaâ&#x20AC;&#x2122;s highest corn yields, the nonland costs of growing corn peaked at above $550 per acre last year.

PHOTO: UNIVERSITY OF ILLINOIS EXTENSION

to possibly reflect increased demand, he explains. â&#x20AC;&#x153;This year, weâ&#x20AC;&#x2122;ve seen fertilizer prices moderate quite a bit from what they were a year ago,â&#x20AC;? Good says. â&#x20AC;&#x153;So, I think thatâ&#x20AC;&#x2122;s the one category where you would probably see quite a bit of fluctuation over time.â&#x20AC;?

The other big expenditures of corn production, however, may be less likely to quickly adapt to changing market conditions. Seed costs and land rents are â&#x20AC;&#x153;sticky,â&#x20AC;? Good says. â&#x20AC;&#x153;Theyâ&#x20AC;&#x2122;ve escalated and will probably stay at those higher levels.â&#x20AC;?

Lavish Land Rents

The high costs of rents for productive farmland is the second leading factor behind higher corn production costs. In 2005, the average cost of land rents in central Illinois was $147 per acre annually, Schnitkey shares. Within seven years, that figure rose more than $120 to $270 per acre. Since last yearâ&#x20AC;&#x2122;s returns were high and followed several strong seasons, land values and rent increased, Allen says. â&#x20AC;&#x153;This is a fundamental thing that gets

factored into the cost of production,â&#x20AC;? he adds. â&#x20AC;&#x153;I know there was quite a few land rents that were $300 an acre,â&#x20AC;? Babcock says. â&#x20AC;&#x153;If you take $300 an acre and you have 170-bushel corn, thatâ&#x20AC;&#x2122;s $1.76 a bushel. So when you add $1.76 a bushelâ&#x20AC;&#x201D;and if you are accounting for that land priceâ&#x20AC;&#x201D; and youâ&#x20AC;&#x2122;ve calculated $4 as breakeven, almost half of that [total cost] is land price.â&#x20AC;?

The breakeven point typically varies between farmers who own land versus those who rent. For owned land it depends on if there is outstanding debt, and how much, as well as other factors, Schnitkey says. â&#x20AC;&#x153;But [for] most farms, particularly grain farms, the majority of the land is cash rented. So thatâ&#x20AC;&#x2122;s a pretty big indicator of where breakeven levels are.â&#x20AC;?

Seed Prices Shoot Up, Depreciation Quickens

Schnitkey says greater seed costs and machinery depreciation are the third and fourth leading drivers of a higher breakeven point for corn production. The aver-

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www.lakos.com/industrial.htm MARCH 2014 | Ethanol Producer Magazine | 41

INPUTS age cost of corn seed in central Illinois was $43 per acre in 2005, Schnitkey says. Since then, the cost has more than doubled and climbed to an average of $108 per acre in 2012. â&#x20AC;&#x153;Seed prices are a function of what you are trying to acquire,â&#x20AC;? Allen explains. â&#x20AC;&#x153;The seed companies have been successful at developing seeds that have a real, significant economic benefit, and theyâ&#x20AC;&#x2122;re able to charge for those seeds.â&#x20AC;?

The development of genetically modified corn is expensive but it yields crops with traits farmers are willing to pay for, Allen says. If the price of corn declines, farmers may decide to select a seed that is not as expensive. It becomes a matter of price expectation, and a question of how much a farmer is willing to do to maximize yield versus producing corn as efficiently as possible, Allen adds. â&#x20AC;&#x153;On average, the lower price expectations should at some point

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NEW NORMAL: Schnitkey says itâ&#x20AC;&#x2122;s now reasonable to believe most American farmers need $4.20 to $4.40 per bushel to make a profit on growing corn.

PHOTO: UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN

limit the increases in the price of seed, he says. â&#x20AC;&#x153;But â&#x20AC;Ś there are good reasons why the price of seed might be expected to go up.â&#x20AC;?

Babcock agrees that low corn pricesâ&#x20AC;&#x201D; especially below $4â&#x20AC;&#x201D;should have a moderating effect on the cost of corn seed and also start to discourage machinery expenditures. â&#x20AC;&#x153;Farmers probably wonâ&#x20AC;&#x2122;t be buying so much of the equipment theyâ&#x20AC;&#x2122;ve been splurging on over the past five years due to the good times in agriculture,â&#x20AC;? he says. â&#x20AC;&#x153;You would see some pulling back.â&#x20AC;?

Farm equipment depreciation has risen substantially since 2005, meaning that equipment has been losing its value faster.

Rising depreciation levels are due to increased machinery costs and greater numbers of machinery purchases, Schnitkey says. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve seen some pretty healthy purchases of machinery on farms as a result of higher income,â&#x20AC;? he explains.

Brushing With Breakeven

While the experts agree on whatâ&#x20AC;&#x2122;s made corn production more expensive, they have different viewpoints about the current breakeven mark for the average American

INPUTS corn farmer. The $4.20 to $4.50 per bushel range seems to primarily relate to farmers who are cash renting land as opposed to owning it.

“We recognize there is a lot of variation between farms,” Good says. “Everybody has a bit of a different cost structure.

It depends on your actual yields—$4.25, I think, is a nice round, ballpark number that kind of catches the average situation, but recognize that there is a lot of variance around that.”

Schnitkey essentially agrees, saying, “It’s sort of that $4.20 to $4.40 range for corn, particularly if the land is cash rented at average cash rents. So yes, that is the new breakeven level.”

Babcock says he thinks the breakeven point for U.S. corn production is technically lower than $4.25. He understands why many growers now think of $4-plus corn as a necessity, however. “Well, if nothing changes in regard to land costs, fertilizer costs, and seed costs—and if you are not a high -yielding farmer—you can’t argue [with] people [who] count up all those costs and say, ‘Oh, well, their total cost is about $4,’” Babcock says.

Allen maintains that it’s hard to slap an average breakeven number on American corn farmers because, in addition to geographical differences, each producer has unique resource endowments and financial situations. “So speaking of a general breakeven point is not very valid,” he says. “It varies tremendously.”

Some forecasters expect corn prices to oscillate in the $4.25 to $4.40 range through 2014 and into 2015, but Allen says that doesn’t mean prices won’t climb higher.

“There’s no reason to expect that prices will stabilize at that level,” he says.

While $4.25 is a possible breakeven point for most American corn farmers today, both Babcock and Allen feel that input costs should sink, pulling the breakeven mark down somewhat. “I reject the whole model that says those costs are going to stay the same,” Babcock says, explaining that the corn industry has a vested interest in portraying the costs of production as fixed,

while they should fundamentally track with the movement of corn.

Allen adds that current costs are reflective of corn growers trying to maximize yields when corn prices were more than $6 per bushel, as opposed to producers trying to utilize expensive inputs as efficiently as possible. And he says every corn farmer runs a unique business with different profit parameters. “Each producer has a different breakeven,” Allen says. “It depends on what

expenses you’re trying to cover with your corn and how you try to account for those expenses.”

Author: Chris Hanson Staff Writer, Ethanol Producer Magazine 701-738-4970

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MARCH 2014 | Ethanol Producer Magazine | 43

YIELD

CROP CONVERSION: In the future, high-yielding corn plants might have more upright leaves, smaller and more plentiful ears of corn. The plants may also have stronger disease resistance and be able to survive in greater population densities.

PHOTO: DUPONT PIONEER

Fields of Dreams

With improved crop science and farming practices, today’s award-winning corn yields may become tomorrow’s average.

By Chris Hanson

U.S. farmers produced a record 13.9 billion bushels of corn in 2013-’14, with an average yield of 159 bushels per acre.

While even higher numbers were expected, the results are nonetheless impressive.

It takes a whole lot of 170-bushel corn harvests in Iowa, Indiana and Illinois to compensate for mostly 140-bushel crops in North Dakota, Kansas and Colorado.

Each state has its outliers, no doubt, some pushing into 300-bushel territory and a rare few achieving even greater heights with both irrigated and nonirrigated corn.

Reminding us just how far yields have come, the Virginia farmer who won the National Corn Growers Association’s corn yield contest this past season harvested an incredible 455 bushels per acre.

44 | Ethanol Producer Magazine | MARCH 2014

Prize-winning crops don’t happen by accident, though. Breeding and growing corn to a site’s full yield potential presents both biotic and abiotic challenges. Biotic challenges refer to biological factors, such as disease and insects, whereas abiotic relates to physical challenges, such as soil limitations and water availability. Defining a field’s maximum yield potential, and identifying factors that might prevent a grower from achieving it, is the basis for the theoretical formulas plant physiologists use to estimate peak corn production on any given plot of land. “The way I always think about it is, how do I eliminate or reduce as many abiotic and biotic factors as possible so you’re more likely to reach the maximum yield potential?” says Dave Bubeck, product program director at DuPont Pioneer.

The theoretical formulas might not

account for everything, such as production practices, precision agriculture and improved plant genetics, Bubeck says. “We know that even under those yield contest conditions, there are still abiotic and biotic stresses put on the corn plant during the growing season.” Most of the producers in yield competitions utilize some of their best land for the contests, he adds.

Although growing corn at record yields requires rich land and a depth of farming experience, today’s award-winning results may become ordinary in the future.

More than 15 years ago, Dave Nanda, director of genetics and technology at Seed Consultants Inc., made a prediction that 500 bushels of corn per acre could someday become normal. With more than three decades of corn breeding experience, Nanda has been working with the yellow stuff all his life. During his years as a corn

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PLANT PREDICTOR: Nanda forecast years ago that producing 500 bushels of corn per acre would someday become typical.

PHOTO: DAVE NANDA

breeder, Nanda fixated on improving corn yields. He saw the industry move from open-pollenating corn varieties to hybrids then to incremental improvements in fertilizer, insecticides and so on. â&#x20AC;&#x153;But they were not big jumps,â&#x20AC;? he says. â&#x20AC;&#x153;What I realized was that what we are not harvesting is sunlight. We pretty much capture only 5 or 6 percent of the solar energy with corn plants. And among the agricultural crops, corn is one of the most efficient.â&#x20AC;?

In 1989, Nanda set off breeding 70,000 seeds per acre and finding plants that survived well at that population and produced a good ear of corn. â&#x20AC;&#x153;It would be nice for farmers to grow at that high a population [compared to] 24,000 to 26,000 plants per acre. That would almost be like a three-fold jump for them.â&#x20AC;?

Facing initial skepticism and disbelief, Nanda welcomed Prairie Farmer editor, Tom Bechman, out to observe his work in the late 1990s. Bechman was surprised at the findings and asked Nanda to write about the endeavor, Nada recalls. â&#x20AC;&#x153;With any new invention or new idea, people first say, â&#x20AC;&#x2DC;Oh, that canâ&#x20AC;&#x2122;t be done.â&#x20AC;&#x2122; But lo and behold, weâ&#x20AC;&#x2122;re already approaching those kinds of yields.â&#x20AC;?

Reengineering corn is the key to reaching the 500-bushel goal. The corn plant of the future will exhibit extremely upright leaves to harness more solar energy. It will also have smaller ears of corn, and greater numbers of them.

The plant will need to survive in greater plant population densities and have good disease tolerance, Nanda explains. Current corn plants usually exhibit just one or two large ears, he adds. â&#x20AC;&#x153;Who cares whether you have a one-pound ear?â&#x20AC;? Nanda says. â&#x20AC;&#x153;Or, you might have less than half-apound ear, but there might be more than twice as many.â&#x20AC;?

In addition to a better designed corn plant, Nanda suggests using precision farming technology, such as global positioning systems (GPS), and planting shorter distances between plants. GPS allows farmers more planting exactitude, giving them the ability to plant corn in the nine- to 10-inch rows that create high plant populations.

Increasing a farmerâ&#x20AC;&#x2122;s yields into the 400 to 500 bushel per acre range would spur innovation across the agriculture industry. â&#x20AC;&#x153;When farmers start doubling their yield, I have no problem thinking John Deere or other companies will start producing machines to handle it,â&#x20AC;? Nanda says.

By increasing yields, farmers will be able to produce more product on the same amount of land. Seed companies would benefit through extra sales, and machinery companies can build new planting and harvesting machines. â&#x20AC;&#x153;In the end, everyone is a winner,â&#x20AC;? Nanda says.

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Author: Chris Hanson Staff Writer, Ethanol Producer Magazine 701-738-4970 MARCH 2014 | Ethanol Producer Magazine | 45

BUSINESS MATTERS

New SEC Rules Change the Landscape for Raising Capital

By Joseph F. Leo

Recently, the U.S. Securities and Exchange Commission adopted new regulations intended to expand access to sources of investment capital for businesses. The new

regulations also intend to harmonize capital formation rules with modern communication methods, including electronic communications via websites and social media. The new regulations took effect Sept. 23 and now allow companies conducting capital raises not registered with the SEC to advertise their capital offerings and solicit investments from the general public. The ability to use advertising and general solicitation was previously reserved only for capital raises that were registered with the SEC, which most companies could not take advantage of due to the high cost of conducting an SEC-registered offering.

The longstanding prohibition against advertising and general solicitation in unregistered capital offerings created difficulties in modern times when so much communication takes place through the Internet and social media. In order to allow greater access to the capital markets, Congress sought to use these new communication tools to enhance the ability of companies to attract investors. Congress determined that the competing interests of investor protection versus increased business access to capital through modern forms of communication could be appropriately balanced by the SEC. The new regulations allow companies to use advertising and general solicitation only in capital raises where the investors meet the SEC’s definition of an “accredited investor.”

Accredited investors are primarily higher income and net worth investors. Categories of accredited investors include: 1) Individuals with annual income in excess of $200,000 (or $300,000 in joint annual income with a spouse) for the two most recent years and who expect the same level of income in the current year; 2) Individuals who have net worth in excess of $1 million without including equity in the investor’s primary residence; 3) Directors and executive officers of the companies raising capital; and 4) Certain business and other entities with assets in excess of $5 million. While this is not an exhaustive list of investors that qualify as accredited under SEC regulations, these are the most common types.

46 | Ethanol Producer Magazine | MARCH 2014

Under these new regulations, companies engaging in advertising and general solicitation must take reasonable steps to determine whether the investors participating in their capital raises are actually accredited. This reasonable verification is a greater duty than companies currently have when they pursue unregistered capital raises, which is the trade-off that must be considered by companies who wish to use advertising and general solicitation in their capital raises.

Under these new regulations, the SEC has developed a list of methods that companies can use to determine whether the investors participating in the unregistered offering meet the accredited standard. The SEC went out of its way, however, to state that it wants to provide flexibility to companies in order to meet this requirement in a way that makes sense for their businesses.

Further, the SEC proposed additional rules that would require companies raising capital through advertising and general solicitation to file additional information with the SEC. While this could add burdens for companies pursuing unregistered offerings using advertising and general solicitation, it is certainly less burdensome than registering with the SEC. No firm timetable has been established for when these additional filing rules may become effective.

The bottom line is, while pursuing an unregistered capital raise using advertising and general solicitation may require additional steps in order to comply with these SEC regulations, it may provide a company access to investors that were previously unavailable, expanding the potential pool of available capital.

It is important to note that the changes made by the SEC only enhance the ways in which companies can raise capital through unregistered offerings. The traditional methods of conducting unregistered capital offerings are intact.

Author: Joseph F. Leo, Attorney BrownWinick Law Firm 515-242-2462 leo@brownwinick.com

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TALKING POINT

Taking the Helm at the Distillers Grains Technology Council

By Kurt A. Rosentrater

48 | Ethanol Producer Magazine | MARCH 2014

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recall in the early 2000s that this centered on the question: What could we ever do with 10 million tons of distillers grains? Surely we could never use all of these mountains of distillers grains and they would go to waste. Over the years, many in our industry have worked diligently to ensure that these coproducts can increasingly be used in livestock and poultry diets, both domestically and overseas. So far, we havenâ&#x20AC;&#x2122;t seen our coproducts going to waste.

Rather, distillers grains have become the largest feed coproduct in the marketplace.

Ironically, something similar was asked back in the 1940s, when the distilleries were producing increasing quantities of coproducts. â&#x20AC;&#x153;Grain Distillers have developed equipment and an attractive market for their recovered grains,â&#x20AC;? C.S. Boruff wrote in his paper, â&#x20AC;&#x153;Recovery of fermentation residues as feedsâ&#x20AC;? in the Industrial & Engineering Chemistry journal in 1947. In 1952, he wrote in the journal article, â&#x20AC;&#x153;Grain distilleries,â&#x20AC;? â&#x20AC;&#x153;Distillers are recovering, drying, and marketing their destarched grain stillage as distillers dried grains and dried solubles.â&#x20AC;? It appears that the question about value-added coproduct use has been around for quite some time, and it also appears that a viable solution had already been developed as far back as the 1940s. During this period, the Distillers Feed Research Council began researching how best to feed distillery coproducts to

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Long before issues such as the Food Safety and Modernization Act, the blend wall or import tariffs, our industry faced the 10-Million-Ton Question. You may

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animals, instead of disposing of them in the rivers, and to educating livestock producers and animal nutritionists on best use in diets.

One of its primary educational events has been an annual symposium.

In 1996, the board of directors voted to change the name of the organization to the Distillers Grains Technology Council with Charlie Staff serving as the CEO and executive director. The DGTC has continued to serve the beverage alcohol industry, the fuel ethanol industry and the livestock industry, focusing on improving the value and utilization of distillers grains in animal feeds. After 17 very successful years at the helm, Staff retired earlier this year.

The DGTC board of directors has now asked me to serve as the next CEO and executive director. It is an honor to carry on this long-standing legacy. Yes,

much work has been done over the past several decades, but much more work must be done. The industry continues to evolve, as do our challenges and opportunities.

Some of the issues that we must address are new, but some have been around for quite some time. First and foremost on everyoneâ&#x20AC;&#x2122;s minds is the upcoming implementation of new FSMA rules. Many in the animal feed industry are working to understand the implications of these rules, and are providing comments and feedback to the U.S. Food and Drug Administration.

On another note, the ethanol industry has adopted oil removal technologies at an astonishing rate in just a few years time, but research has not quite kept pace. The industry needs more research conducted on how best to use both the lower-oil content distillers grains in livestock diets, as well as how best to use the distillers oil. Yes, dozens

Distillers Grains Technology Council Members Full Members

Alltech Inc. Archer Daniels Midland Barton 1792 Distillery Beam Global Spirits & Wine Inc. DuPont Interstate Commodities Inc. Land O’Lakes, Purina Feed LLC Phibrochem

Associate Members

Afec Commodities Inc. American Feed Industry Assoc.

Beta-Tec Hop Products Brown Forman Corp.

Commonweath Agri-Energy DSM Food Specialties FEC Solutions Ferm Solutions Flint Hill Resources LP Hawkeye Gold LLC Hoxie Feedyard International Ingredient Corp.

Katzen International Inc. Lallemand Biofuels & Distilled Spirits Lifeline Foods Inc.

Nobel Mansfield Commodity Services Novozymes North America Inc. Pioneer, a DuPont Co. Poet Nutrition Renewable Fuels Association SGS The Andersons Inc. Trilogy Analytical Laboratory United Bio Energy U.S. Commodities Valero Energy Renewable Fuels

SOURCE: 2013 DGTC MEMBERSHIP LIST (WWW.DISTILLERSGRAINS.ORG)

of feeding trials have been conducted over the past several decades, but we do need more to understand how to optimally use these new coproducts.

Speaking of distillers oil, at the midyear meeting of the Association of American Feed Control Officers held in New Orleans in January, the AAFCO definition, T33.10 Distillers Oil, Feed Grade, was recommended for “tentative” status. Formal acceptance of the definition is pending approval by the membership at next summer’s annual meeting. This is a very positive step forward, and thanks are due to the efforts of many to get to this point, especially the ethanol plants that provided data, the Renewable Fuels Association and the DGTC. Other issues that must still be addressed will be topics of future columns.

The DGTC will continue to build upon its legacy. We will endeavor to foster partnerships with ethanol producers, livestock nutritionists and producers, affiliated companies, trade associations across these industries and universities. We will also continue outreach and educational efforts, including our annual symposium.

The 2014 symposium will be held May 1415, in Dallas, Texas. We are developing a slate of compelling speakers, and we invite you to attend. More information can be found on our website at www.distillersgrains.org, or you can check out the Facebook page for the Distillers Grains Technology Council.

If you have any questions or need any assistance, please feel free to contact us. We look forward to continuing to work with you.

Author: Kurt A. Rosentrater

Executive Director, Distillers Grains Technology Council 515-294-4019 karosent@iastate.edu

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Biofuels facilities around the world trust Phibro Ethanol Performance Groupâ&#x20AC;&#x2122;s arsenal of proven microbial control solutions to keep troublesome bugs at bay. Whether your plant chooses to focus on whole plant wellness through a customized infection control protocol or you are in immediate need of an effective antimicrobial, our Authorized Fermentation Consultants are your best allies in identifying and obliterating yield-reducing bacteria. What can we do for you? 800-223-0434

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