INSIDE: LEVERAGING CROP IMAGING FOR CORN SUPPLY OCTOBER 2012
In the Face of Drought Corn Varieties Only Get Better Page 40
ALSO
RFS Waiver Unnecessary, Won’t Reduce Corn Prices Page 30
Drought Drains Ethanol Yield Page 46 www.ethanolproducer.com
contents
OCTOBER issue 2012 VOL. 18 ISSUE 10
features
DEPARTMENTS
38
6
Editor’s Note
Resilience in the Face of Uncertainty By TOM BRYAN
7
30 Drought
RFS Under Scrutiny Critics blame ethanol for drought-induced problems By Holly Jessen
38 Q&A
Corn's Cruel Summer
An expert zeros in on corn quality, genetics and drought. By Tim Portz
40 Corn Breeding
Boosting Corn’s Drought Performance
Drought tolerance has come a long way in the past decade By Susanne Retka Schill
46 Corn quality Yield Wild Card
Poor corn quality translates into lowered ethanol yield By Holly Jessen
Ad Index
10 The Way I See It
Market Speculators, Oil Drive High Food Prices By MIKE BRYAN
11 Events Calendar
Upcoming Conferences & Trade Shows
12 View From the Hill
Consumers Get Short-
changed in RFS Debate By bob dinneen
14 Drive
Big Food is Full of Baloney
By TOM BUIS
16 Grassroots Voice
The Industry’s Stake in
this Election By Brian Jennings
18 Europe Calling
Food vs Fuel: Can We
Get it Off the Table? By Rob Vierhout
20 Business Matters
Strategies for Collaboration
in Innovation By Camille L. Urban
22 Business Briefs 24 Commodities Report
CONTRIBUTIONS 54 crop imaging
Satellite Technologies Aid Localized Planning
New tools for forecasting regional corn supplies By Steffen Mueller and Ken Copenhaver
26 Distilled 58 Marketplace
58 Land use
INSIDE: LEVERAGING CROP IMAGING FOR CORN SUPPLY OCTOBER 2012
Corn Farmers Respond to Ethanol Plant Siting
Examining how far the market impact radiates BY Yehushua S. Fatal
In the Face of Drought Corn Varieties Only Get Better Page 40
ALSO
RFS Waiver Unnecessary, Won’t Reduce Corn Prices Page 30
Drought Drains Ethanol Yield Page 46 www.ethanolproducer.com
Ethanol Producer Magazine: (USPS No. 023-974) October 2012, Vol. 18, Issue 10. Ethanol Producer Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.
4 | Ethanol Producer Magazine | OCTOBER 2012
ON THE COVER
Plant breeders use genetic tools to build drought tolerance. Pioneer’s Aquamax variety, shown on the right, grew better under drought conditions in 2010. PHOTO: PIONEER
editor’s note
If an industry is shaped by what it overcomes, the 2012 drought will make the U.S. ethanol industry stronger, smarter and more efficient. Like the roots of a dry
Resilience in the Face of Uncertainty Tom Bryan, PRESIDENT & EDITOR IN CHIEF tbryan@bbiinternational.com
plant reaching deeper into the soil for sustenance, ethanol producers are digging in for a tough fourth quarter and an uncertain 2013. At press time, the U.S. EPA was about 20 days from closing the comment period on the renewable fuel standard (RFS) waiver request, with calls for an extension unanswered. Regardless of whether more time for comments is allowed, the EPA won’t likely decide the matter until early next year—after the harvest results are known, after the presidential election and after the holidays. Until then, however, producers aren’t just waiting around. Acting independently, they have been proactive in their response to the drought and this year’s resultant high corn prices. As Holly Jessen’s page 30 lead story, “RFS Under Scrutiny,” points out, more than two dozen U.S. ethanol plants are now idle and the industry is running at least 12 percent below its achievable capacity. In fact, Jessen’s story points out that the ethanol industry will cut its corn consumption by a projected 260 million to 500 million bushels in 2013, leading a global demand rationing effort without protest. One of the current ironies of RFS opposition argument, veiled mostly as an anti-mandate campaign, is that the market is driving both corn demand rationing and ethanol blending. The high price of corn is pressuring ethanol producers and livestock producers alike to adjust production, and the high price of gasoline is encouraging discretionary ethanol blending nationwide. Businesses are making these decisions, not the government. Food versus fuel, the other principal RFS opposition argument, is similarly ironic, given the ethanol industry’s role in driving new investments in corn breeding that has resulted in drought-resistant hybrids that improved this year’s U.S. crop performance. As Sue Retka Schill reports in her page-40 feature, “Boosting Corn’s Drought Performance,” 15 percent yield gains over nondrought-resistant corn, for some growers this year, was the difference between 150-bushel yield expectations being knocked back to 80 bushels per acre or 95 bushels per acre. You don’t have to be a farmer to understand the importance of those numbers. Finally, this month, be sure to read Jessen’s other corn-focused feature, “Yield Wild Card,” on page 46, which addresses concerns about the effect of the drought on corn kernel quality and milling characteristics. Importantly, the story points out how producers are responding to the increased risk of aflatoxin that is likely to be present in the 2012 corn crop, and how some producers are examining discount schedules and alternative corn procurement strategies in the wake of the 2012 drought. In the past decade, expanded ethanol production has stimulated corn production. That, combined with the improved varieties, will mean this year’s crop will still be sixth largest ever, if August’s projections hold up. That is quite remarkable, given this summer’s drought is ranked among the worst in American agriculture’s history. We expect that sort of resilience, as well, from the ethanol industry.
CORRECTION “Testing for Traces,” a story published in the August issue of EPM, contained two errors. FermGuard Xtreme, a product marketed by FermSolutions Inc., does not contain multiple antibiotics. Its active ingredient is 100 percent erythromycin with no fillers. Also, although virginiamycin did at one time have a letter of no objection from the Food and Drug Administration, that is no longer the case.
For industry news: www.ethanolproducer.com or Follow Us: 6 | Ethanol Producer Magazine | OCTOBER 2012
twitter.com/EthanolMagazine
AdIndex
EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com
Vice President of Content & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com
CONTRIBUTIONS EDITOR
53
2012 National Advanced Biofuels Conference & Expo
2
Growth Energy
66
2013 International Biomass Conference & Expo
3
Himark bioGas
45
2013 International Fuel Ethanol Workshop & Expo
19
2013 National Ethanol Conference
43
Allegheny Coupling Company
51
BBI Consulting Services
49
INTL FCStone Inc.
17
BetaTec Hop Products
57
Kennedy and Coe, LLC
27
BrownWinick Law Firm
29, 44
59
BS&B Safety Systems, LLC
61
Nalco Company
26
Buckman
15
Pioneer Hi-Bred International
60
Cellencor Inc
21
POET - DSM Advanced Biofuels
32
CPM Roskamp Champion
34
Premium Plant Services, Inc.
55
Crown Iron Works Company
50
SGS North America, Inc. Agricultural Services
48
DuPont FermaSure
52
Sukup Manufacturing Co.
DuPont Industrial Biosciences
13
Syngenta: Enogen
67
Ethanol Producer Magazine
33
Tower Performance, Inc.
28
Fagen Inc.
42
Vogelbusch USA, Inc.
35
Freez-it-Cleen / Polar Clean America
56
Wabash Power Equip. Co.
Susanne Retka Schill sretkaschill@bbiinternational.com
FEATURES EDITOR Holly Jessen hjessen@bbiinternational.com
NEWS EDITOR Erin Voegele evoegele@bbiinternational.com
COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com
ART ART DIRECTOR
36
5
Hitachi Zosen U.S.A. Ltd
ICM, Inc.
Jaci Satterlund jsatterlund@bbiinternational.com
GRAPHIC DESIGNER Lindsey Noble lnoble@bbiinternational.com
8-9
Inbicon
PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com
CEO Joe Bryan jbryan@bbiinternational.com
SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com
EXECUTIVE ACCOUNT MANAGER
Mole Master Services Corporation
Howard Brockhouse hbrockhouse@bbiinternational.com
SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com
ACCOUNT MANAGERS Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com
CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com
ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com
Senior Marketing Manager John Nelson jnelson@bbiinternational.com
EDITORIAL BOARD Mike Jerke, Chippewa Valley Ethanol Co. LLLP Jeremy Wilhelm, Cilion Inc. Mick Henderson, Commonwealth Agri-Energy LLC Keith Kor, Pinal Energy LLC Walter Wendland, Golden Grain Energy LLC Neal Jakel Illinois River Energy LLC Bert Farrish Lifeline Foods LLC Eric Mosebey Lincolnland Agri-Energy LLC Steve Roe Little Sioux Corn Processors LP
37, 68 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 sretkashill@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 2012 by BBI International TM
OCTOBER 2012 | Ethanol Producer Magazine | 7
Power P ow your old There’s more to ethanol etha plant The New Ethanol with New Ethanol with than ethanol. production. prod
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the way i see it
Market Speculators, Oil Drive High Food Prices By Mike Bryan
The U.S. drought, disastrous as it is, does not signal Armageddon for food prices, biofuels and the poor. First, one
needs to understand that the main drivers behind rising corn prices, even in today’s drought conditions, are the market speculators and hedge fund managers. Over the past 10 years, they have done more to spike the price of corn than any drought or natural plague and made millions of dollars in the process. Second, the price of oil is right behind these speculators in terms of causing a rise in food prices. The cost of petroleum-based fertilizer, planting, harvesting, transportation and processing are all adversely affected by the price of oil. A corn crop of 10.8 billion bushels, while down roughly 13 percent, is
10 | Ethanol Producer Magazine | OCTOBER 2012
an enormous crop, and one that will completely satisfy the domestic and export needs of America. It’s the sixth largest corn crop in U.S. history. Market speculators send the message that the sky is falling and make millions terrorizing people. America has been through this Chicken Little scenario time and time again and we, and the world, keep falling for it. There is also an important point to be made regarding biofuels using 40 percent of the corn crop. That is a mischaracterization of the facts. More than one-third of the corn used in the production of biofuels is put back into the market as the high protein feed supplement distillers grains, used extensively in feeding cattle, dairy, hogs and poultry. Only the corn’s low-feedvalue starch is used in the production of biofuels; all the protein and other nutrients are processed into animal feed. So the 40 percent figure that is bandied about is, in reality, significantly lower, with some projections showing the actual amount of corn value removed from the market is less than 20 percent. The world is protein poor, not starch poor. It seems that this fact is almost always inadvertently, or intentionally, lost in the reporting. The drought has presented an opportunity for those opposed to biofuels in the U.S. and other western countries, to mount an aggressive
campaign to minimize or even stop its use. The U.S. biofuels program has reduced the price of gasoline consumers pay at the pump by 40 cents per gallon, using the most conservative estimate, created more than 400,000 jobs and pumped billions of dollars into the U.S. economy and now replaces fully 10 percent of all the gasoline used in America. Congress needs to be very careful not to fall for this erroneous and mindless assassination of biofuels over food versus fuel when the economic, energy, environmental and security benefits of the biofuels industry are so enormous. That’s the way I see it.
Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com
EVENTS CALENDAR
National Advanced Biofuels Conference & Expo November 27-29, 2012 Hilton Americas - Houston Houston, Texas
Next Generation Fuels and Chemicals Make plans to attend the 2012 National Advanced Biofuels Conference & Expo in Houston. Understand the latest techniques being developed in the industry and continue building relationships that last. Register by Oct. 16 to take advantage of early-bird registration rates. (866)746-8385 | www.advancedbiofuelsconference.com
The 2012 National Advanced Biofuels Conference & Expo will take place November 27-29, 2012, at the Hilton Americas-Houston in Houston, Texas. Produced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. With a vertically integrated program and audience, the National Advanced Biofuels Conference & Expo 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. Attendees will include hundreds of professionals in key sectors including finance (venture, private and institutional equity); petroleum and petrochemical refining; pulp and paper milling; biofuels and biobased products manufacturing; agricultural processing; waste management; auto manufacturing; aviation; government/military; research and academia. The National Advanced Biofuels Conference and Expo is a premier educational and networking junction for all industry stakeholders. From agriculture to project finance, forestry to biotechnology, this conference is a one-stop shop for compelling speaker presentations on a wide array of topics including: • • • • • • • • •
Petroleum industry perspectives on advanced biofuels Converting existing industrial assets into next-generation biofuels Forging Powerful Project Alliances Aviation and military industry positions on biobased jet fuel Venture capital and private equity viewpoints Overcoming barriers to market entry The national market outlook for biobased fuels and chemicals Exceeding the performance of petroleum-based products And more!
National Ethanol Conference February 5-7, 2013 Wynn Las Vegas Las Vegas, Nevada
Since 1996, the Renewable Fuel Association’s National Ethanol Conference (NEC) has been recognized as the preeminent conference for delivering accurate, timely information on marketing, legislative and regulatory issues facing the ethanol industry. With numerous networking opportunities, more business meeting are conducted and contacts made at this conference than any other ethanol conference. (866)497-1232 | www..nationalethanolconference.com
International Biomass Conference & Expo April 8-10, 2013 Minneapolis Convention Center Minneapolis, Minnesota
Building on Innovation Organized by BBI International and coproduced by Biomass Magazine, the International Biomass Conference & Expo program will include 30-plus panels and more than 100 speakers, including 90 technical presentations on topics ranging from anaerobic digestion and gasification to pyrolysis and combined heat and power. This dynamic event unites industry professionals from all sectors of the world’s interconnected biomass utilization industries—biobased power, thermal energy, fuels and chemicals. (866)746-8385 | www.biomassconference.com
International Fuel Ethanol Workshop & Expo June 10-13, 2013 America’s Center St. Louis, Missouri
Where Producers Meet Now in its 29th 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
OCTOBER 2012 | Ethanol Producer Magazine | 11
view from the hill
Consumers Get Short-changed in RFS Debate By Bob Dinneen
This summer’s drought is taking a toll on America. It has hemmed in the productive power of American farmers. It has brought
cries of doom and gloom for livestock and poultry producers. And, it has caused knee-jerk, emotionally charged reactions for Capitol Hill and state capitols all across the country. The events of this summer have brought an avalanche of calls to end America’s production and use of renewable fuels like ethanol. In the name of livestock industry profits, we must stop ethanol production today, or so we are told. Hiding behind claims of concern for consumer pocketbooks, corporate livestock interests, factory poultry operations and food manufacturers have petitioned the U.S. EPA to waive the requirements of the renewable fuel standard (RFS) to prevent higher prices for consumers. That is quite magnanimous of these industries. The fact is that consumers would be much worse off if the calls to end domestic ethanol production were heeded. Not only would tens of thousands of jobs all
12 | Ethanol Producer Magazine | OCTOBER 2012
across rural America be in jeopardy, but consumers would begin to see immediate spikes in gasoline prices if ethanol— today 10 percent of the gasoline supply and 50 to 60 cents cheaper than gasoline—were eliminated from the marketplace. Simply put, waiving the RFS likely would result in a net increase in annual household spending of at least $24 to $85 in 2013. This increased burden on the family budget would be particularly unwelcome at a time when unemployment remains high and economic recovery remains sluggish. Here’s how: if EPA waived the RFS for next year, food inflation might reach 3.35 to 3.44 percent instead of 3.5 percent, according to USDA, and average household food expenditures for 2013 might fall to $6,533 to $6,527 instead of $6,536. In other words, waiving the RFS might save $3 to $9 per household for the full year, or roughly 0.8 to 2.5 cents per day. Yet, eliminating ethanol from the gasoline supply would put upward pressure on prices at the pump. According to the Energy Information Administration, the average household consumes approximately 1,100 gallons of gasoline annually. Research from Iowa State University, Purdue University, Louisiana State University and others suggests that a potential 500 million to 1.4 billion gallon reduction in ethanol under a waiver would result in an increase in gas prices of 3 to 8 cents per gallon. Therefore, waiving the RFS would increase average household gasoline expenditures by at least $33 to $88 for the year, offsetting the miniscule savings a waiver might produce on food expenditures. The renewable fuel standard waiver
language clearly states that EPA must look at the whole economy in conducting research for the waiver requests and come to a finding of severe economic harm resulting from the implementation of the RFS. Clearly, comparing just consumer food prices to consumer gasoline price demonstrates more harm than good would come from granting a waiver. Moreover, when the cost of gasoline is considered as a factor in the overall price for food in grocery stores, it’s obvious that eliminating ethanol use would not only cause pain at the pump, but erase any miniscule savings that might have resulted from a lower corn prices as a result of less ethanol production. EPA, Congress and governors across the country would do well to keep a broader economic picture in mind than narrowly focusing on the profit margins of a few select industries. Author: Bob Dinneen President and CEO, Renewable Fuels Association (202) 289-3835
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DRIVE
Big Food is Full of Baloney
By Tom Buis
Recently, a number of media outlets have been focused on Big Food and their endless calls to waive the renewable fuel standard (RFS) to prevent the rising cost of food. The only problem is that waiving the RFS is unnecessary. Our critics have been propagating misinformation, playing on people’s fears and an Act of God, namely the drought, to make wild assumptions and foolish claims. No one has said that the current drought the United States is facing won’t have an effect on the agricultural community or food prices. But to attempt to use the drought as a mechanism to pursue a misguided policy agenda is shameless. American family farmers and ethanol producers deserve better. Corporations like Smithfield Foods are asking America’s grain farmers in a time of need, when crop yields are diminished, to sell their crops at a lower price—completely disregarding the livelihood of the family farmer—to feed their corporate greed, building on the $1.5 billion annual profit from last year. The reality is that Big Food conglomerates are more worried about their own bottom line and they have no intention of passing any savings on to the American farmer or American consumer. If they want more taxpayer dollars to fill their coffers, they should be straightforward and
14 | Ethanol Producer Magazine | OCTOBER 2012
ask, instead of smearing biofuels and taking advantage of a severe drought to mask the real agenda. Earlier this summer, General Mills CEO Ken Powell estimated that food prices would increase by 2 to 3 percent, compared to an increase of more than 10 percent last year, noting “consumers should see generally stable prices.” The USDA recently predicted that food prices may rise somewhere between 3 and 4 percent by 2013. To suggest that ethanol production is the leading cause of increasing food prices is just plain wrong. Ethanol production has no say over whether it rains or not, so the industry should not be inaccurately accused of rising commodity costs—that is Mother Nature. Ethanol critics believe that trying to tie rising food costs to ethanol production is a clever way to drive his policy agenda and roll back the RFS. The problem is, the facts do not support the claims. The RFS has been the only successful energy policy this nation has implemented in the past 40 years, and since its enactment, imports of foreign oil have decreased by 25 percent. It is the only energy policy that has helped reduce our dependence on foreign oil and spur economic growth, creating and supporting more than 400,000 jobs. The RFS is working and was built with a certain level of flexibility to manage difficult times or events, such as this drought. Under the free market, ethanol production has slowed and producers are facing rising commodity prices and tighter margins. With slower production, an 850,000-gallon surplus and 2.5 billion RFS credits available, there is no reason obligated parties cannot meet the 2012
RFS volume goals. The current decline in production, the surplus on hand and the availability of RFS credits, can be equated to roughly 3 billion bushels of corn that will be freed up for livestock and poultry needs. Big Food neglects to mention energy is used to transport, package, process and store food as it makes its way from the farm to the market—higher oil and gas prices are the true culprits of higher food prices. Additionally, blaming farmers for the cost of their commodity is misguided. When you look at the food dollar, the farmer’s share is only 14.1 cents, the rest is tied up in the marketing share, including those costs to process and bring the products to market. Big Food’s policy objectives would put America down a path of further dependence on foreign oil from nations like Venezuela and groups like OPEC, costing Americans $360 billion annually and hundreds of thousands of jobs. This would be a mandate on the status quo, denying consumers a choice of a less-expensive, homegrown renewable fuel that is cleaner burning and better for our environment. For far too many years, Big Food has gorged itself at the trough of governmentsubsidized corn. If Big Food believes that the government should continue to pay farmers to produce corn at a loss instead of participating in the free market, they should just say so, instead of making unsubstantiated attacks against the ethanol industry—a true American success story that is helping our economy grow and contributing to our energy security. Author: Tom Buis CEO, Growth Energy (202)545-4000 tbuis@growthenergy.org
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GRASSROOTS vOICE
The Industry’s Stake in this Election
By Brian Jennings
Next month, farmers will wrap up corn harvest, the U.S. EPA will respond to petitions to waive the renewable fuel standard (RFS), and Americans will elect a president and Congress. As much as the corn supply/demand balance sheet and EPA’s waiver decision concern the ethanol industry, I believe more is at stake for us in the election. Farmers will harvest as many bushels as they can, signaling to our industry and other corn customers how much rationing must occur going forward. I’m confident EPA will deny the RFS waiver requests based on ethanol’s small role in feed and food prices, and its big role in moderating gas prices. Who we elect to represent us in Washington, D.C., and how they will vote on the RFS in 2013 remains an open question. Without a doubt, votes will be cast in Congress next year regarding the fate of the RFS. What we have going for us is that ethanol has a compelling story to tell. We can and should go on offense. The RFS costs taxpayers nothing and is doing exactly what Congress intended. Foreign oil imports are below 50 percent, thanks primarily to the RFS. Americans are saving upwards of $1 or
16 | Ethanol Producer Magazine | OCTOBER 2012
more at the pump because of ethanol. Highskill, high-wage jobs that can’t be outsourced have been created by our industry. This record of accomplishment means the RFS is working. But we can’t sit idly by, we’ve got to start at the grassroots level and educate our friends, neighbors and local elected officials about how ethanol is improving the lives of all Americans. You and I may not have enough money to match the campaign contributions of ethanol opponents such as C. Larry Pope of Smithfield Foods or Rex W. Tillerson of ExxonMobil, but we have the same influence they do in the ballot box. Our vote is as powerful as theirs. I recognize most of us aren’t singleissue voters, but given what’s at stake for our industry, we have no other choice but to take our responsibility to vote in November seriously and to make our vote for ethanol nonnegotiable. The RFS is the only variable we have to level the playing field with oil companies. If we lose the RFS, we lose E15, our industry never sees the day when E30 and E85 are available on a widespread basis, and the promise of advanced biofuel vanishes. As former Navy SEAL and U.S. Senator Bob Kerrey remarked at the American Coalition for Ethanol’s 25th anniversary conference in Omaha, the best thing we can do as an industry to get the attention of politicians is to make it clear we won’t vote for them unless they support the RFS. To help inform ethanol supporters where certain candidates stand on the RFS,
ACE has published voter guide information available on our website, www.ethanol.org. Please take the time to educate yourself on the candidates’ RFS positions. Given the gravity of the situation, it isn’t good enough to simply elect politicians who tell us they support the RFS. We need elected officials who are willing to stand up on the floor of the U.S. Senate and House of Representatives and speak out forcefully and effectively for ethanol in debates. We need members of Congress who will convince their colleagues to stand with us on RFS votes next year. Make no mistake: our opponents are motivated to elect politicians who will vote to strike down the RFS next year. The stakes don’t get any higher. We must uncompromisingly elect candidates to Congress who vow to stand and successfully fight with us in support of the RFS. Author: Brian Jennings Executive Vice President, American Coalition for Ethanol (605) 334-3381 bjennings@ethanol.org
Put BetaTecÂŽ natural hop extracts to work in your fermentation process to replace antibiotics and enhance yeast propagation. IsoStabÂŽ is the natural way to effectively control gram-positive bacteria while eliminating antibiotics and harsh chemicals. Plus, antibiotic-free DDGS adds value to your co-products. VitaHopÂŽ Silver yeast nutrient enhances yeast performance and vitality, inducing faster fermentations and larger yields. Combined with BetaTecÂŽ fermentation expertise and training, these technologies will significantly increase your plantâ&#x20AC;&#x2122;s efficiency. BetaTecÂŽâ&#x20AC;Śthe natural hop to higher profits. For more information specific to fuel ethanol producers, visit www.bthp.info. 4HJ(Y[O\Y )S]K :\P[L >HZOPUN[VU +* ;! -! www.betatechopproducts.com
Europe Calling
Food vs Fuel: Can We Get it Off the Table? By Robert Vierhout
In last month’s column, I wrote that the record drought in the U.S.A. has put the food versus fuel debate back on the table making biofuels bashing fashionable again, as in 2008. To be expected, of course. This time, the food/fuel issue has turned into a grim political fight in the U.S. and is much more of an issue than in the EU. That was quite different in 2008, when food/fuel was the talk of the day in Europe. Overall, the appetite for the food/ fuel controversy is less than it was in 2008. We haven’t seen (yet, anyway) the spinning reports from the World Bank and all sorts of other international organizations as we did before. It could well be these organizations learned their lesson. The accusation that biofuels were driving up food prices, causing hunger, was proven wrong. Higher oil prices and speculation in commodities were the main drivers for the problems then. But some people seem to have an ultra short memory. Mr. Brabeck from Nestle is, of course, one of them but many NGOs have the problem of amnesia, too. What irritates me most about the food/fuel "debate" is that again the same accusations are made against the ethanol sector and the same silly solution (no more biofuels) is proposed as was four years
18 | Ethanol Producer Magazine | OCTOBER 2012
ago—as if all the facts are no longer facts and the evidence that biofuels were not causing the problem has evaporated. It annoys me to read what total nonsense organizations like Actionaid are spreading—citing nonpublished and nonpeer-reviewed studies, presenting fabrications as facts, ignoring and effectively denying the laws of supply and demand—taking the moral higher ground and suggesting that the world doesn’t want biofuels. The credo seems to be: it doesn’t matter what we say, as long as it will incriminate biofuel producers and blow up biofuel policy, especially in the U.S. and Europe. It annoys me that the fact that biofuel production is far more than just biofuel production is being completely ignored, almost on purpose. Is it so difficult to acknowledge and publish that at least one-third of the grains used eventually go to food and feed and that those coproducts have a high nutritional value? If a magazine like the Economist is writing that the U.S.A. uses 40 percent of its corn for the production of biodiesel (yes, he said biodiesel), you wonder if the journalist really went any further than using just the cut and paste function of his computer. I have the strong feeling that most, if not all, of the journalists who cover food/fuel don’t do any research at all and are merely stating their own political view. And then there are the politicians who see an opportunity to gain political brownies, such as the German minister of
development affairs who recently called for an immediate stop on the distribution of E10 because this fuel increases world hunger. Now, the facts. Only in 12 percent of all gasoline in Germany is there E10. This might be 100 million liters (26 million gallons) of pure alcohol per year, 60 percent of it made from grains (mainly wheat), which would be around 150,000 tons of wheat, or 0.1 percent of the total EU annual wheat production. Yes, minister, you are right: stopping E10 in Germany will indeed reduce hunger substantially in the world. Oh yes, and don’t bother about the 50 percent of food that is being wasted in the EU. Those 89 million tons per year of foodstuff wasted, as shown in a European Commission report, are peanuts compared to what we use for E10. The food/fuel issue is deeply rooted and I fear that we as biofuel producers will have to live with this. The food/fuel controversy will not be taken from the antibiofuel menu until the moment biofuels are no longer “served.” We can only do one thing, and that is continue to educate and tell the true story on food and biofuel. The people with common sense will understand the story we tell. Author: Robert Vierhout Secretary-general, ePURE Vierhout@epure.org
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business matters
Strategies for Collaboration in Innovation By Camille L. Urban
My dad’s a farmer and will turn 80 this year. His marketing method is very effective although not hightech; he stores grain in his own bins for a couple of years or more until he’s ready to sell. This year, he’ll be emptying those bins. But, I work with ethanol plants. I know corn prices are not fabulous for the ethanol business. What to do? Well, maybe ethanol plants can also reap the benefits of what’s in the “bin.” The key is to generate revenue without taking on business endeavors far-removed from ethanol production. There are many who have developed ways to salvage and create value-added products from the byproducts of ethanol production, some with great success. How did they move from concept to marketability? By buying waste streams from ethanol production plants at very low prices for their research, and, perhaps by continuing to pay little for those waste streams as inputs into their own products. So what’s wrong with that? Well, nothing, really, except that when a marketable product produces its own revenue stream, the ethanol producer should be able to share in the revenue. Sure, the market drivers of supply and demand will eventually drive up the price of the waste stream. But why should the plant providing the waste stream have to forego or wait for its share? Clairvoyance would be helpful in knowing what research will pay off. Most of us don’t have that gift. Yet the possibility of sharing the wealth—selling the stuff in the “bin”—is not unattainable. There are ways to capture the 20 | Ethanol Producer Magazine | OCTOBER 2012
revenue stream of new products that require ethanol production waste inputs before either party even knows what the research will show. Following are some things to consider about the key strategies: 1. Sole Supplier Agreement: Capture new revenue by entering into a sole supplier agreement before research begins. If the other party creates a marketable product that requires a waste stream, your plant will benefit from being the supplier of up to its entire waste stream. Include terms to allow the other party to purchase from other sources only if yours cannot meet demand and terms that provide you favorable market pricing for the waste stream. 2. Research and Development Agreement: Partner up with the other party to assist in development of the product. This may mean tweaking your process to create more desirable waste stream profiles, providing equipment or personnel to assist in testing, treating the stream in some way before it ships, or collaborating on ways to achieve the project goal. Cooperative development often results in jointly owned intellectual property. This agreement must have terms addressing commercialization of joint developments, how each party will benefit and conditions allowing either party to transfer its interest in the developments. Whether research results in a trade secret or patent protection, these terms are key to a profitable endeavor.
3. Independent Contractor Development: No doubt many involved in the plant have agronomy backgrounds. Great ideas are probably walking around the plant in employees’ heads, trapped there forever because, well, ethanol plants are not equipped to develop improvements except to ethanol production. Consider creating a program to reward employees for disclosing those ideas. Hire independent contractors to assess the viability of submitted ideas and then pursue the most viable. The right contractor may be interested in conducting research in exchange for a first option on the results. Alternatively, researchers are available at hourly or project fees to design and conduct the research to obtain data. But be careful! Ownership of inventions defaults to the researcher. Therefore, the contractor’s agreement must include assignment to the ethanol producer of all work products. Then, license/sell the intellectual property to a company with a solid presence in a relevant market, collect the revenue and retain the focus on ethanol production. And that’s how to reap the benefits of what’s in the “bin.” Author: Camille Urban Attorney, Patents, Trademarks and Copyrights BrownWinick Law Firm (515) 242-2451 curban@brownwinick.com
business briefs People, Partnerships & Deals
Alfa Laval Inc. appointed John Piazza as senior vice president of its process technology division. In his new position, Piazza leads the company’s sales and marketing efforts. Piazza joined Alfa LaJohn Piazza formerly val in 1994 as the reled Alfa Laval’s U.S. biodiesel business. gional sales manager of North America. He has also held the positions of business development manager and regional sales manager at Alfa Laval. Most recently, he served as the company’s North American regional business manager for the global vegetable oil segment. Prior to joining Alfa Laval, Piazza was responsible for technology sales to the food, power, refinery, inorganic chemicals, environment and telecommunications industries. Sen. Ben Nelson, D-Neb., was presented with the Merle Anderson Award at the 25th Annual American Coalition for Ethanol Conference and Trade Show, held this year in Omaha. The Merle AnSen. Ben Nelson derson Award is named founded the Governor’s Ethanol Coalition. after the founder and first President of ACE. Each year it is presented to an individual in public service who has made significant contributions to the advancement of ethanol. Nelson has a proud record of supporting and encouraging the biofuel and renewable energy industries, first as governor of Nebraska, and now as a U.S. Senator representing the state. During his tenure as governor, Nelson started the Governor’s Ethanol Coalition to promote ethanol use nationwide. As a senator, Nelson was part of the successful effort to place the first energy title in a farm bill, and helped pass the renewable fuel standard into law. 22 | Ethanol Producer Magazine | OCTOBER 2012
Mississauga, Ontario-based cellulosic ethanol company Woodland Biofuels Inc. has added William White as chief operating officer. White formerly served as president of DuPont Canada, and spent more than 30 years with the global DuPont company, where he held positions in operations, marketing engineering and leadership of global business units. As a long-time champion of sustainability, White has recently worked extensively with developing businesses as a board member of MaRS, the advisory board of the Sustainable Chemistry Alliance. Woodland is constructing a cellulosic ethanol demonstration plant in Sarnia, Ontario. The facility is scheduled to be complete this year.
Syngenta has signed trial agreements with Iowa-based Golden Grain Energy LLC and Nebraska-based Siouxland Ethanol LLC to demonstrate the value of Enogen trait technology for ethanol production. Each plant has signed on to complete a three-month trial of bio-engineered corn grain that is designed to enable more efficient, cost-effective, environmentallyfriendly ethanol production. Enogen trait technology allows corn to express the alpha amylase enzyme necessary for dry grind ethanol production directly in the endosperm of the grain, eliminating the need to add liquid alpha amylase. Use of Enogen corn can increase throughput while potentially reducing costs in energy, gas and water usage. France-based yeast company Lesaffre, and its business unit Fermentis, which is dedicated to the development and sales of yeast to the fuel ethanol industry, acquired Butalco’s xylose isomerase (XI) technology. Butalco is a Swiss company that develops yeasts for the production of biofuels and biobased chemicals produced using lignocellulsoic feedstock. With the new technol-
ogy, Fermentis can finalize the construction of an industrial yeast strain suitable for cellulosic ethanol production. In addition, the sale of the XI technology to Fesaffre enables Butalco to invest more resources in other research and development programs, including yeasts for butanol production or xylose transporters. Archer Daniels Midland Co. has appointed Todd Werpy as vice president of research and development. Werpy previously served as the company’s vice president of chemicals and advanced biofuels. In his new position, Werpy is responsible for all corporate research and development functions, and will help drive value for customers and shareholders by overseeing ADM’s efforts to expand its product portfolio. He will also work to strengthen research partnerships with government agencies, academic institutions and corporations. Before joining ADM, Werpy was employed by Pacific Northwest National Laboratory. ADM’s board of directors also appointed Marschall Smith as senior vice president, general counsel and secretary. Smith formerly served as senior vice president of legal affairs and general counsel at 3M Co. The Brazilian Bioethanol Science and Technology Laboratory in Campinas, São Paulo, Brazil, selected AdvanceBio Systems LLC’s SuPR2G Laboratory Scale Pretreatment Reactor to conduct basis research and development work related to the production of fermentable sugars, biofuels, and chemicals from lignocellulosic feedstock. The SuPR2G reactor will incorporate AdvanceBio Systems’ latest developments, including the “zero hold-up discharger,” which is capable of operating in either slurry or pneumatic product removal modes.
BUSINESS BRIEFS Sponsored by
New York Energy LLC purchased ICM Inc.’s Selective Milling Technology, which includes the license fee, equipment and installation. The technology increases plant efficiency while maintaining throughput. Specifically, the process can increase ethanol yields, reduce enzyme use, decrease centrifuge and dryer load, and increase oil recovery. ICM also signed a contract with ACA Bio Cooperative Limitada to design a 40 MMgy dry-mill corn plant in Argentina. The facility is expected to be complete by the first quarter of 2014.
The American Coalition for Ethanol elected three new members to its board of directors, including Paul Enstad, Doug Punke and John Christenson. Enstad is board of governors chairman for Granite Falls Energy LLC, a 60 MMgy plant in Granite Falls, Minn. Punke is CEO of Renewable Products Marketing Group, and ethanol marketing company in Shakopee, Minn. Christenson is a certified public accountant and partner at Christianson and Associates, an accounting firm that specializes in consulting for biofuel producers and rural businesses. ExperTune Inc. announced that the new CompareMap tool for its PlantTriage Control Loop Monitoring system tool is now available. The new tool helps plant operators focus attention on changing plant conditions. It highlights the biggest changes in plant per-
formance, and provides drill-down into corrective actions. CompareMap compares plant performance from two periods of time and highlights performance improvements and deterioration. The high-level plant graphic is based on Tree Map technology, which was developed by the University of Maryland as a way to visualize large amounts of data. When applied to real-time process control data, Tree Maps can be used to provide a snapshot to pinpoint trouble-spots in plant performance. Peru-based Maple Energy plc completed its first export sale of ethanol to Mitsui & Co. Ltd. under an existing sales and distribution agreement. The shipment consisted of approximately 5,900 cubic meters (1.56 million gallons) of ethanol, which was shipped to the EU. Maple Energy’s 35 MMgy sugarcane ethanol began operations in March. The project includes a sugarcane plantation, ethanol plant, and a 37 MW power plant. The agreement with Mitsui was formed in 2010. Under the agreement, Maple Energy will sell Mitsui all of its ethanol production for a period of 5 years, with the exception of 20 percent of the plant’s production, which can be sold by Maple Energy domestically.
In mid-August, the Federal Circuit Court of Appeals reversed a court order by the U.S. District Court of Delaware that had temporarily prevented Gevo Inc. from selling its biobased isobutanol into the automotive fuel blendstock market. The court order preventing Gevo from selling its output into the fuel market was originally put in place while Butamax Advanced Biofuels LLC appealed the court’s decision to dismiss its motion for a preliminary injection. Gevo is now free to
sell fuel into the transportation fuel markets, as well as the chemical, jet fuel, marine fuel and small engine fuel markets. Leaders of eight biofuel industry organizations recently announced the formation of the Biofuel Producers Coordinating Council to jointly advocate for national policy for increased energy security through domestic biofuel projection. The new council includes Michael McAdams of the Advanced Biofuels Association, Brooke Coleman of the Advanced Ethanol Council, Mary Rosenthal of the Algae Biomass Organization, Brian Jennings of the American Coalition for Ethanol, Brent Erickson of the Biotechnology Industry Organization, Tom Buis of Growth Energy, Anne Steckel of the National Biodiesel Board, and Bob Dinneen of the Renewable Fuels Association. Eco-Energy Holdings Inc. announced a partnership with NuStar Terminals Operations Partnership LP to develop an ethanol unit train and storage facility, including outbound truck loading, at NuStar’s facility in Dumfries, Va. Under the partnership, each party will bear its own development and refurbishment costs in the facility, which will serve the northern Virginia and Washington, D.C., region. The terminal is expected to open in the fall of 2013. Once complete, the ethanol unit train terminal will feature approximately 6.5 million gallons of ethanol storage capacity and will be capable of distributing more than 16.8 million gallons of ethanol per month. Share your industry briefs To be included in Business Briefs, send information (including photos and logos if available) to: Business Briefs, Ethanol Producer Magazine, 308 Second Ave. N., Suite 304, Grand Forks ND 58203. You may also fax information to (701) 7468385, or email it to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.
OCTOBER 2012 | Ethanol Producer Magazine | 23
commodities Natural Gas Report
Natural gas prices: Simple process, complicated factors
Whelan
Aug. 27―Forecasting natural gas prices is challenging, as factors impacting the relatively simple supply/demand process are uncertain and complicated. The low natural gas prices we are currently experiencing are clearly tied to robust supply. Much has been written about the phenomenal success bringing in new natural gas supplies from Ohio, Pennsylvania, North Dakota and Texas with use of hydraulic fracturing technology that five years ago hadn’t been used extensively or wasn’t even available. Can we expect excess supply to continue? The production industry is trying to get supply back in balance. Drilling activity has dropped off by roughly 50 percent with 486 natural gas rigs actively drilling compared to 898 one year ago. Countering this trend is increased efficiency
and productivity. A rig can drill a well much faster today than even one year ago, thus it takes fewer for the same number of wells. Second, the industry squeezes more out of a well. Production growth has slowed down and possibly stopped, however, so the longsupply trend appears to be turning. On the demand side, there are two types: seasonal weather-driven and structural demand driven by process loads. Last winter’s very weak seasonal demand enforced price drops from long supply. On the other hand, the warm summer has boosted electric generation demand and likely caused the recent rally in natural gas prices. The other demand factor is tied to general economic activity and specific demand increases tied to low natural gas prices. There’s tremen-
By Casey
dous potential demand increases in energyintensive industries such as fertilizer and chemical production since the U.S. now has a competitive natural gas price globally. In addition, natural gas continues to gain market share over coal for electric generation. We believe over the next several years, structural demand will increase materially, particularly if LNG export facilities are commissioned. Over the next year, supply and demand are likely to move closer to balance, which will likely mean higher market prices. We don’t believe prices will rocket to over $10 per MMBtu, as we experienced as recently as 2008. We wouldn’t be surprised, however, to see market prices again move into the $4 per MMBtu range and possibly higher, if supply suddenly drops or we have a cold winter.
Corn Report
Market continues adjusting to disappointing corn crop Aug. 28―Disappointing yield reports and lower production estimates have the corn market in a daze as to which demand sectors will be most impacted. Ethanol production has slumped due to poor ethanol margins and the USDA expects more of the same. Corn for ethanol grind was slashed by 400 million bushels in the August report. The USDA cut corn demand in the livestock sector by 725 million bushels. The market will better understand feed rationing after the September quarterly grains stocks report is released. Export demand decreased by 300 million bushels as global alternatives become relatively cheaper. One interesting development is the arbitrage opportunity and/or the lower world value of corn. The U.S. is expected to increase corn imports by 45 million bushels. Corn carryout is estimated by the USDA at 650 million bushels or 5.8 percent, based on production at 10.779 billion bushels. Globally 24 | Ethanol Producer Magazine | OCTOBER 2012
the world corn supply is expected to decrease on lower U.S. production. Global corn carryout was reduced to 123.33 million metric tons (mmt), down from 135.97 mmt a year ago. Other factors to follow: The market expects a larger crop in Brazil and Argentina, with planting soon to start—any disruptions will lead to more volatility. Cash markets will likely succumb to choppy trade as producer movement decelerates. Soybeans will also be a driver, with protein prices impacting corn and distillers. Economic conditions in Europe and China will impact markets as well.
BY JASON SAGEBIEL
The accompanying chart illustrates historical U.S. corn yields. Mid-August projections put the current yield as the lowest since the 1995-’96 marketing year.
report
Regional Ethanol Prices Front Month Futures (AC) $2.601 REGION
SPOT
RACK
West Coast
$2.73
$2.930
Midwest
$2.595
$2.750
East Coast
$2.660
$2.891 SOURCE: DTN
Regional Gasoline Prices
DDGS Report
Tight corn supplies crimp DDGS, demand destruction begins BY SEAN BRODERICK Aug. 27—Before Labor Day, DDGS prices were influenced by the price of cash corn, with ethanol plants scrambling to secure supplies to get through to new crop. The traditional September one-to-five day maintenance shut-downs are happening as always, but the plants short on corn supplies may play it on a day-to-day basis and delay restarting until harvest corn becomes available. If it plays out that way, DDGS supplies will be tight for the second half of September and first half of October. August export demand in the container market was quiet, after absorbing July tonnage that shipped late. Bulk demand has been very quiet, with the only business being to fill the occasional hold. Lately, corn has been cheaper on a delivered basis
to the Gulf than DDGS, which makes it a tough sell in the international bulk market. Containers out of Chicago have been a “hot” market with steep price discounts. Amazingly, one can ship a container from Chicago to China cheaper than shipping a DDGS railcar from the Midwest to California on a per ton basis. High prices are taking their toll on feeders, particularly dairies. It has not been unusual to hear that one or two per week are liquidating or being taken over by the bank. Both hog and cattle “crush” numbers are negative. We are in the midst of demand destruction. The poultry market had been encouraged by the possibility of bringing in South American corn, but there are logistical hurdles to overcome.
Front Month Futures Price (RBOB) $3.078 REGION
SPOT
RACK
West Coast
$3.166
$3.295
Midwest
$3.207
$3.327
East Coast
$3.042
$3.139 SOURCE: DTN
DDGS Prices ($/ton) location
OCT 2012
SEP 2012
Minnesota
290
290
Oct 2011 190
Chicago
310
295
205
Buffalo, N.Y.
300
282
218
Central Calif.
349
344
254
Central Fla.
338
299
228 SOURCE: CHS Inc.
Corn Futures Prices Date
Low
Close
8.18
8.00 1/4
8.00 3/4
7.95 3/4
7.71 1/2
7.93 1/4
6.93
6.75
August 27, 2012 July 27, 2012
(Dec. Futures, $/bushel)
High
August 27, 2011
6.91 1/2 SOURCE: FCStone
Cash Sorghum Prices ($/bushel) LOCATION
Ethanol Report
Ethanol prices losing ground to gasoline price rally BY RICK KMENT Aug. 28 —Despite all of the talk and political jockeying seen over the past several weeks about the record high price of corn causing input costs impacting ethanol and all other products, ethanol prices are steady to lower than they were through midsummer. The ethanol price does continue to move higher and lower following the general corn market, but the volatility in the corn market has been incredible through the month of August, posting 40 to 50 cent-per-bushel price swings in a matter of days. Ethanol demand continues to remain strong based on the growing late summer demand for gasoline. The price premium of RBOB gasoline over ethanol
has grown to 47 cents per gallon through the fourth week in August, compared to a 26 cent premium in the middle of July. As additional counter-seasonal commercial buyer support develops in gasoline markets, even at the elevated cost of production for ethanol, the economic advantage to blend ethanol continues to grow throughout the end of the summer and into fall. Although it is still uncertain if gasoline demand will continue to strengthen through the end of the year, for now ethanol continues to remain at a significant discount to the gasoline market, insuring its economic advantage to the market.
AUG 24, 2012
JuL 20, 2012
Aug 26, 2011
Superior, Neb.
7.44
7.31
7.12
Beatrice, Neb.
7.74
7.65
7.18
Sublette, Kan.
7.96
8.11
7.08
Salina, Kan.
7.68
7.63
7.34
Triangle, Texas
7.88
8.24
6.89
Gulf, Texas
7.64
7.46
8.12
SOURCE: Sorghum Synergies
Natural Gas Prices
($/MMBtu)
LOCATION
Aug 27, 2012
Aug 1, 2012
sep 1, 2011
NYMEX
2.73
3.17
4.06
NNG Ventura
2.79
3.23
4.00
CA Citygate
2.94
3.23
4.21
SOURCE: U.S. Energy Services Inc.
U.S. Ethanol Production
(1,000 barrels)
Per day
Month
End stocks
887
26,611
21,456
May 2012
894
27,718
21,851
June 2011
907
27,224
19,217
June 2012
SOURCE: U.S. Energy Information Administration
OCTOBER 2012 | Ethanol Producer Magazine | 25
distilled
Ethanol News & Trends
Cellulosic ethanol producers land USDA loan guarantees
Poet, Agrivida partner to reduce costs
Fulcrum BioEnergy Inc. received a $105 million conditional loan guarantee from the USDA in August. The guarantee provides a key piece of financing to move the companyâ&#x20AC;&#x2122;s proposed 10 MMgy Sierra Biofuels Plant forward. According to E. James Macias, Fulcrum president and CEO, the loan guarantee allows his company to secure private bank financing at reasonable prices, and with favorable terms. â&#x20AC;&#x153;This is a real example of how USDAâ&#x20AC;&#x2122;s Rural Development Program helps bring new and innovative technologies and jobs to some of the areas hardest hit by the economic downturn,â&#x20AC;? he continued. Fulcrum is scheduled to break ground on the facility early next year and begin operations 18 months later. Chemtex International Inc. also received a $99 million conditional loan guarantee from the USDA in August. The guar-
Poet LLC and Agrivida Inc. are cooperating to reduce the capital and operating costs of commercial cellulosic ethanol production plants. The two companies have signed a four-year technology collaboration joint development agreement. Under the agreement, Agrivida will continue to optimize its proprietary corn stover. The company is engineering plant traits that aim to improve pretreatment by making cellulose easier to breakdown, thereby reducing enzyme costs. Poet will evaluate and test Agrividaâ&#x20AC;&#x2122;s low-severity feedstock processing technology for integration with Poetâ&#x20AC;&#x2122;s cellulosic ethanol technology. â&#x20AC;&#x153;Poet is committed to working with new and innovative technologies that will improve the cost and value of cellulosic ethanol production,â&#x20AC;? said Wade Robey, Poet senior vice president and chief technology officer. â&#x20AC;&#x153;If successful, Agrividaâ&#x20AC;&#x2122;s novel approach to increase the functionality and value delivery of corn stover will work well with other technologies being developed by Poet.â&#x20AC;?
7
3 8
9
1 6 5
2
4
USDA 9003 Biorefinery Assistance Program awardees 1. Chemtex International Inc., $99 million conditional commitment 2. Coskata Inc., $87.85 million conditional commitment 3. Fremont Community Digester LLC, $12.825 million 4. Ineos New Planet BioEnergy LLC, $75 million 5. Sapphire Energy Inc., $54.5 million 6. Enerkem Corp., $80 million conditional commitment 7. ZeaChem Boardman Biorefinery LLC, $232.5 billion conditional commitment 8. Fiberight LLC, $25 million conditional commitment 9. Fulcrum Sierra Biofuels LLC, $105 million conditional commitment
antee will support the development of Chemtexâ&#x20AC;&#x2122;s proposed 20 MMgy Project Alpha plant in North Carolina. The facility is scheduled to be operational in 2014.
Scaling back costs. How a U.S. ethanol plant cut acid usage and evaporator cleaning frequency by switching to BulabÂŽ 8301 scale control from Buckman. The challenge. A Midwestern ethanol plant relied heavily on sulfuric acid to lower pH. Unfortunately, acid availability was tight, driving costs up significantly.
The solution. Buckman applied FDA-allowed BulabÂŽ 8301 just ahead of the first evaporator resulting in outstanding scale control and process pH control.
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distilled
Report analyzes future potential for DDGS exports to China
Thin stillage tests yield protein-rich byproduct
A recent report issued by the USDA Economic Research Service examines recent trends in the U.S.-China DDGS trade, and analyzes factors that could impact the competitiveness of U.S. DDGS products in the future. The overall finding of the analysis is that demand for DDGS in China is robust, but that slower growth in the
Iowa State University researchers are showing that a high-protein fungus grown in stillage resulting from ethanol production could be a good energy feed for pigs and chickens. Iowa State researcher Hans van Leeuwen and his colleagues have developed a pilot plant that converts stillage into food-grade fungi. Material grown in the pilot plant was tested in separate feeding trials for nursery pigs and chickens. To produce the feed, the research team adds the fungus Rhizopus microspores to thin stillage. It feeds and grows into easily harvested pellets in less than a day. The fungus is then harvested and dried, becoming a feed that is rich in protein, certain essential amino acids, polyunsaturated oils and other nutrients. Growth of the fungus also helps purify the stillage. According to the research team, the fungus removes approximately 60 percent of the organic material and most of the solids. This allows the water and enzymes in the thin stillage to be recycled back into the ethanol production process.
U.S. supply of DDGS and uncertainties about Chinese policy may constrain export growth in the future. Several factors are expected to influence the DDGS export market to China, including slower projected growth in the U.S. corn ethanol industry. In addition, increasing domestic demand for DDGS could reduce exports to China, as could robust demand from other Asian growth markets. The report also noted that high transportation costs coupled with integration of feed and livestock sectors in the North American Free Trade Association could favor DDGS exports to Canadian and Mexican markets.
distilled
Court upholds EPA E15 waiver, second station sells the blend Zarco 66 Fuel Prices Fuel Blend
Price
Octane Rating
E85
$3.29
n/a
E15
$3.67
90
E10
$3.69
87
*Spot prices as of Aug. 23, 2012
In August, the U.S. Court of Appeals for the District of Columbia Circuit upheld the U.S. EPA’s partial waiver approval of E15 in the case of Grocery Manufacturers Association vs. EPA. “This decision is a win-win for both the American consumer and our nation,” said Tom Buis, CEO of Growth Energy. In order to assist retailers in the transition to E15 sales, several fuel dis-
pensing equipment manufacturers have introduced new products to modify existing fuel dispensers to accommodate higher ethanol blends. Gilbarco Veeder-Root released a retrofit kit for flex pumps certified by Underwriters Laboratory. Davis Airtech also introduced a new line of flex fuel meters, certified by the National Conference of Weights and Measures. A Lawrence, Kan.-based Zarco 66 “Oasis” station became the first retail station in the nation to offer E15 in July. The next month a second Zarco 66 station in Ottaw, Kan., began to offer the blend of fuel. Both stations are owned by Scott Zaremba.
EPA registers Ineos Bio plant to make, sell cellulosic Ineos Bio’s joint-venture project, Ineos New Plant BioEnergy, was granted Part 79 and 80 registrations from the U.S. EPA for the production and sale of cellulosic ethanol. Part 79 registration enables the company to generate renewable identification numbers for the biofuel it produces. Notice of the registration came following the successful completion of the Indian River BioEnergy Center, which began the commissioning process in June. When running at capacity, the facility is capable of producing 8 MMgy of cellulosic ethanol and 6 MW of power. The plant will take in 100,000 tons of locally sourced vegetable, yard and citrus waste on a yearly basis. The facility also plans to take in municipal solid waste in the future. The commissioning process is expected to be complete this fall. “We anticipate we’ll start producing in the third quarter, to help meet the cellulosic ethanol mandate,” said Dan Cummings, Ineos Bio spokesman. The facility is expected to be running at full capacity by the end of the year.
distilled
New enzyme reduces lignin in cell walls
Fiberight earns key EPA approval Schematic of the company's approved MSW separation plan
Scientists at the U.S. DOEâ&#x20AC;&#x2122;s Brookhaven National Laboratory created an enzyme that â&#x20AC;&#x153;masksâ&#x20AC;? the synthetic precursors of lignin. When expressed in plants, the enzyme reduces lignin content of cell walls, increasing the digestibility of cell wall biomass. This should make the plants more amenable to conversion into biofuels. The enzyme was first engineered by the team in 2009 by modifying an enzyme naturally found in plants. The researchers determined that mutation of two amino acid sites in the enzymes genetic code allowed it to modify lignin precursors. As a result, the lignin precursors are prevented from forming a lignin polymer. The first version of the enzyme introduced into a plant was not effective. A second round of alterations to the enzyme, consisting of additional amino acid mutations, was more successful. The new enzyme reduced the lignin content of Arabidopsis plants by up to 24 percent.
Separation processes:
Unseparated MSW
*Information sourced from U.S. EPA
Shredding, screening, pulping, air and magnetic separation, optical and manual sorting, etc.
Under the renewable fuels standard regulations, companies planning to use unsorted municipal solid waste as feedstock for renewable fuel production must gain U.S. EPA approval for separation and recycling plans. Fiberight LLC and its technology partner Novozymes announced they achieved that approval in August. Fiberight is currently working on a $20 million expansion of its demonstration fa-
40,830 tons per year of recyclables
29,340 tons per year of separated MSW for use as feedstock
2.5 MMgy cellulosic biofuel production
cility in Lawrenceville, Va. Once complete, the facility will have an annual production capacity of 1 million gallons. The expanded plant is scheduled to begin production later this year. After Fiberight begins fuel production at its Lawrenceville facility, it will focus on bringing a retrofitted corn ethanol plant online in Blairstown, Iowa. The 6 MMgy facility is expected to begin operations in 2013.
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DROUGHT
30 | Ethanol Producer Magazine | OCTOBER 2012
DROUGHT
RFS
UNDER Scrutiny What many are calling the worst drought in 50 years has magnified scrutiny of the renewable fuel standard (RFS). By Holly Jessen
The ethanol industry saw it coming long before it actually happened. Although Todd Becker, president and CEO of Green
Plains Renewable Energy Inc., doesn’t believe an RFS waiver is necessary or will have the intended effect of lowering corn prices, he wasn’t surprised when official RFS waiver requests were filed with the U.S. EPA mid-August. “I think it’s a little early before we even have a corn crop harvest for somebody to say that they need relief,” he told Ethanol Producer Magazine. “Obviously blaming ethanol for all of their problems is a bit shortsighted. The drought is causing all of the problems in the United States, not the renewable fuel standard.” In the face of tight margins and high corn prices, some ethanol produc-
OCTOBER 2012 | Ethanol Producer Magazine | 31
DROUGHT
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32 | Ethanol Producer Magazine | OCTOBER 2012
ers are idling temporarily or slowing production rates. That's a sign, the industry has been quick to point out, that it is already sharing in corn rationing and that the market is naturally rebalancing. Green Plains, which reduced its production volumes this spring at two of its nine ethanol plants by about 30 percent, or about 7 percent of its total production capacity, has maintained that run rate, Becker said in mid-August. Another example is Valero Energy Corp., which temporarily idled two 120 MMgy ethanol plants this summer and cut back run rates at its remaining eight facilities, announcing in mid-August that it was producing about half of its total combined capacity of 1.2 billion gallons per year. According to figures from the Renewable Fuels Association, about 26 ethanol plants representing 1.5 billion gallons of capacity are sitting idle, some idled recently and some that have been idle for several years. “In recent weeks, we’ve been running at a rate that is about 12 percent below the industry run rate in early June and about 15 percent below where we were running at the beginning of this year,” said Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association, during an August conference call about the drought and the RFS. That’s not to say every ethanol production facility is in danger of shutting down. In fact, in Pennsylvania, one ethanol plant actually started back up again in the midst of drought after nearly a year in hot idle. Pennsylvania Grain Processing LLC, a 110 MMgy ethanol plant located in Clearfield, started taking in corn the end of June, well after drought concerns cropped up, and began corn grind in mid-July. The former Bionol Clearfield facility was purchased at auction this spring after the former owners applied for Chapter 7 bankruptcy. Eric Meeuwsen, general manager of the plant, acknowledged that corn supplies were going to be tight this year, but pointed out that the crop in the vicinity of this plant was looking pretty good. While the former owners of the plant purchased about 55 percent of corn supplies locally, the new company plans to increase that percentage. In addition, the facility has the advantage of location—although it’s not in the Corn Belt there is a good supply
of local corn and it has the ability to sell all of its ethanol to local markets in nearby population centers, such as Pittsburgh, which is only about 100 miles away. Green Plains previously predicted a down third quarter but still expects to pull off a profitable fourth quarter, partially due to hedging ethanol production, Becker said. The company has done a lot of things to improve profitability at its ethanol plants, including working to increase production and yield efficiencies, adding corn oil and fine grind as well as efforts to strengthen its non-ethanol operating income. The fact remains, however, that there’s simply not going to be enough corn to go around to all corn users—rationing is expected. The Aug. 10 World Agriculture Supply and Demand Estimates report trimmed U.S. corn production to 10.8 billion bushels, the lowest since the 2006-’07 crop. The national average corn yield was projected at 123.4 bushels per acre, 22.6 bushels per acre lower than what was predicted in the previous report and 42.6 bushels lower than the projections in the June and July reports. Total corn use was estimated to decline 984.2 million bushels compared to last year, with feed use dropping 472.4 million bushels, ethanol use 500 million bushels and exports 248 million bushels. The weekly crop progress report compiled by the National Agricultural Statistics Service, Agricultural Statistics Board and USDA also reflects a serious decline in corn quality. Looking at the average of 18 states, which make up 92 percent of the 2011 corn acreage, the Aug. 13 report pegged 51 percent of the corn crop in the poor or very poor category and only 3 percent excellent. That’s in stark contrast to the previous year, when only 15 percent of the corn crop was poor or very poor and 14 percent was excellent. Zeroing in on the Midwest states with the poorest corn crop conditions shows that more than 70 percent of the corn crop in Illinois and Indiana is poor or very poor—two states with more than 10 ethanol plants each. There are some bright spots, however. Minnesota’s corn crop is 77 percent fair or good and North Dakota is not far behind, with 72 percent in the fair or good category.
PHOTO: LEA PINK
DROUGHT
Not All Bad News Eric Meeuwsen, general manager of Pennsylvania Grain Processing LLC, tells EPM the corn crop around Clearfield, Pa., looks good. The 110 MMgy ethanol plant restarted during widespread drought after sitting idle for nearly a year.
Waiver Effects
Official petitions to waive the RFS were first filed by Arkansas Gov. Mike Beebe and North Carolina Gov. Beverly Perdue. The waiver request opened it up for public comment which and will close Sept. 26. Lisa Jackson, administrator of the EPA, in consultation with the secretaries of energy and
agriculture, does have the ability to waive the RFS in whole or in part, according to section 211(o)(7) of the Clean Air Act. However, to do that it must determine â&#x20AC;&#x153;that implementation of the RFS requirements would severely harm the economy or environment of a state, a region, or the United States.â&#x20AC;? A 2008 waiver request filed by Texas Gov. Rick Perry was deOCTOBER 2012 | Ethanol Producer Magazine | 33
DROUGHT
Ethanol produc�on has fallen to a 2-year low in response to higher corn prices WEEKLY ETHANOL PRODUCTION (000 bpd) Weekly Ethanol Produc�on
Implied RFS Requirements
1000
Thousand bpd
950 900 850 800
6/4/2010 7/2/2010 7/30/2010 8/27/2010 9/24/2010 10/22/2010 11/19/2010 12/17/2010 1/14/2011 2/11/2011 3/11/2011 4/8/2011 5/6/2011 6/3/2011 7/1/2011 7/29/2011 8/26/2011 9/23/2011 10/21/2011 11/18/2011 12/16/2011 1/13/2012 2/10/2012 3/9/2012 4/6/2012 5/4/2012 6/1/2012 6/29/2012 7/27/2012
750
Source: EIA
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nied, the EPA said, because the evidence didn’t support the determination that the RFS caused severe harm to the economy during the time period in question. RFA, Growth Energy and the American Coalition for Ethanol have been working in cooperation to combat those leveraging emotions to claim a waiver is needed. “These are the same groups that have been gunning for the RFS for a number of years,” Cooper said. Notably, Tom Vilsack, secretary of agriculture, has repeatedly spoken out in continued support of biofuels and the RFS, including on the same day that the August WASDE report was released. “We don’t want to turn our backs on this industry right now,” he said at ACE’s annual conference. “We are right on the cusp of some exciting things.” The ethanol industry has repeatedly said that a waiver is not necessary and that the corn and ethanol markets have the ability to adjust naturally to price signals. One major point is that flexibility is already built into the RFS through the ability of obligated parties to use banked renewable identification numbers (RINs) to meet possible shortfalls in the blending mandate. Because ethanol blending has been in excess of the mandate, there’s an estimated 2.5 or 2.6 billion RINs available, Cooper said. As a result, there won’t be a problem in meeting the 2012 RFS requirements. If the ethanol market gets tight, refiners can draw on ethanol stocks that have built up in the previous months and/or draw on excess RINs, he said. For these reasons, if the RFS is waived it would have little impact on corn price, no discernible impact on retail food prices and only a minor, short-term impact on ethanol output. Finally, it will send a chilling signal to investors considering the advanced biofuels industry, he added. Two papers were recently published that examine many of those same points, one by the Center for Agricultural and Rural Development (CARD) and the second by Farm Foundation and Purdue University. The August CARD policy brief was titled “Updated Assessment of the Drought’s Impacts on Crop Prices and Biofuel Pro-
DROUGHT
Demand Ra�oning in 2012/13
USDAâ&#x20AC;&#x2122;s latest projec ons show all end users will share in demand ra oning 2012/13 Projected Corn Use (July vs. August es mates) Ethanol
Feed/Residual + Dist. Grains
Other Food, Seed, Industrial
Exports
7,000 6,000 5,000 Million Bushels
ductionâ&#x20AC;? and was written by Bruce Babcock, a professor of economics at Iowa State University. Three Purdue University professors, Wallace Tyner, Farzad Taheripour and Chris Hurt, wrote â&#x20AC;&#x153;Potential Impacts of a Partial Waiver of the Ethanol Blending Rules.â&#x20AC;? The two papers utilized different assumptions and models to come to somewhat different conclusions on what the impact a RFS waiver would have on the price of corn. The CARD policy brief estimated that if the RFS ethanol mandate were waived, it would have only a modest impact on the corn and ethanol markets, decreasing corn prices by only 58 cents per bushel and ethanol prices 15 cents per gallon with only a 500 million gallon drop in ethanol production. Babcock pointed to ethanol demand, stating that at average domestic consumption of 11.4 billion gallons, ethanol is at par with wholesale gasoline. â&#x20AC;&#x153;This high valuation of ethanol is consistent with the current price of ethanol relative to gasoline, and perhaps reflects a large value of ethanol in allowing refineries to produce a below-octane gasoline that when blended with 10 percent ethanol results in an 87-octane blend,â&#x20AC;? he said, cautioning that if the value of ethanol to blenders is overstated in his estimated demand curve, the effects of waiving the RFS would be larger. Further, a 500 million gallon drop in ethanol supply could potentially increase the value of ethanol in the marketplace, supporting 11.5 billion gallons of production and maintaining high corn prices, he said. Prices are also stimulated in response to the waiver request itself. â&#x20AC;&#x153;The desire by livestock groups to see additional flexibility on ethanol mandates may not result in as large a drop in feed costs as they hope,â&#x20AC;? he said, adding that the analysis shouldnâ&#x20AC;&#x2122;t be interpreted as saying that ethanol prices have no impact on corn prices. Although there is no mechanism for implementing a ban on corn ethanol, banning its production would result in an average price of $2.67 per bushel of corn. The use of excess RINs to meet the RFS mandate also factored into his conclusions. Compared
Dis�llers Grains, 1,633
Dis�llers Grains, 1,500
4,000 3,000 2,000
Feed & Residual, 4,800
Feed & Residual, 4,075
1,000 0
July WASDE
August WASDE
Dis�llers Grains, 1,633
Dis�llers Grains, 1,500
Ethanol (Net DG), 3,267
Ethanol (Net DG), 3,000
July WASDE
August WASDE
-13% reduc on
-8% reduc on
Exports, 1,600
July WASDE
Exports, 1,300
Other FSI, 1,420
Other FSI, 1,350
August WASDE
July WASDE
August WASDE
-19% reduc on
-5% reduc on
Source: USDA, WASDE
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OCTOBER 2012 | Ethanol Producer Magazine | 35
DROUGHT
to the assumption that no flexibility exists in the RFS, accounting for flexibility decreases the average corn price by 91 cents per bushel and a 25-cent per-gallon drop in ethanol prices, he said. The results of the Purdue paper were discussed during a webinar Aug. 17. Tyner pointed out that the economic harm is a result of the drought and that the EPA can’t change that—it can only redistribute it among the effected parties. An RFS waiver would help livestock producers, he said, but would also penalize ethanol and corn producers and could have longer-term implications that were not examined in the paper. A waiver is not a “stroke of the pen” solution, as it was characterized in a New York Times editorial published the end of July, he said. The EPA must consider many complicated factors when weighing whether to waive the RFS, including oil prices, corn prices, final corn production numbers, the flexibility
of oil refiners and blenders and the potential use of RINs. The Purdue professors clearly state in the paper that they do not believe the EPA will issue a waiver for 2012 and that the more important question is whether a partial waiver will be put in place in 2013, when the ethanol blending obligation increases to 13.8 billion gallons. Typically, the EPA issues a decision on the blending levels of the RFS in November of the year before the mandates are applied, giving the agency until October to gather information on whether the RFS would cause economic harm. “EPA will have to determine what impact a waiver actually would have given the way the market functions,” it concluded. “The most likely technical outcome is that refiners and blenders could and probably would reduce ethanol use to some extent, but how much is uncertain for 2013.” Whether oil refiners and blenders would
utilize RINs was considered at length. There are no financial incentives for blenders to use RINs to meet RFS obligations if the ethanol price is below that of reformulated blendstock for oxygenated blending (RBOB) and RINs will not be used until they have the economic incentive to do so, it said. Like the CARD policy brief, it referenced refiners’ use of ethanol to increase the octane level of 84 octane gas to 87 octane gas, necessary for retail sale. “In other words, for technical and economic reasons, the waiver could have little or no near-term impact, but it is hard to predict how refineries and blenders would respond,” the paper said, adding that if refiners and blenders have limited flexibility in the near term the impact of a waiver would be small or nonexistent. If the full RFS is left in place and no prioryear RINs are used, the corn price could range between $7.02 and $8.57, depending on the ultimate outcome of the drought. However, in a scenario where no waiver is approved, but RINs are carried forward, ethanol blending could be reduced to 11.8 billion gallons, potentially dropping corn prices about 67 cents a bushel. With flexibility to reduce ethanol usage in the short term, use of RINs credits and/ or a waiver could reduce corn prices from 47 cents a bushel for a modest waiver and $1.30 for a large waiver. “The waiver decision clearly depends to a large degree on the flexibility of refiners,” Tyner said. Although it wasn’t examined in depth, the paper did point out that if exports are reduced, it could lead to some reduction in corn prices. In addition, as corn prices continue to increase, bringing the ethanol price with it, ethanol production rates have already been falling. “This shows that markets can and do adjust, with less corn being used for ethanol,” it said. Author: Holly Jessen Features Editor of Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com
on the web For more charts and maps, see the online version of this story. Visit: www.ethanolproducer.com
36 | Ethanol Producer Magazine | OCTOBER 2012
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Q&A
Corn's Cruel Summer Iowa State University’s resident grain quality expert Charlie Hurburgh looks at corn quality, corn genetics and the role ethanol will play in the future of corn through the lens of the most devastating drought in his memory.
Summer 2012 was a trying one for corn producers, with many of them watching helplessly as parched crops sizzled in hot, dry conditions. To make matters worse, drought-weakened fields are more susceptible to fungal contaminations, which kept Hurburgh’s phone ringing throughout the summer. Hurburgh talks about how the drought played out on his farm, how improved genetics saved this year’s crop from being a total loss and how critics have missed the contributions to increased corn yields, stimulated in part by increased demand from ethanol producers.
First things first, you have some corn acres in central Iowa. How do things look there? We are in a fairly good area, relatively speaking. I’d say we’ll probably net 140 bushels per acre down from a more normal 200 to 220 bushels. Our kernels are small but modern genetics really hang tough in the face of stress, more so than many people outside agriculture understand.
When was the last time you saw conditions this dry? 1988 I think but even then it was not this bad. This is the longest dry period I really can remember. My dad said we plowed up the corn in 1956 but I can’t remember that.
38 | Ethanol Producer Magazine | OCTOBER 2012
The drought, falling corn harvest estimates and the ethanol mandate have been national news this summer and the subject of much debate. Did anything about the debate surprise you? Not really. There were many people who did not understand the growth curve that corn production was, and still is, on and therefore were looking for a reason to say we are using too much corn for fuel.
How much more droughttolerant are the corn hybrids typically grown today? For instance, how much more devastating would this summer’s weather have been on corn seed with genetics from 20 years ago? Well, I don’t know that I could give it a percentage, but this has been a gradual trend over the last 10 or 15 years and most of us in farming have noticed this, that the falloff in yield has been decreasing, and at the same time we’re increasing our plant population. There has been a steady increase in the ability of corn to go a long time without moisture without experiencing a large yield loss. This year, it’s not just a question of going a while, its going almost a whole season without moisture. Even now, we may end up with 120 or 140 bushels per acre and it hasn’t really rained since June. That’s pretty good. Without modern traits, I think fields would have been dead by Aug. 1 or earlier in most areas, with virtually no yield.
Q&A
Chuck Hurburgh INTERVIEWED BY TIM PORTZ
Mainstream interest in agriculture continues to escalate with books about food production sitting atop bestseller lists. In his book “Omnivore’s Dilemma,” Michael Pollan is pretty critical of monocultures and modern corn production. What is the best argument for our current production approach? With scientific management, fertility continues to increase. The high prices are actually a benefit in this regard because of fertilizer loss, and application of extra inputs is more expensive now than before. To answer the question, there is an exploding demand for calories in the world, for food, feed and fuel. That is not going to stop. If we do not keep creating new energy for whatever use, the net impact would be shortage, higheryet prices and most likely war. There seems to be a belief that we would be better-off to go back to a lower tech, more crop diversity, with a greater focus on local markets. With that approach, total output would fall and someone would have to pay the price. It’s sort of elitist to think that we could have a social system that serves us without intrusion from others who would not be so fortunate. The higher prices for agricultural products are creating more potential wealth for farmers everywhere, although other places struggle to distribute not only the grain but, more importantly, the wealth.
Could an argument be made that the increased demand for corn for ethanol production has led to increased research in yield and corn vitality, thereby ultimately increasing the amount of corn available for feed and food usage, instead of decreasing it as industry critics often suggest? Absolutely. Ethanol increased the demand for corn, which then increased the price for corn, making it possible to invest more R&D dollars into a whole bunch of things including precision farming, chemical placement, fertilizer placement and so on. All of those things cost money to develop and they cost money to do. We now have the money to do them. There is no question our yield increase curve is supported by the higher value of the crop that was originally driven there by the ethanol industry. As an example, we couldn’t pay the price we paid out for a bag of seed with the traits we now have if we were getting the buck fifty per bushel we used to get from the market and 50 cents from the government, we just couldn’t have done that.
How are ethanol plants currently handling inbound grain inspection? How should they be? Corn quality makes more difference than it gets credit for. Protein, oil, mold damage and, of course, mycotoxins affect both ethanol yield and DDGS quality. When you receive 100-200 trucks per day, it’s sometimes hard to think about inspection beyond moisture and test weight, which comes with moisture. That’s
typical and sometimes the buying side expects the processing side to just take whatever can be bought and make the best of it. Anyone in the ethanol business needs to be screening their inbound grain. There is just no question that this year there will be some aflatoxin in corn supplies. Producers need to know if it is in their particular area, as it will be regional. Ethanol plants that serve export or dairy markets are the producers that will need to be most cognizant of aflatoxin levels in their inbound corn.
You have spoken about a cap on corn-derived ethanol being a mistake, as ethanol would be a great candidate to continue to provide a market for ever-growing corn crops. In light of that, as we build more demand for corn, whether in an ethanol plant or for other uses, how do we reconcile years like this one when harvest falls short of demand? Absolutely true. Every system has variations. A system that is fundamentally driven by the weather can have large variations, as we’ve seen this year. Yet, at the recent Farm Progress Show, the stars of the show were the increased drought-resistant corn hybrids. The long-term trend is steadily up in corn yields and in potential acres planted to corn, both in areas now (seeded) in other crops or in no crops (not seeded) whatsoever. Corn is the most efficient converter we have of sunlight to readily useable energy and yields more units of grain per acre than any other choice.
OCTOBER 2012 | Ethanol Producer Magazine | 39
CORN BREEDING
Texan Yielder Monsanto’s DroughtGard hybrids include a gene that affects the plant’s ability to utilize scarce moisture. Though it doesn’t improve the corn plant’s green looks, it can still set kernels and fill an ear. This photo was taken in July just prior to harvest in Tynan, Texas. PHOTO: MONSANTO
40 | Ethanol Producer Magazine | OCTOBER 2012
CORN BREEDING
Boosting Corn’s Drought Performance A decade’s worth of work is tested this season. By Susanne Retka Schill
For corn breeders working on drought resistance, 2012 is a year to see just how good the new varieties have become. The three big seed companies—Syngenta, Monsanto Co. and Pioneer—all have widespread farm plots of their new drought-resistant varieties being put to the test. None are claim-
Source: ICM
ing their varieties will grow with no rain but all are hoping farmers get a chance to see just what these varieties can do under stress. Improved drought resistance has long been a goal for the corn seed industry. The big three all launched intensive programs a decade ago to bring better drought-tolerance traits forward. Not long after Pioneer started the effort, the company ran an experiment that showed the improvements that had been made up to that point. “We can recreate any hybrids we’ve ever sold, because we keep the inbreds,” explains Jeff Schussler, senior research manager for maize stress product development at Pioneer. “We took the top three products Pioneer sold in each decade from the 1930s through the past decade and grew them in the same experiment in California under extreme drought like we experienced this year.” The results were reported as bushels of grain produced per inch of water. “We found hybrids in the '30s and '40s could produce roughly 3 bushels of corn per inch of water applied,” he says. “The hybrids in the '90s and 2000s produced about 9 to 10 bushels per inch.” A three-fold increase over 70 years of breeding is impressive but the new class of drought-resistant corn varieties is leaving those numbers in the dust. After decades of seeing 1 percent yield increases in hybrid advances year over year, the companies are now reporting yield increases of 7 or 15 percent.
OCTOBER 2012 | Ethanol Producer Magazine | 41
Pioneer was the first to release its new crop of drought-resistant hybrids, marketed as Optimum Aquamax, offering five hybrids in 2011 and a total of 25 hybrids in 2012. Around 2 million acres were seeded this spring. While 2012 results won’t be in until after harvest, Pioneer analyzed the droughtstressed locations from more than 8,000 on-farm trails in 2011. “We found in those dry locations where we proved there was a significant drought stress—680 locations in 2011—our Aquamax varieties were outyielding other hybrids and competitors by 7.1 percent,” Schussler says. “In those other 7,000-plus locations, where it was high yield and there wasn’t a water limitation, the Aquamax products were yielding about 3 percent more than other hybrids it was compared to.” The improvements with these new varieties are far better than previously expected. “We used to be happy with 1 percent [yield improvement] per year,” says Wayne Fithian, technical product lead at Syngenta. “Part of it was due to improved yield potential but also improved stability. We didn’t approach drought resistance directly because we had the problem of losing top-end potential.” Syngenta launched its Agrisure Artesian line this year, with 800 plots grown by corn farmers across the Corn Belt from Colorado
to Ohio and Kentucky to Minnesota. Syngenta’s Gene Blueprinting program has advanced hybrids with an impressive drought record. “Our promise is up to 15 percent improvement in yield potential in fields affected by moderate to severe drought,” Fithian says. “So in a field that will typically yield 150 bushels and the drought knocks it back to 80 bushels, we’d expect our Artesian hybrid to get 90 to 94 bushels.” The dramatic improvement in corn yield potential builds on the past work of corn breeders and the advances in molecular biology and genomics, which have recently become far more accessible. Othmar Pfannes, CEO of Genedata AG, a Swissheadquartered software company, explains that when his company started working with the pharmaceutical industry to analyze gene sequencing data, the technology was extremely expensive. “Ten years ago, to do a genome sequence was a year’s research budget for an entire organization,” he explains. “Now you can do it for a day or two day’s budget. You can sequence on a regular basis and do individual strains.” That comes with an explosion in data, which his software company specializes in analyzing, combining comparisons of genome sequences of chosen individuals with public domain data and cross checking with other company’s
PHOTO: PIONEER
CORN BREEDING
Standing Tall The conventional hybrid, left, and the Pioneer Aquamax variety, right, are shown under drought conditions in Kansas in 2010.
intellectual property. In corn breeding, that means the genetic makeup of plants that are performing well can be compared to the genetics of a closely related, poorly performing plant—with the goal of identifying the key genes involved.
Breeding Approaches
New understanding of molecular biology and gene technology has transformed the breeding industry, making it possible for
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9RJHOEXVFK 86$ LQQRYDWLYH ELRWHFKQRORJ\ VROXWLRQV 42 | Ethanol Producer Magazine | OCTOBER 2012
PHOTO: SYNGENTA
CORN BREEDING
Curled versus Healthy Syngenta's Agrisure Artesian hybrid, right, in a comparison trial in New Paris, Ohio, is less susceptible to leaf curl under stress.
both Syngenta and Pioneer to identify native genes important to drought response and successfully transfer them to new inbred lines, which are the basis of their new hybrids. Both companies are also now working on genetically modified (GM) varieties. On the other hand, Monsanto began its drought development work with GM traits. Monsanto’s approach to drought resistance is based on its trail-blazing work in
inserting transgenetic material into corn, developing herbicide- and insect-resistant corn. The success of those very visible traits, however, creates a bit of a problem for the new drought trait. With Roundup Ready corn, visually, it can be seen that weeds die while the corn lives, says Mark Edge, marketing lead for DroughtGard Hybrids. In Monsanto’s drought and stress resistance work—a collaboration with BASF, a global chemical company—“there’s not a clear delineation of whether the gene is having a direct effect.” In other words, there isn’t a visual difference between corn plants with and without the drought trait. “The effect isn’t seen in the leaves,” he says. “What really matters is not how green or tall or how beautiful the plant looks, but what’s on the ear.” The company selected a gene that affects the plant’s utilization of water, Edge explains, so when the plant is under stress, the sap flow is reduced. “It is pulling less water out of the soil profile and using that water more efficiently.” The single transgenic trait was added to their best varieties, which will include Monsanto's Roundup Ready and insect resistant traits. Monsanto’s DroughtGard Hybrids were approved this year for use in the U.S. (and pending international import approvals), and are in precommercial testing by 250 growers on about 10,000 acres across the western
Great Plains from South Dakota to Texas. Until the federal approval of the GM trait, the company was required to isolate its test plots and destroy the crop following harvest. Monsanto is targeting a 2013 commercial rollout of the new varieties in the western Grain Plains, which experiences more drought stress on a frequent basis, although it will also be available for testing across the Corn Belt. Syngenta’s program started 10 years ago when it asked scientists to nominate a set of genes that would improve yield potential of corn under drought. A dozen of those genes were validated and the work began to back cross and forward breed, creating new inbreds to use in hybrid development. Syngenta calls its process Gene Blueprinting. “It’s similar to GM in that we are working at the gene level,” Fithian says. “These genes are already in corn, but they are genes that are not widely expressed and not widely expressed in combination.” The 12 genes in their Agrisure Artesian hybrids provide multiple modes of action. “The neat thing is when you can produce multiple modes of action, you have season-long protection. It doesn’t matter when the drought is,” he explains. The selected genes help the plant make proteins and sugars, even when the plant is dehydrated. It also slows down leaf scorching
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and hastens maturity responses, ultimately helping the plants stay intact for another two or three weeks in drought conditions. Pioneer’s investments in testing facilities highlights another dimension of developing drought-tolerant varieties—the challenge of screening for drought when Mother Nature is so unpredictable. “It’s typical whenever you try to do these drought experiments in the field, you can be in the most typically dryland area in the world, and if you put a drought experiment there, you get rainfall,” Schussler says wryly. Over a decade ago, Pioneer established a research facility in California’s Central Valley which grows great corn, but only if irrigated. That lack of rain, however, facilitates drought research for which the timing and amount of water applied can be controlled. A similar facility in Chile allows year-round testing. The research plots in such dry climates, Schussler says, “allows us to get a core set of drought data every year for advancing hybrids.” Those lines can then be validated in Pioneer’s original dryland research center in York, Neb., established in the 1950s, along with newer facilities in Texas, Kansas, Colorado and North Carolina. Using whole genome prediction, he says, “We can make predictions of which hybrid cross would be the best for drought, based on the history of the inbred parents and all of our drought data over the past 80 years.” Picking the cream of the crop, “we take them to these field evaluation sites and confirm that these predictions are real and the products are really performing.” Pioneer has found that the Aquamax varieties maintain green leaf area longer. “In extreme heat conditions, that’s important to keep the plant fixing carbon and make sugar that makes grain,” he says. The varieties are slow in leaf rolling under heat conditions and instead slow down water loss by regulating the stomates—the small holes in the leaves. Another important trait is rapid silking, helping to extend the critically short pollination period that ranges from five days to two weeks. “One of the vulnerabilities of corn is that it has a discrete period when a lot of yield potential is determined very quickly,” he adds. The goal of all three breeding programs is to enhance the corn plant’s ability to hang in there a little bit longer, in the hopes of catching rain in another two or three weeks. Developing hybrids that perform well under drought stress but didn’t lose top-end yield potential when moisture conditions are perfect has proved just as important. Every year, at some time and some place, corn crops suffer from moisture stress. “Even with the beautiful soils we’ve been blessed with in the heart of the Corn Belt, we can have years like this, with drought, or fields that are not as consistent in water-holding capacity,” says Syngenta’s Fithian. And all companies are looking at the global market, where water is the most limiting factor in most places growing corn. Setting proper expectations is important, though, says Monsanto’s Edge. “We didn’t create a corn that acts like a cactus, or that you can grow in the Sahara.” Author: Susanne Retka Schill Contributions Editor, Ethanol Producer Magazine (701) 738-4922 sretkaschill@bbiinternational.com
June 10-13, 2013 Americaâ&#x20AC;&#x2122;s Center St. Louis, MO
CORN QUALITY
46 | Ethanol Producer Magazine | OCTOBER 2012
CORN QUALITY
Yield Wild Card
Hot, dry growing conditions could very well translate into lowered ethanol yield in the coming year. By Holly Jessen
Despite widespread drought, there are some areas of the U.S. that will bring in good, quality corn. Some regions received sufficient rain while others pulled through, thanks to location in irrigation zones. The average corn grower and ethanol producer located in the grain belt, however, has never seen anything like it and hopes to never see it again. “For a lot of folks, this is going to be a very different crop,” predicated Edgar Seward of DuPont said, while addressing an audience at the American Coalition for Ethanol conference held Aug. 8-10 in Omaha. Most people recognize that heat during pollination will impact corn kernel production. What isn’t as commonly known is that heat during fill also causes problems, potentially impacting the amount of starch produced in the kernel, he said. In addition, the kernels themselves will likely be smaller, look more like popcorn and contain less floury endosperm, meaning they could be harder to grind, requiring more horsepower for hammer mills. “It’s just going to look different, it’s going to mill different,” said Seward, DuPont director of North American sales, biorefineries. OCTOBER 2012 | Ethanol Producer Magazine | 47
CORN QUALITY EYP Variability; Influence of Origination
Commercial Corn Feedstock from grain elevators shows very little potential ethanol yield above the 2.85 gallons of ethanol per bushel of corn (at left.) SOURCE: PIONEER
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48 | Ethanol Producer Magazine | OCTOBER 2012
With such extreme heat stress, mycotoxins, such as aflatoxin, are likely to be a more widespread problem as well. That’s going to require vigilance and testing of inbound grain, Seward said. It’s something Illinois River Energy LLC, a 110 MMgy plant in Rochelle, Ill., is certainly concerned about, Neal Jakel, the plant’s general manager, told EPM. In fact, in early August, the company had already ordered 1,500 aflatoxin test kits and had started preharvest testing in the fields from which the ethanol plant typically sources corn. “Aflatoxin is going to be a major, major issue to deal with,” Jakel says. Illinois River Energy has data to back up the fact that corn quality negatively impacts yield. In 2010, the company paid for a study conducted by the National Corn-to-Ethanol Research Center, in which six mashes containing zero to 100 percent damaged corn were evaluated for yield. NCERC used 2009-’10 season corn collected by staff at the ethanol plant, including moldy corn and corn damaged by heat due to aggressive drying. The 100 percent undamaged corn yielded 3 percent more ethanol, or about 0.08 gallons per bushel. Combining 8 percent damaged corn, the maximum allowed for No. 2 corn, resulted in a 0.014-gallons-per-bushel yield decrease while 22 percent damaged corn, the maximum allowed for No. 5 corn, added up to a 0.032-gallons-per-bushel yield loss. The study showed that, up to a certain point, it didn’t hurt to utilize damaged corn as an ethanol feedstock—as long as the plant purchased it at a discounted rate, said Sabrina Trupia, assistant director of biological research for NCREC, one of two people who prepared a 13-page report on the research. As the mixture reached 50-50 ratio, however, it did start to matter, she added. Interestingly, there was no difference in starch content between the corn with no damage and the 100 percent damaged corn, indicating that there was something else about the damaged corn that inhibited yield, she said. Other study conclusions were that mass was lower in 100 percent damaged corn and moisture content of damaged corn was lower than that of nondamaged corn. Although 2009-’10 was a wet year and 2012’13 a hot, dry year, it’s possible corn quality issues will be similar because both years resulted in overdried corn, one year due to aggressive drying and the second due to drought, Jakel hypothesized. However, in order to have a more concrete idea how drought will affect ethanol yield, the study should be repeated with corn from this year's
CORN QUALITY
crop, Trupia said. NCERC would be interested in continuing research in this area but would need a partner to make it happen. Further study on the effect of corn quality on ethanol yield would help ethanol producers come up with a good discount schedule. In fact, besides just confirming a suspicion, developing a discount schedule is the reason Illinois River Energy asked NCERC to conduct the study in the first place. Ethanol producers need to educate area growers about what the ethanol industry is looking for in corn and how that is different from what is needed for the export or feedlot markets, which may not be as concerned about lower test weight or starch content, Jakel said. On the other hand, discounting corn too heavily will result in corn growers taking their product elsewhere. “It’s a balancing act,” he said.
Farmer Direct In comparison, corn sourced directly from farmers is widely variable, providing opportunities for increased yields. SOURCE: PIONEER
Opportunities, Tools
In such a challenging year, it’s important to look for bright spots, Seward told ACE conference attendees during a panel presentation titled “Feedstock Quality and Its Impact on Profitability.” One is that drought-damaged corn containing less starch will contain more protein, oil and fiber. Another possible positive of extreme heat is that much of the corn crop will come off the field wicked dry and won’t require additional drying. Another area of opportunity is the motivation factor. He sees wide variation in ethanol yield, with about 90 percent of plants in the 2.6 to 2.8 gallons of undenatured ethanol per bushel of corn, and a few yield superstars at 2.88, just short of that 3-gallon-theoretical yield number. “It’s going to be a challenging year but I’m probably more positive this year than I would be in any given year because I think it helps us as an industry,” he said. “When we were making 20 to 30 cents a gallon, we didn’t look for half a penny a gallon, honestly, a lot of plants didn’t even care. Half a penny a gallon is a lot of money right now. So what you are finding is lots of people are entering into the equation, asking more questions—what can I do to look like that 2.88 plant?” The cliché about necessity being the mother of invention also applies. “You’re going to see people do things this year that normally they wouldn’t consider,” he said. DuPont is hearing from ethanol producers on the hunt for the cheapest starch available. That’s prompting questions about grinding 30 percent wheat or adding sorghum to the mix at plants that were previously relying completely on corn. OCTOBER 2012 | Ethanol Producer Magazine | 49
CORN QUALITY
SOURCE: CHRISTIANSON & ASSOCIATES, BIOFUELS BENCHMARKING AVERAGES
Pioneer, now owned by DuPont, has two tools ethanol producers can use to source the best quality grain. Fellow ACE conference presenter Shane Frantum, a biofuels key accounts manager for Pioneer, talked about how QualiTrak System and Dynamic Pricing Platform provide opportunities for ethanol producers. QualiTrak, an analytical tool, measures quality load by load, and summarizes that information monthly. â&#x20AC;&#x153;From top to bottom, you know exactly who is delivering the quality,â&#x20AC;? he said. â&#x20AC;&#x153;That gives you some real transparency and an opportunity to go after more of that grain.â&#x20AC;? DPP, on the other hand, can be used to aggressively go after the corn from growers or geographical regions with higher quality. Frantum and Paula Emberland, business analyst for Christianson and Associates PLLP, also talked about the difference between sourcing grain from commercial elevators versus corn growers. Commercial
elevators are good at blending corn, for fairly consistent quality year round while farmer-direct bushels show much greater variability, Frantum said. Corn sourced from farmers follows seasonal patterns, with the peak quality crop available when the new crop is harvested. Quality starts to dip in the spring and takes a hard dive throughout the summer. Although grain sourced from commercial elevators does play an important role, ethanol producers canâ&#x20AC;&#x201D;by purchasing more farmerdirect cornâ&#x20AC;&#x201D;capture value through a higher potential for ethanol yield. â&#x20AC;&#x153;When things start to dip, someone out there probably has some good quality corn,â&#x20AC;? he said. â&#x20AC;&#x153;And those are the guys that you want to hone in on and make sure that those relationships are well established and that you are going to get as much of that moving through the summer months as you can. Thatâ&#x20AC;&#x2122;s where the impact to the bottom line really comes.â&#x20AC;? Frantum showed, using modeling, that a 100 MMgy ethanol plant could save money by going after more farmer-owned corn. In the first example he gave, a plant going from 100 percent commercial corn to 75 percent commercial and 25 percent from the farmer could save 15 cents a bushel, however ethanol yield stayed constant. If the plant increased farmer-direct bushels to 50 percent, however, it could save 10 cents a bushel while providing farmers with an incentive to deliver highquality corn. By doing that, the facility could potentially enjoy a bump in ethanol yield from 2.782 gallons per bushel to 2.799. The difference between the two scenarios, he said, was creating a market signal for farmers. â&#x20AC;&#x153;The growers need to know that quality matters,â&#x20AC;? he said. Author: Holly Jessen Features Editor of Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com
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CROP IMAGING
CONTRIBUTION
Satellite Technologies Aid Localized Planning
Figure 1 Near-infrared field conditions SOURCE: UIC
View your grain supply chain in higher definition By Steffen Mueller and Ken Copenhaver
Recent severe weather events such as last springâ&#x20AC;&#x2122;s flooding and ponding in fields and this summerâ&#x20AC;&#x2122;s heat stress and drought pose a challenge to grain buyers at ethanol plants. The geographic diversity of the U.S. Corn Belt provides a natural hedge against catastrophic national crop failures, putting the risk to corn supply chains squarely at the subregional level. Satellite imagery algorithms, originally developed by the University of Illinois at Chicago to refute overstated land
use change claims set forth by many academics and regulators against biofuels production, are now being used in a novel way to protect corn supply chains for ethanol plants. In 2007, many academics and regulators produced analyses concluding that thenemerging biofuels policies, including the current renewable fuel standard, would result in conversion of large amounts of native lands to crop land. Satellite imagery was used to support these claims. At that time, two of us from the University of Illinois at Chicago disagreed and published a string of reports in
The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s). 54 | Ethanol Producer Magazine | OCTOBER 2012
sensible support of biofuels production (Mueller and Copenhaver, 2009a). These reports laid out the proper use of satellite algorithms and data-vetting routines to accurately determine land use and land use change (Mueller and Copenhaver, 2009b; Mueller, Copenhaver, Begert, 2012). What originally helped assuage the tense land use policy debate has now become a capable tool to help ethanol plants assess real-time corn availability and manage supply chain risk. In the past, grain buyers have watched and relied heavily on USDA reports that are generated throughout the growing season including the weekly Crop Progress Reports, the Preliminary Acreage Report (usually released end of June) and the USDA Crop Report
CROP IMAGING
(usually released the second week of August). While these reports provide helpful benchmarks, they themselves influence market price movements. This means that by the time the reports are released, it is challenging to adjust risk management strategies. Also, the spatial resolution of the reports focuses on the larger interregional level (the August crop report releases only state-wide data) whereas ethanol plants and grain buyers benefit from county and even subcounty-level data. Since USDA relies heavily on farmer survey data (combined with some satellite imagery analysis), countylevel acreage and yield data is only released in the spring following the growing season of interest. Also, the fixed release schedule for some of the key reports set by USDA months in advance may render some of the information less meaningful. For example, in an early planting year like this one, releasing preliminary yield estimates close to mid-August trails the emerging knowledge in the fields. The research products developed at UIC have shown that satellite imagery can fill the spatial and temporal information void and provide useful and reliable information for grain buyers such as ethanol plants. Roughly 200,000 acres of corn are needed in a tight radius to supply a 100 MMgy plant (although the distillers grains feed coproducts offset half of that acreage). As shown in the 2008 National Corn Ethanol Survey (Mueller, 2010), ethanol plants, on average, source grain within a 50-mile area from their plants but the individual corn supply radii vary widely. In fact, many ethanol plants draw corn from skewed polygon areas rather than circular ones. Besides transportation logistics, the reasons for that variation are different cropping rotations (amount of double cropping in the vicinity), prevailing yields in the area, disease pressure, and, influencing all of these: local weather patterns. Reliable inseason, subregional data allows ethanol plants to determine early the proper supply radius (or polygon structure) and those clusters of growers or grain elevators that are affected by above- or below-average yields. The weather patterns of the past two years (floodings of 2011 and the heat pattern of 2012) accentuate the trend to move towards subregional data information sources.
In comes the LandViewer geospatial platform developed by UIC. LandViewer allows a very localized view of an ethanol plant’s corn supply area. It calls on proprietary software algorithms to rapidly process new satellite imagery and weather station data for comparison with databases of vegetation, climate and planting history. Three types of satellite imagery at different resolutions are used to
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calibrate the yield and acreage models. Additional ground verification (ground-truthing) is performed during scouting trips in early June by cataloguing the coordinates of corn fields for input to the satellite acreage model and in late July during scouting trips by agronomists for input to the yield model. The highest resolution satellite data is also used to work closely with key growers delivering to the plants.
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Figure 2 Vegetation vigor in corn-draw area SOURCE: UIC
SOURCE: UIC
Then, in a series of meetings with the ethanol plants and their key growers, the LandViewer team provides several information products: near-infrared field conditions (Figure 1), vegetation vigor in corn draw area (Figure 2), acreage estimates (Figure 3), yield estimates (Figure 4) and localized weather conditions (Figure 5). The meetings with the ethanol plants are strategically scheduled throughout the growing season to optimize the plants’ risk management strategies. Currently, LandViewer technologies are used by three independent ethanol plant operators operating six plants across Illinois and Iowa. The research effort, now in its second season, provides valuable and timely information to the plants. The results from the first season showed accurate yield and acreage prediction prior to USDA report releases. Rick Schwarck, CEO of Absolute Energy in Iowa states:
wabash
Figure 4 Yield estimates SOURCE: UIC
56 | Ethanol Producer Magazine | OCTOBER 2012
Figure 3 Acreage estimates
CROP IMAGING
Figure 5 Localized weather conditions SOURCE: UIC
“The information provided to us by the UIC LandViewer research team is very valuable since it constitutes an independent information data source specifically tailored to our corn supply area and our risk management schedule.” The LandViewer team has recently completed substantial automation and programming efforts and is now in the process of rolling out the technology on a national scale. The yield and acreage models and the data display are protected by a provisional patent held by UIC. The information hub for the LandViewer Platforms is provided at http:// www.landviewer.uic.edu/. Talks are in progress to commercialize the technology. Outside of this LandViewer effort, the research team has a long tradition of support from the agricultural community including recently funded efforts by Monsanto, the Illinois Corn Marketing Board and the Iowa Corn Promotions Board.
Authors: Steffen Mueller Principal Economist University of Illinois at Chicago Energy Resources Center muellers@uic.edu (312) 316-3498 Ken Copenhaver Senior Research Engineer University of Illinois at Chicago Energy Resources Center kcopenha@uic.edu (217) 377-0071
References: Mueller, S. and Ken Copenhaver (2009a). Letter to the Honorable Lisa Jackson, U.S. EPA, dated September 21, 2009, filed in Docket ID No. EPA-HQ-OAR-2005-0161 as part of the Renewable Fuel Standard 2 Program. Mueller, Steffen and Copenhaver, Kenneth “Use of Remote Sensing to Measure Land Use Change from Biofuel Production, published in “The bulletin of the Program in Arms Control, Disarmament, and International Security”; University of Illinois at Urbana–Champaign, Volume XVII / No. 2 / Summer 2009b. Mueller, S. “2008 National dry mill corn ethanol survey”; Biotechnol Lett DOI 10.1007/s10529-010-0296-7, May 15, 2010. Mueller, S., Ken Copenhaver, and Dan Begert “An Assessment of Available Lands for Biofuels Production in the United States Using USDA Cropland Data Layers”, Journal of Agricultural Extension and Rural Development, 2012.
OCTOBER 2012 | Ethanol Producer Magazine | 57
Land USE
CONTRIBUTION
Corn for All Purposes 2011 Planted Acres by County for Selected States
Acres Not Estimated < 10,000 10,000 - 24,999 25,000 - 49,999 50,000 - 99,999 100,000 - 149,999 150,000 + U.S. Department of Agriculture, National Agricultural Statistics Service
Corn Farmers Respond to Ethanol Plant Siting Land use shifts seen in up to a 286-mile radius By Yehushua S. Fatal
Corn production in the United in the past several years as result dustry. Corn production rose from nearly States has increased significantly of the rapidly growing ethanol in- 9.5 billion bushels in marketing year 2002-â&#x20AC;&#x2122;03 The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s). 58 | Ethanol Producer Magazine | OCTOBER 2012
to more than 13 billion bushels in 2010-'11. This increase can be attributed to two factors: higher corn yield and more acres of planted corn.
LAND USE
According to the USDA, corn yield increased from 129 bushels per acre in 2002’03 to 152 bushels in 2010-’11 as a result of a number of technological improvements, including new seed varieties, fertilizers, pesticides and machinery, together with better production practices such as reduced tillage, irrigation, crop rotations and pest management systems. Increases in corn acreage on the other hand, came about as a result of shifting land from other crops and the use of additional nonfarmed lands for corn production. The sources of previously farmed land according to the USDA included pasture, fallow and acreage returning to production from expiring Conservation Reserve Program contracts. As a result, planted corn increased from almost 70 million acres in 2002-’03 to more than 80 million acres in 2010-’11.
tendency for farmers to produce more corn in response to a plant’s siting, is the size of the effect. In the Fatal and Thurman study, we conclude that an additional 1 million gallons of annual ethanol capacity increases planted corn by 5.21 acres in the county in which the plant is located. Furthermore, the ethanol capacity effect on planted corn in surrounding counties depends on distance between the plant and the
county. The effect diminishes linearly to zero as the distance between the plant and other counties approaches 286 miles. The study employs advanced spatial econometric methods and uses county-level data for 48 contiguous states for the years 2002 to 2008. The results suggest that when new ethanol plants start up, their need for corn triggers an increase in planted corn up to 286 miles away.
Siting Effects
While no one can miss the increase in ethanol production that led to the surge in corn production, there is a question regarding how corn farmers respond to ethanol plant siting. How does corn supply change in a region where a new ethanol plant is introduced? Previous research is silent on this issue, but recent analysis at North Carolina State University by my colleague, Walter Thurman, and me begins to unravel this effect. One rational expectation would be that when a corn-based ethanol plant begins to produce, it changes the corn supply and demand balance in its region. Craving for corn to produce ethanol, the plant increases local demand for the grain, thus high corn transportation costs from distant locations can be avoided. As there was no corresponding increase in corn supply, this excess demand by the new plant would raise the local corn price. Farmers will capitalize on this opportunity, however, by growing more corn in the next planting season. What is unknown, beyond this general on the web “The Response of Corn Acreage to Ethanol Plant Siting” by Fatal and Thurman, 2012, can be found at the following link: hwww4.ncsu.edu/unity/lockers/users/v/ vukina/AG_ECO_Workshop/Fall_2011/Shay_Fatal.pdf
OCTOBER 2012 | Ethanol Producer Magazine | 59
Land USE
Montana
North Dakota Minnesota Wisconsin
South Dakota Wyoming Iowa
Nebraska
Illinois Colorado Kansas
M Missouri
Oklahoma
Siting Effects Researchers conclude an ethanol plant siting impacts corn supplies within a 286-mile radius. This map shows how far that reaches around Advanced Bioenergy’s plant in Fillmore County, Neb.
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LAND USE
Applied Results
To illustrate the application of the results, consider Advanced Bioenergy’s corn-based ethanol plant in Fillmore County, Neb. This 100 MMgy plant started production on October 2007. There are 348 counties within a 286 mile radius from the plant. We estimate that the plant stimulated a total of 64,623 acres of planted corn for all these surrounding counties. Assuming an average yield of 150 bushels per acre, these additional acres resulted in almost 10 million additional bushels of corn. Putting this reaction into context, 10 million bushels of corn account for approximately 26 percent of the plant corn needs to operate full capacity. Equivalently, the Advanced Bioenergy plant stimulated about one-fourth of its corn needs, which means the other threefourths were shifted from other corn uses.
revenue. This in return, can be used by policymakers to update crop insurance programs and subsidies. As a closing thought, as location patterns for ethanol plants change, so do corn demand locations, spatial corn price patterns, and the movement patterns of corn within the United States. Because corn accounts for 50 to 70 percent of ethanol input cost (depending on corn
price), understanding the reaction of corn growers to an ethanol plant siting is crucial in understanding plant profitability. Author: Yehushua Shay Fatal, PhD Research Project Manager North Carolina State University – Solar Center ysfatal@ncsu.edu
Why Does This Matter?
Understanding how ethanol plant siting affects planted corn is important for several reasons. First, knowing the local corn supply adjustment to the introduction of new ethanol plants provides useful information to ethanol producers as they plan capacity, coordinate logistics, project future corn procurement costs and evaluate the consequences of a competitor plant’s market entry on their business. Further, understanding where future corn will come from has its own advantage. The shorter the distance between corn source and plant, the lower the transport costs and the smaller the uncertainty of having corn in time for ethanol production. Second, the results help other corn users besides ethanol producers, such as feedlots owners and corn exporters, to better position their business when competing with ethanol producers for corn. U.S. policymakers can use these results to better understand the effects of their biofuel production and incentives policies. Understanding the relationship between ethanol and corn production is vital when enacting new agricultural and energy policies in order to avoid conflict of interests. Finally, using the results from this study, together with a study evaluating the spatial effect of ethanol plant siting on corn prices, can reveal the implications for corn farmers’ OCTOBER 2012 | Ethanol Producer Magazine | 61
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64 | Ethanol Producer Magazine | OCTOBER 2012
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Tanks Agra Industries, Inc. 715-536-9584
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Ethanol Production
Structural Fabrication Agra Industries, Inc. 715-536-9584
Himark bioGAS 780-700-5110
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Existing Producers Louis Dreyfus Commodities 402-844-2680 www.LDCommodities.com
Finance Grant Writing
Thermal Oxidizers
Sustainable Energy Strategies, Inc. 703-543-6838 www.sesi-online.com
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Marketplace_EthanolProducer.indd 1
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Valves Best Supply Company 316-262-8336 www.bestsupplycompany.net Cashco, Inc. 785-472-4461
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Wastewater Treatment Services ICM, Inc. 877-456-8588
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Greenwich Blackhawk Prof. Corp. 310-393-2200 www.greenwichblackhawk.com
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