SEPTEMBER 2020
RISING TO NEW
NEEDS Producers Invest In High-End Alcohol PAGE 28
ALSO
Exporting to Brazil More Challenging PAGE 20
US Corn Crop Update, Forecast PAGE 32
www.ethanolproducer.com
Tell EPA to Follow The Law on SREs
As rural communities work to rebuild in the wake of COVID-19, the U.S. Environmental Protection Agency’s duty to enforce the Renewable Fuel Standard is more critical than ever. The agency must send a clear signal that rural communities can focus on rebuilding the agricultural supply chain, rather than fighting off endless attacks from out-of-touch regulators and oil companies. That starts with rejecting the latest round of retroactive small refinery exemptions (SREs).
Join us TODAY in asking your leaders in Congress to demand EPA stand with rural America and follow the law by applying the 10th Circuit’s ruling nationwide.
Send a Letter to Congress at GrowthEnergy.org/takeaction
ADVERTISER INDEX EDITORIAL
2020 Int'l Fuel Ethanol Workshop & Expo
26-27
2021 Int'l Fuel Ethanol Workshop & Expo
9
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D3MAX LLC
18-19
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2
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Kurita America
3
Lallemand Biofuels & Distilled Spirits
6-7
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POET LLC
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Trislot USA, Inc.
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WINBCO
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Editor Lisa Gibson | lgibson@bbiinternational.com Associate Editor Matt Thompson | mthompson@bbiinternational.com Associate Editor Luke Geiver | lgeiver@bbiinternational.com
DESIGN
PUBLISHING & SALES CEO Joe Bryan | jbryan@bbiinternational.com President Tom Bryan | tbryan@bbiinternational.com Vice President of Operations/Marketing & Sales John Nelson | jnelson@bbiinternational.com Business Development Director Howard Brockhouse | hbrockhouse@bbiinternational.com Senior Account Manager/Bioenergy Team Leader Chip Shereck | cshereck@bbiinternational.com Jr. Account Manager Josh Bergrud | jbergrud@bbiinternational.com Circulation Manager Jessica Tiller | jtiller@bbiinternational.com Marketing & Advertising Manager Marla DeFoe | mdefoe@bbiinternational.com Marketing & Social Media Coordinator Dayna Bastian | dbastian@bbiinternational.com
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Contents
20 SEPTEMBER 2020 VOLUME 26
28
AD INDEX
8
PUBLISHER'S NOTE Another Adaptive Play
9
EVENTS CALENDAR
10
GRASSROOTS VOICE Proactively Leveraging Ethanol’s Low-Carbon Value
Narrower Access
Brazil’s biofuels policies, tariff hamper U.S. imports By Matt Thompson
28
GLOBAL SCENE Empowering Ethanol to Make Europe’s Green Deal Real By Emmanuel Desplechin
DRIVE A (Virtual) Reality Check for Lawmakers By Dan Sanders
16
BUSINESS BRIEFS
38
MARKETPLACE
DIVERSIFICATION Market Move
U.S. ethanol producers invest in high-end alcohol production
By Brian Jennings
14
USDA
FEATURES 20 TRADE
By Tom Bryan
12
32
ISSUE 9
DEPARTMENTS 4
AEMETIS INC.
By Lisa Gibson
32
OUTLOOK
Less than Expected, More than Enough
Bumper corn crop possible, despite fewer-than-expected acres planted By Luke Geiver
ON THE COVER Ethanol Producer Magazine: (USPS No. 023-974) September 2020, Vol. 26, Issue 9. 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.
Aemetis Inc. is in the process of adding USP-grade alcohol capacity to its 65 MMgy ethanol plant in Keyes, California. PHOTO: AEMETIS INC.
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Publisher's Note
Another Adaptive Play It could be months before our industry fully recovers from the COVID-19 downturn, and we might not be the same on the other end. Hold on, though, because that’s not a totally bleak prospect. The pandemic struck our industry hard—it has been the worst period most of us have ever seen—but it has also given us an opportunity to look inward. The last five months have been a period of awakening and change for our industry, and 2020 might ultimately be remembered, not as the year ethanol was knocked off its feet, but the year our producers became more diversified biorefiners. In “Market Move,” on page 28, Lisa Gibson reports that a number of U.S. ethanol producers are moving deeper into high-end alcohol production after experiencing sanitizer sales during the pandemic. As Gibson reports, COVID-19 has not only pointed them toward diversified alcohol production, but also illustrated how crucial diversification is. As the industry works to regain its footing, producers in several states—California, Iowa, Nebraska and Illinois among them—are investing in high-end alcohol production. It’s not just hand sanitizer, but other disinfectants, pharmaceuticals, fragrances, cosmetics and more. The alcohols they produce for these markets will have twice the market value, and perhaps more, than fuel ethanol—making the ROI on plant upgrades easy to justify. Like the U.S., Brazil has also seen declining demand for fuel in the face of COVID-19, and producers there, too, are turning to non-fuel alcohol production. Brazil’s tightened market, coupled with the strict requirements of its biofuels program, have tapered opportunities for U.S. ethanol there. As Matt Thompson reports in “Narrower Access,” on page 20, Brazil, with its massive sugar cane ethanol industry and growing corn ethanol interests, is not only the No. 2 ethanol producing country in the world, but also second in the number of confirmed COVID-19 cases, at more than 3 million in early August. Like in the U.S., the pandemic has hit the country’s biofuels sector hard. Fewer people driving means less ethanol is being consumed. All of these issues have coalesced in a “perfect storm” for biofuels and made exporting ethanol to Brazil less viable this year. As Thompson’s story explains, however, U.S. ethanol producers able to meet Brazil’s new traceability requirements—ducking in under the country’s 20% tariff rate quota or eating the loss above it—may see opportunities others do not. Here in the U.S., growers didn’t plant as much corn as initially projected, but it’s still 3 million acres more than last year and possibly a record crop. At the very least, the 92-million-acre crop, cradled by mostly ideal growing conditions, will meet all needs and keep corn prices stable. As Luke Geiver reports in “Less than Expected, More than Enough,” on page 32, growers stepped off their aggressive planting intensions—at one time, a whopping 97 million acres—in the wake of the pandemic and lingering trade uncertainty with China. That would have probably resulted in a glut of U.S. corn, analysts say, which would have been fine for ethanol producers but bad for farmers. As it looks now, the crop should result in volumes and prices—$3.40 to $3.60—that work for everyone.
Tom Bryan President BBI International
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Upcoming Events WK $118$/
Int'l Fuel Ethanol Workshop & Expo Septembr 15-17, 2020 VIRTUAL EVENT
From its inception, the mission of this event has remained constant: The FEW delivers timely presentations with a strong focus on commercialscale ethanol production—from quality control and yield maximization to regulatory compliance and fiscal management. FEW is the ethanol industry’s premier forum for unveiling new technologies and research findings. The program is primarily focused on optimizing grain ethanol operations while also covering cellulosic and advanced ethanol technologies.
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Biodiesel Production Technology Summit Septembr 15-17, 2020 VIRTUAL EVENT
The Biodiesel Production Technology Summit is a new forum designed for biodiesel and renewable diesel producers to learn about cuttingedge process technologies, new techniques and equipment to optimize existing production, and efficiencies to save money while increasing throughput and fuel quality. 866-746-8385 | BiodieselTechnologySummit.com
ACE Ethanol Conference Septembr 16, 2020 VIRTUAL EVENT
The ACE Conference is a must-attend event for industry leadership. Relaying timely updates on public policy, market development, board of director training, and much more, this event combines the detail of high-level training courses with all the fun of a family reunion. 605-334-3381 | Ethanol.org/events/conference
UAS Summit & Expo October 13-14, 2020
Alerus Center, Grand Forks, ND The UAS Summit & Expo started as a small gathering of regional stakeholders. Now, 14 years later, the event in the Northern Plains of North Dakota has become a yearly major event for UAS experts from around the world. It’s the original epicenter of drone research, earned its place as the Silicon Valley of Drones and as you’ll see from the commercial, government and military flight activity filling the sky of the Northern Plains and beyond every day, it has truly become America’s UAS proving grounds. 866-746-8385 | TheUASsummit.com
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Please check our website for upcoming webinars www.ethanolproducer.com/pages/webinar
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ETHANOLPRODUCER.COM | 9
Grassroots Voice
Proactively Leveraging Ethanol’s Low-Carbon Value
Brian Jennings
Executive Vice President, American Coalition for Ethanol 605.334.3381
bjennings@ethanol.org
The COVID-19 pandemic has caused an unprecedented economic downturn for ethanol producers, so ACE has been prioritizing our members’ survival and recovery from the historic crisis. As I write this column in late July , we have helped convince members of Congress to introduce bipartisan legislation to reimburse ethanol producers either on gallons produced or on bushels processed, and we are urging them to include some form of direct economic relief in the phase-four stimulus package. Given the fact that ethanol use is not expected to recover to pre-COVID-19 levels for a long time, we will continue to prioritize economic relief for the biofuel sector. However, we have not allowed the coronavirus or the U.S. EPA’s ongoing mismanagement of the Renewable Fuels Standard to distract us from also strategically paving the way to leverage ethanol’s low-carbon value in the marketplace. Prior to the outbreak of COVID-19, ACE helped lead a diverse coalition of Midwestern organizations in developing a policy blueprint to encourage new low-carbon fuel markets, resulting in “A Clean Fuels Policy for the Midwest” report we released in January of this year. Our report describes how properly crafted policy at the state level can spur low-carbon fuels and provide meaningful economic benefits to farmers and biofuel producers—nearly $1 billion annually in the Midwest. Following the release of our report, stakeholders in several Midwestern states have contacted ACE to learn more about how to push for new clean fuel legislation in their upcoming legislative sessions. At the federal level, we have engaged key congressional offices to position agriculture and ethanol as part of the solution to their policy efforts designed to reduce greenhouse gas (GHG) emissions. Our engagement has paid dividends because it helped convince the U.S. House of Representatives Select Committee on the Climate Crisis to include a recommendation for a new technology-neutral Low Carbon Fuel Standard, in addition to the existing RFS, in a report they released this summer. Properly crafted low-carbon fuel policy built on top of the RFS’s success in beginning to break our country’s reliance on petroleum is one of the most meaningful things Congress can do to address climate change. The Select Committee’s report not only cites our Midwest Clean Fuel Policy blueprint as a positive example of progress, it also echoes our recommendations to reflect the best available science for life cycle assessments and reward farmers and biofuel producers using climate-smart practices that reduce carbon emissions, store soil carbon and reduce nitrous oxide emissions. Had ACE stood on the sidelines or merely focused on the RFS or pandemic response, our opponents may have been able to convince Congress that ethanol is part of the climate problem. But we did not allow ethanol opponents to define us. We did not stand on the sidelines. ACE proactively engaged Congress, explaining how modern-day farming and ethanol production practices reduce GHG emissions, and that increasing ethanol use is part of the climate solution. One of the reasons we have become more proactive about new federal clean fuel policy is because EPA’s ongoing and brazen mismanagement of the RFS has effectively turned the keys of the program over to the refiners and suppressed Congress’ stated goal to increase renewable fuel use. ACE will continue to apply pressure on EPA to follow the statute and participate in lawsuits to protect and support the RFS, but these activities take time and have not resulted in a timely restoration of domestic ethanol demand. Throw in the pandemic and ethanol use this year is likely to fall at least 2 billion gallons short of 2019 levels. These are extraordinary times. Merely playing defense on the RFS does not constitute a plan to expand ethanol demand. We need to go on offense because it is a matter of when, not if, Congress takes up climate legislation that will impact the transportation fuel market. That is why ACE will continue to proactively engage Congress on the need for new clean fuel policy built on top of the RFS that can further expand the domestic marketplace.
10 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
Global Scene
Empowering Ethanol to Make Europe’s Green Deal Real
Emmanuel Desplechin Secretary General ePURE, the European Renewable Ethanol Association
desplechin@epure.co
The European Union has set ambitious goals for carbon neutrality by 2050 under its Green Deal agenda. To achieve them, it can’t afford to wait for new technologies to develop. Making progress in the race to decarbonize transport means taking advantage of solutions that work in the short-, medium- and long-term. Renewable EU ethanol has an important role to play in all of those timeframes, including in the remaining months of 2020. With the year more than half over, EU Member States are still struggling to meet their 2020 targets under the Renewable Energy Directive and the Fuel Quality Directive. Those targets are important because they help set the bar for the next set of goals, in 2030. EU decarbonization ambitions for the next decade have been set in the recast Renewable Energy Directive (RED II). But the potential contribution of ethanol—more than 72 percent average greenhouse gas reduction compared to fossil petrol in the case of ePURE members’ ethanol—is hampered by a cap on crop-based biofuels. While the law justifiably seeks to avoid promoting biofuels that cause deforestation, it should give countries more freedom to use sustainable solutions such as European ethanol—both first- and second-generation. Tweaking the RED II to raise the cap on crop-based biofuels will speed up the pace of road transport decarbonization. Ethanol also has a place in the long-term vision for 2050, as meeting global climate change ambitions will require a massive uptake of bioenergy in the coming decades. Even as new technologies develop over the long term, road transport will still require liquid fuels—not just petrol passenger cars and hybrids but heavy-duty trucks and buses will need to be decarbonized. Renewable ethanol is among the best options for reducing their GHG emissions. To unleash the potential of European renewable ethanol, EU legislation should: Hit the targets: Ensuring policy continuity in the short and long term is key to the Green Deal. This requires making sure that the agreed minimum 2020 and 2030 targets are met, including the dedicated sub-target for advanced biofuels. Raise the bar: The EU should raise ambitions for transport fuels GHG savings and renewable energy use. The requirement to decrease carbon intensity set by the FQD should be raised to at least 16 percent by 2030. The RED should do more to empower Member States to increase the uptake of real renewable sources—ideally, by at least 20 percent by 2030. Empower the RED: The crop cap set by the Indirect Land Use Change Directive, and amended under RED II, should be revised upwards to give Member States more flexibility to use immediate and cost-effective tools to decarbonize today’s fuels. Foster innovation: The EU should continue the progressive deployment of advanced biofuels by building on existing legislation and industry progress. That would foster the investor confidence needed to fund innovative renewable fuel production. Strengthen sustainability: All sustainable renewable low-carbon fuels should be able to contribute to EU climate and renewable objectives under stronger sustainability criteria. Boost better fuels: Deploying higher blends of ethanol will have immediate GHG reduction and air quality benefits. As a first step, E10 should urgently be rolled out across the EU. Level the playing field: The current carbon dioxide standards for vehicles only consider tailpipe emissions (tank-to-wheel). The EU should consider an approach that accounts for the footprint of the energy powering vehicles (well-to-wheel), distinguishing between fossil and biogenic carbon dioxide, as well as production and endof-life emissions. Tax fairly: The current method of taxing energy works against EU environmental goals. The EU needs an Energy Taxation Directive that focuses on carbon intensity instead of volume. Renewable ethanol is already making a big difference in the climate fight. With the right policies in place, it can do more to help make the Green Deal real.
12 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
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Empower your tomorrow Your actions today define your tomorrow. Have you asked yourself, “What will I change?” You need teamwork and biological diversity to ensure you’re getting not only more, but the most from your bio-refinery – whether that’s yield, upgraded co-products, fiber conversion, or new opportunities. Tomorrow’s superheroes are made today. novozymes.com/bioenergy
Drive
A (Virtual) Reality Check for Lawmakers
Dan Sanders
Chairman of the Board, Growth Energy Vice President, Front Range Energy 970.674.2910
drsanders@frontrangeenergy.com
It’s safe to say this year has not gone according to plan for most, including those of us in the ethanol sector. Despite the threat posed by COVID-19, we remain resilient in the face of the worst collapse in fuel demand ever recorded, even as our rural communities struggled this past year to overcome tough weather, shifting trade barriers, and hostile regulatory forces in Washington. At the same time, we’ve worked to keep Congressional leaders’ attention on major policy priorities—from restoring integrity to the Renewable Fuel Standard to building up our infrastructure for higher ethanol blends. Now, as we enter the final stretch of 2020, we have a short window of opportunity to make our voices heard before the upcoming election in November, and that’s exactly what our team at Growth Energy plans to do during our annual Biofuels Summit 2020, Sept. 14-17. This year, the entire event will be online, with three days of virtual meetings, telecast speakers and video networking. Participants also will get an expert forecast on all the hot races from David Wasserman, house editor for The Cook Political Report. Of course, cancelling the summit was never an option. The stakes are too high. After the demand destruction of this past year, farmers and biofuel producers cannot afford to pay the price for any more missteps in Washington. Now more than ever, lawmakers need to hear from those of us in the field, driving growth in rural communities and fueling the transition to a low-carbon future. Those joining us for the industry’s premier Washington fly-in can expect a full agenda and a round of meetings with lawmakers representing communities from coast to coast. Top of mind, of course, will be the recovery from COVID-19. According to the U.S. Energy Information Administration, ethanol production may remain below 2019 levels for most of 2021 without robust support from Congress and a firm commitment by the administration to rebuild the agricultural supply chain. We’re also casting a spotlight on the RFS, which remains under attack by oil companies and their allies within the U.S. EPA. Despite promises from the White House, EPA Administrator Andrew Wheeler has stalled the rural recovery by delaying action on 2021 biofuel targets and refusing to faithfully enforce court limits on so-called “hardship” exemptions granted to oil companies. We’re also meeting with lawmakers about our own big plans for the future, including efforts to reinvigorate exports. Over this next year, we must work quickly to rebuild our key markets in China, Brazil, Mexico and other countries where demand is already recovering from COVID-19. At the same time, we must remind policymakers at home and abroad that ethanol remains the world’s best tool for decarbonizing the transportation sector while protecting healthy air for motorists and their families. Lawmakers are paying attention. House Democrats recognized the need for low-carbon biofuels in a recent report by the Select Committee on the Climate Crisis; the U.S. Department of Agriculture placed biofuels at the center of its Agriculture Innovation Agency; and key senators are working closely with Growth Energy and our allies on legislation to promote sustainable farm practices. Similar conversations are occurring in states like California, where Growth Energy is working directly with academics and regulators to secure E15’s rightful role in the market We’re also working to ensure the success of USDA’s Higher Blends Infrastructure Incentive Program, which will deploy $100 million in competitive grants for blender pumps and other upgrades. In the past six months, Growth Energy has interacted with over 65,000 retail locations to encourage maximum participation in the HBIIP program. In this time, we’ve secured applications for nine retail chains or 325 sites that together sell more than 500 million gallons annually. Of course, these are just a few of the headline conversations Growth Energy members will be having on Capitol Hill this September. What matters most is that we continue to come together and remind our nation’s leaders how homegrown biofuels lift up rural communities, save consumers money at the pump, and drive U.S. leadership in clean energy.
14 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
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BUSINESS BRIEFS PEOPLE, PARTNERSHIPS & PROJECTS
ND ethanol plant receives grant to study biomass thermal energy The North Dakota Agricultural Products Utilization Commission has awarded Blue Flint Ethanol $155,000 to assess the viability of using biomass as a fuel and power source for its 70 MMgy ethanol plant near Underwood, North Dakota. Blue Flint Ethanol, owned by Midwest AgEnergy, currently sources water and steam from Great River Energy’s Coal
assessing all available clean and renewable options and will use the NDAPUC funds to evaluate wheat straw and corn stover as thermal energy feedstocks. The use of biomass as a primary fuel would help Blue Flint Creek Station, an 1,100 megawatt coal-fired lower the carbon intensity (CI) rating of its power plant that’s set to retire in 2022. In a ethanol, better positioning the company in quest to evaluate various forms of alterna- low-carbon fuel markets. tive thermal energy, Midwest AgEnergy is
USGC elects Raben chairman of board of directors The delegates of the U.S. Grains Council elected Jim Raben, an Illinois farmer representing the Illinois Corn Marketing Board, as chairman of its board of directors at its 60th Annual Board of Delegates Meeting, held virtually in late July.
“It’s always been my way to cultivate relationships because together we are stronger, our collective voices are heard more loudly, and we can work together to achieve our common goals,” Raben said in his incoming remarks. “The council works around the clock,
and around the globe, to find and expand new pockets of demand for the products we offer. That’s why I’ve chosen for my theme ‘Building Relationships, Building Trade.’” Raben will chair the USGC's 14-person board comprised of ag industry leaders from several states.
Raben
GranBio, NexChem partner on cellulosic ethanol GranBio has announced a strategic alliance with NextChem, a subsidiary of Italian engineering giant Maire Tecnimont, to colicense its patented technology for the production of second-generation ethanol. The partnership will focus on commercializing GranBio’s technology, combining its knowledge of biomass and second-generation biofuels with NextChem’s engineering intel-
ligence and global presence. The joint venture will offer an array of integrated services including feasibility studies, project development, engineering and construction. GranBio operates a next-generation
ethanol plant in the Brazilian state of Alagoas, and two facilities in the U.S., one of which is a demonstration plant. GranBio also developed a proprietary process for harvesting and preparing residual biomass (cane straw) and has registered 11 varieties of energy cane, the most competitive biomass in photosynthetic efficiency known to the world.
Industry celebrates 15-year anniversary of RFS On Aug. 6, the ethanol industry celebrated the 15th anniversary of the Renewable Fuel Standard, which was initially signed into law by President George W. Bush as The Energy Policy Act of 2005 and later expanded with the passage of the Energy Independence and Security Act of 2007. The Renewable Fuels Association success of the program. According to the marked the date by releasing a report on the RFA, the number of U.S. ethanol plants has 16 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
increased by 153 percent since 2005 to more than 200 facilities. Ethanol production has expanded by 305 percent, from 3.9 billion gallons to 15.8 billion gallons per year. The production of distillers grains has expanded 247 percent to nearly 40 million metric tons. And the gross value of overall industry output, just $8 billion in 2005, is now greater than $28 billion.
ETHANOLPRODUCER.COM | 17
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Trade
CANE STRAIN: Sugarcane, Brazilâ&#x20AC;&#x2122;s main feedstock for ethanol, is shown being harvested. Thanks to the pandemic, many Brazilian sugar mills have halted their ethanol production in favor of producing sugar. PHOTO: UNICA
20 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
NARROWER ACCESS On top of the slowdown, the world’s No. 2 ethanol nation is holding strong on policies that check robust U.S. imports. By Matt Thompson
Like the U.S., Brazil has seen declining demand for fuel in the face of the COVID-19 pandemic. That, coupled with the country’s biofuels program,
now makes getting U.S. ethanol into the country challenging, but still workable. Brazil, with its established sugar cane ethanol industry, and burgeoning corn ethanol sector, hasn’t been immune from the impacts of COVID-19. In fact, the country is a nation hard-hit by the pandemic, with more than 3 million confirmed cases by early August, second only to the U.S. And the pandemic’s effect on ethanol demand—and production—in Brazil, as in the U.S., has been substantial: fewer people driving means fewer people buying gasoline and the ethanol blended with it. The pandemic, along with the country’s biofuels policy, RenovaBio, means getting ethanol into Brazil is a challenge. But it isn’t impossible, according to experts. Gabriel Miranda, regulatory consultant for EcoEngineers, echoes the recent sentiment of Brazil’s Minister of Agriculture when describing the effects of the pandemic on Brazil’s ethanol industry as a “perfect storm.” “The demand went downhill, and the prices of oil and gas just followed along,” he says. That drop in demand and prices triggered the country’s sugar mills to switch from ethanol production to sugar production “so they could keep up with their cash flow and their finances,” according to Miranda. Leticia Phillips, North American representative of UNICA, the Brazilian Sugarcane Industry Association, agrees. “Since sugarcane is a plant that cannot be stored, there is no choice but to harvest and crush it, and the sector is working to identify alternatives such as increasing sugar production,” she says. She adds that since the beginning of the sugarcane harvest, Brazilian ethanol produc-
ETHANOLPRODUCER.COM | 21
Trade
tion has dropped by 5.88 percent. Ethanol consumption in the first half of 2020 was down 16.7 percent from the first half of 2019, she says. Due to the strain the country’s biofuPhillips els industry is under, the government is looking to amend its carbon credit targets—called CBIOs— under RenovaBio. Miranda says there is a proposal to reduce the program’s CBIO requirement by half for this year. He says reducing those targets affects markets as buyers of the credits take a “wait and see” attitude, as it’s not yet clear what this year’s targets will be. “People just go to a more defensive position,” he says. “Until
the time they actually come up with their new targets, I’m not expecting a very large amount of CBIO transactions.” Phillips says that while the new targets have yet to be announced, UNICA recommended a goal of 16 million CBIOs for 2020 and 37 million the following year. “These numbers reassure the market, limit an oversupply of credits and put the program on sound footing to survive the pandemic,” she says, according to research conducted by the organization. In addition to domestic effects, the pandemic has also played a role in Brazil’s im-
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ports and exports. “We believe there will be a temporary slowdown in the flow of ethanol commerce given the lack of demand caused by the pandemic,” Phillips says. “Brazil and United States have an important trade flow in biofuels, with Brazil exporting about Zuckerberg 300 [million gallons] to the U.S. and importing about 400 [million gallons] from the US. We believe this flow will pick up again as isolation measures are being relaxed around the globe.” Despite that slowdown, Brazil is still a major player in the global ethanol sector, and Miranda a major competitor with the U.S. for agricultural trade opportunities, says Kenneth Scott Zuckerberg, lead economist for grain, farm supply and ethanol at CoBank. He says the country’s growing production capacity, the low cost of sugarcane, and the value of the Brazilian Real versus the U.S. dollar make Brazil a major competitor on a global scale. Add to that the tensions between the U.S. and China, and Brazil is in an even better position. While the Phase I trade agreement between the U.S. and China should, in theory, make the U.S. more competitive for exports to China, Zuckerberg says the reality may be different. He says the weak Brazilian Real, and the fact that China has been an inconsistent big buyer of U.S. ethanol indicate that exports to that country from the U.S. may not increase any time soon. “I think that’s a challenge we have, and we’re not factoring in any material uptick in Chinese ethanol purchases into our export forecast,” he says.
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While it’s not clear what 2020’s targets will be, Miranda says there is still a market for U.S. ethanol in Brazil. Miranda says there is potentially a premium—a simulation puts it at 3 cents per gallon, depending
U.S. vs Brazil, Global Ethanol Market Share 6285&(6 5(1(:$%/( )8(/6 $662&,$7,21 %$5&+$57 &20
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on a producerâ&#x20AC;&#x2122;s carbon intensity score. â&#x20AC;&#x153;If youâ&#x20AC;&#x2122;re getting a 3-cent premium per gallon, that could be a significant amount of money and I donâ&#x20AC;&#x2122;t see why people wouldnâ&#x20AC;&#x2122;t be interested,â&#x20AC;? Miranda says. But RenovaBio offers some challenges for ethanol importers, including the requirement that corn be traceable back to the farm that produced it. â&#x20AC;&#x153;Thereâ&#x20AC;&#x2122;s no way ethanol plants that buy their corn from grain elevators [can] trace the corn back to the farm where it came from. So thatâ&#x20AC;&#x2122;s an operational barrier,â&#x20AC;? Miranda says. Zuckerberg says while the traceability issue is currently perceived as a â&#x20AC;&#x153;roadblockâ&#x20AC;? for U.S. producers, it also presents an opportunity. RenovaBio, he says, may prove to be a catalyst for American ethanol companies to embrace input tracing. â&#x20AC;&#x153;I think thatâ&#x20AC;&#x2122;s a good thing from a business standpoint,â&#x20AC;? he says, adding that sustainability-oriented consumers have been seeking more information about where their products come from. Miranda agrees. â&#x20AC;&#x153;Intially, there was some concern because there might be some strategic information that they didnâ&#x20AC;&#x2122;t want to go public, but if that can be worked out, it is possible,â&#x20AC;? he says. He adds, there are â&#x20AC;&#x153;ongoing discussionsâ&#x20AC;? about how to amend the traceability aspect of the program to make it more beneficial for all players. Brazilâ&#x20AC;&#x2122;s Tarif Rate Quota also serves to limit U.S. imports, Miranda says. The country allows
40 30
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750 million liters (198 million gallons) of ethanol per year to be imported tarifffreeâ&#x20AC;&#x201D;a threshold that was previously 600 million litersâ&#x20AC;&#x201D;but any ethanol beyond that faces a 20 percent tax. â&#x20AC;&#x153;American policy makers have lobbied Brazilian legislators to lift this quota, and this is an ongoing discussion,â&#x20AC;? he says. â&#x20AC;&#x153;I think that would definitely help, because if you just remove 20 percent taxes, that would facilitate more trade.â&#x20AC;? Those challenges may be limiting participation in the program, Miranda
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says. â&#x20AC;&#x153;I think those are the main points that are preventing this from taking off. If they can better streamline the compliance requirements, more people will be willing to participate in the program.â&#x20AC;? But, he says, the Brazilian government is excited about the program, and he thinks steps will be taken to make sure the program operates smoothly. â&#x20AC;&#x153;The Brazilian governmentâ&#x20AC;&#x2122;s really trying to push this agenda of making ethanol more of a commodity and being a world player in that sense,â&#x20AC;? he says, adding that China
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and India are both very interested in how the program works for Brazil, and how a similar program may be used to help in areas where air pollution is rampant. And that focus on air quality is even more important now, Phillips says. “The decarbonization services offered by RenovaBio are as important as ever. We will eventually beat COVID-19, but tackling climate change is a greater long-term challenge,” she says.
Looking Forward
PHOTO: ISTOCKPHOTO
Phillips says the government has also offered some assistance to the Brazilian ethanol industry in the face of the COVID-19 pandemic. She says a line of credit is available to producers which is good for two years. “Most producers are still evaluating whether the conditions of this program will meet their individual needs,” she says.
24 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
While the future is uncertain for many industries, Phillips says Brazil’s ethanol industry is a resilient one. “We have met earlier challenges by reinventing ourselves,” she says. The pandemic, she adds, has forced producers to diversify and cut costs. She says products like non-fuel alcohol, hand sanitizer and biomethane, have helped producers manage the decline in ethanol demand. “The sale of non-fuel alcohol remains high with 50% growth in the first half of July, at 16.1 million gallons in the 2020-’21 harvest, against 10.7 million gallons in 2019-’20. From April 1 to July 15 of this year, the volume sold was 111.5 million gallons, an increase of nearly 66% over the same period of the last harvest,” she says. Another factor that may help Brazil’s recovery, and the seasonality of sugarcane, is its growing corn ethanol sector. Brazil is a major producer of corn, with the USDA’s
Brazilian Currency and Sugar Price Trends 6285&(6 5(1(:$%/( )8(/6 $662&,$7,21 %$5&+$57 &20
â&#x20AC;&#x201D; Brazilian Real/USD Exchange Rate (Left Axis) â&#x20AC;&#x201D; Wholesale Price of Sugar in Brazil per Metric Ton, Raw Value (Right Axis) 0.45 $25
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Foreign Agriculture Service projecting Brazilâ&#x20AC;&#x2122;s corn production to reach 114.5 million tons by 2029. Some of that corn is now being used for ethanol production. â&#x20AC;&#x153;Brazilâ&#x20AC;&#x2122;s aggressive biofuels strategy relies on sugarcane ethanol, corn, biodiesel and others,â&#x20AC;? Phillips says. â&#x20AC;&#x153;Corn ethanol pro-
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duction in Brazil is relatively small but growing. In the last harvest cycle, it was 423 million gallons (about 4.6% of total Brazilian production), but it will struggle, like the others, until the coronavirus is in the rearview mirror. Brazilâ&#x20AC;&#x2122;s hyper focus on biofuels will ensure that every [type of]
ethanol is an important part of our nationâ&#x20AC;&#x2122;s biofuel approach going forward.â&#x20AC;? Zuckerberg says growing Brazilâ&#x20AC;&#x2122;s corn ethanol industry is a smart move for that countryâ&#x20AC;&#x2122;s agriculture economy. â&#x20AC;&#x153;To the extent that sugarcane has a seasonal dynamic, having another fuel crop that could also be used and processed into ethanol gives them additional production capabilities,â&#x20AC;? he says. â&#x20AC;&#x153;It certainly proves to their advantage as an ethanol producer.â&#x20AC;? And much like the U.S., the countryâ&#x20AC;&#x2122;s ethanol sector has played a role in combatting the coronavirus. â&#x20AC;&#x153;Our members have produced and donated 250 million gallons of alcohol for hand sanitizer and other uses to the public health system in nine Brazilian states, and provided countless donations of food and other essential items,â&#x20AC;? Phillips says. Author: Matt Thompson Associate Editor, Ethanol Producer Magazine 701.738.4922 mthompson@bbiinternational.com
ETHANOLPRODUCER.COM | 25
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Diversification
UPCOMING USP: Aemetis Inc. in Keyes, California, is adding USP capacity, aiming for operation early next year. PHOTO: AEMETIS INC.
28 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
MARKET MOVE Ethanol producers are investing in high-end alcohol production after seeing its value during the pandemic. By Lisa Gibson It’s clear that despite the long-term unknowns, the curAs fuel ethanol producers scrambled to rent boom in the high-end alcohol market has spurred a wave provide gallons and totes of alcohol to help of development. satisfy the emergency need for hand sanitizer this year, ideas for longer-term opportuni- From the Beginning President Donald Trump declared the coronavirus panties were taking root. COVID-19 not only pointed
emphatically at a diversification option, but it also illustrated demic a national emergency in March of 2020. Hand sanihow crucial diversification is, as fuel ethanol prices tanked to tizer supply quickly dwindled and ethanol producers’ answer to the call has been well-publicized. around 80 cents per gallon. “Like many in the industry, the call to As the industry works to get its feet action with the pandemic and the need for back underneath it, many producers are in'You look at hand sanitizer really drove us to consider vesting in high-end alcohol production. It’s airplanes, something we hadn’t considered in the not just hand sanitizer; it encompasses othbuses, bus past,” says Mike Jerke, CEO of Southwest er disinfectant products, as well as pharmaterminals. COVID Iowa Renewable Energy in Council Bluffs, ceuticals, fragrances, cosmetics and other Iowa. SIRE started supplying alcohol that is definitely industrial applications. Homeland Energy Solutions in Lawler, going to reset met WHO standards to local hospitals, first and other medical professionIowa, expects to have its USP-grade alcohol the bar as far responders als. “SIRE is unique in that we’re located plant operational by the end of the year. Aeas what level of next to a fairly large metro area. While the metis Inc. in Keyes, California, aims to prosanitization is pandemic has left no part of the country duce USP-grade alcohol by the first quarter untouched, with the hospital infrastructure required. ' of 2021. Pacific Ethanol has announced it and the population size, it seemed like we Kevin Howes will increase its focus on high-end alcohol Homeland Energy Solutions were seeing a lot of requests from what at its Pekin, Illinois, plant, which was modiwe would call our neighbors.” Nurses were fied to produce and handle the product calling and showing up to load product into earlier this year. Green Plains Inc. will add and upgrade to USP-grade alcohol at its Wood River, Nebraska, and York, the trunks of their cars, Jerke says. “One thing led to another and we began to see some Nebraska, plants, respectively, for a total USP capacity of 75 opportunity for sales we had never envisioned, and quite MMgy. ADM will expand its production of industrial alcohol frankly, when we were dialing back plant operations, there in Clinton, Iowa, and Poet LLC announced in early August that it will scale up production of industrial beverage-grade was nothing in my initial forecast for any kind of cash from hand sanitizer,” Jerke says. “It wasn’t a windfall, but every alcohol at its Leipsic, Ohio, and Alexandria, Indiana, plants. ETHANOLPRODUCER.COM | 29
CATCHING CARBON: The new carbon filters at Homeland Energy Solutions in Lawler, Iowa, were added to control odor in its USP-grade alcohol. PHOTO: HOMELAND ENERGY SOLUTIONS
LOCAL LABEL: Aemetis Inc. will produce finished, bottled and branded hand sanitizer at its plant in California. PHOTO: AEMETIS INC.
nickel and dime was helpful in trying to make it through the crisis and keep everything intact.” Kevin Howes, plant manager and chief operating officer of Homeland Energy Solutions, says the pandemic exposed the industry’s need to further diversify, and provided cause to do it quickly. “You can see what COVID did to the fuel supply, and the ethanol industry, idling almost 50 percent of capacity. The need for diversification definitely came to the surface” Homeland will not focus solely on hand sanitizer markets for its USP, Howes says, instead following the demand. “Whatever the opportunities, we want to get into those markets.” USP generally sells for double fuel ethanol’s price, and often higher. Currently, the temporary FDA guidance for fuel ethanol producers supplying emergency alcohol for hand sanitizer expires at the end of this year. It’s uncertain whether that will be extended. Homeland is aiming for the end of this year for USP production, so it’ll be ready to continue supplying product with no interruption. “Timing is key,” Howes says. “You want to be one of the first; you don’t want to be one of the last.” SIRE hasn’t finalized any concrete expansion plans, but, like many fuel ethanol producers, is analyzing potential markets and the expenses
30 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
of installing equipment to manufacture USPgrade alcohol. Jerke says the plant has pursued a couple different strategies, zeroing in on one that it hopes to deploy relatively soon. “Once we cross that hurdle, we’ll start working on permanent changes that would need to be made.” The main changes to a fuel ethanol plant required to produce USP-grade alcohol are in decarbonization, distillation, storage and loadout. The loadout is similar to that of fuel ethanol, but the trucks must be different, Howes says. It cannot be transported in a petroleum tanker, as even a thoroughly cleaned tank will still retain odor. “The end users do not want any type of petroleum-based gasoline, diesel fuel-type odor,” Howes says. He adds he expects an ROI of less than a year, despite unknowns in hand sanitizer demand.
Continued Market
“The million-dollar question is how long will COVID continue to influence our lives?” Howes says, adding the reopening of the country will require more sanitization products. He cites schools that will host classes again on-site, and their needs for sanitization products. When major league sports welcome fans back to stadiums, the sanitization needs there
Diversification will be enormous, as well, he says. “You look at airplanes, buses, bus terminals. COVID is definitely going to reset the bar as far as what level of sanitization is required. And that’s just one part of what USP could do.” Like all markets, high-end alcohol prices fluctuate and have, of course, increased during the demand for sanitizer. “While we don’t expect this to last forever, we’re expecting it to last not only long enough to pay back our investment, but to provide a very nice return on our investment,” Howes says. “Yes, a lot of this is unknown, but you don’t have to be a dreamer to see the potential,” he adds. “We stand ready. If we’ve got a USP-grade product ready to go and the hand sanitizer market dries up, it just got a little more competitive out there because there’s a lot more demand, but rather than getting dollars profit, you might have to settle for 20-cents-a-gallon profit. And 20 cents a gallon in the fuel ethanol world is still a good day.”
Destination Market
Aemetis, in Keyes, California, has been exploring the high-end alcohol market for about three years. Construction on the $15 million project started in January of this year, and operation is expected in the first quarter of next year, says Eric McAfee, chairman and CEO of Aemetis. “We’ll have a full conversion of our distillation unit, adding two of the distillation columns that are required for the extraction of contaminants and reduction of acetaldehyde and acetols to below 10 parts per million allowed under the USP standard, as well as all other contaminants that need to be below 300 parts per million.” Aemetis also is upgrading the heat exchanger to improve energy efficiency and switching from a molecular sieve to ceramic dehydration, McAfee says. The system is coming to fruition during a pandemic and increased demand for highend alcohol. “Yes, it happens to be completely coincidental,” McAfee says. “We were in the installation process when the shutdown order came in. It definitely expanded the markets we can be a part of.”
The plant is expanding from 65 MMgy to 70 MMgy and will have the capacity to sell 100 percent of its production as USP. “USP was not our goal when we did these plans,” McAfee says. “Our goal was higher quality, lower cost. What the hand sanitizer market identified was if you get to this specific quality, then you have a particular market. So we committed to USP grade in the first quarter of this year.” Aemetis is unique in its proximity to end users, rather than its proximity to corn. McAfee calls it destination ethanol, and it applies to high-end alcohol, too. “We saw a need in the western U.S. for a supplier that’s closer to customers.” Aemetis is taking production a few steps further, bottling, branding and marketing its own Aemetis hand sanitizer for sale online, and at Walmart, Costco and other large retail chains, McAfee says. That strategy optimizes the value of the plant’s location, he says. “Let’s just go ahead and build the whole value chain all the way from bulk, to branded, packaged retail and online product and see if we can sell 70 million gallons worth.” If 100 percent of Aemetis’ production can be sold as USP, that’s what it’ll produce, McAfee says.
The Right Thing
Howes, conversely, doesn’t anticipate Homeland will ever sell only high-end alcohol and no fuel ethanol. “At our core, I don’t see us ever deviating from a fuel ethanol plant,” he says. “But a year and a half from now, you could see Homeland providing five products.” The plant is lucky to have a board of directors willing to make investments and evolve with the markets, Howes says. While investment involves risk, hopefully the reward follows, he says. And, Howes adds, sometimes it’s just the right thing to do. “If we can make money and supply something that’s drastically needed, that makes you feel good all around.” Author: Lisa Gibson Editor, Ethanol Producer Magazine 701.738.4920 lgibson@bbiinternational.com
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Outlook
LESS THAN
EXPECTED, MORE THAN ENOUGH
Ideal growing conditions and optimal yields should provide a silver lining for the 2020-’21 corn crop following lower than expected planting numbers. By Luke Geiver
This season’s corn crop has had its ups and downs. Early planting intentions by U.S. growers created the possibility for more than 97 million acres of corn to be planted in the 2020-’21 season. As of late summer, the United States Department of Agriculture and others in the corn forecasting sector predicted planted acreage would come in at roughly 92 million acres, with 84 million of those acres harvestable. In March, the economic impact of COVID-19—which spurred reduced driving, food processing shutdowns and global grain demand uncertainty—was already clear to economists Scott Irwin and Todd Hubbs from the University of Illinois’ Department of Agriculture and Consumer Economics. A review of corn data by Irwin and Hubbs in late June helped them explain to regional and national parties connected to the agriculture sector where the current crop was headed, despite early projections. Although weather and planting conditions played an important role in this spring’s planting numbers, Irwin says COVID-19 provided an important basis for the actions growers ultimately took.
Less-than-ideal economics—a direct result of COVID-19—played a large part in the reduction of the total corn crop by 5 million acres. Along with the economic factors of the pandemic, Hubbs says many farmers made the choice to pursue preventative planting instead of forcing a corn crop. “Incentives and experience pushed farmers toward prevent-plant,” Hubbs says. After 2019, many farmers in the Corn Belt gained experience in how to properly plant, grow and utilize fiscal incentives associated with prevent-plant practices. Although the 5-million-acre pullback for corn was a surprise when USDA released the data showing planted acres were 92 million and not 97 million, Hubbs says it was probably a good thing. “We didn’t need 97 million acres and thankfully we didn’t get them,” he says. A crop that comes in closer to 92 million acres— or even less—would help to drive up the price of corn in his estimation. As for overall volume, the 2020-’21 season will still yield massive results. At 92 million planted acres, U.S. growers will plant nearly 3 million more acres of corn this year compared to 2019. The number of corn acres harvested is expected to reach 84 million, up nearly 3 million acres from the previous year as well. Also up this year is the total production yield. The USDA believes the
BROAD VIEW: Despite ideal planting conditions and a healthy crop, market forecasts are still dependent on the lingering impact of a global pandemic. PHOTOS: USDA
32 | ETHANOL PRODUCER MAGAZINE | SEPTEMBER 2020
ETHANOLPRODUCER.COM | 33
Outlook
average bushels per acreage for the U.S. this a major accomplishment for corn planters, year will be 178.5. considering that by May 15 planting conAcross the major corn growing states, ditions were good before, he says, â&#x20AC;&#x153;everythere are major discrepanthing got really wet.â&#x20AC;? cies in corn acres planted Those early planting efthis season, compared to last. forts meant that compared South Dakota (+24.1), Indito 2019, 2020 growers were ana (+8), Wisconsin (+5.3), nearly 30 percent above the Illinois (+3.8), Minnesota prior yearâ&#x20AC;&#x2122;s planting rate, and (+3.8) and Iowa (+3.7) all roughly 4 percent higher than showed increases in the perthen the five-year average. By centage of corn acres planted June 28, despite a warmer than Hubbs this year versus last. North average month for most of the Dakota (-31.4), Kansas (-4.7) Corn Belt, nearly two-thirds of and Nebraska (-3), conversely, all planted corn was rated by showed drops. Issues related USDA as good to excellent. to lingering 2019 harvest isThere are a handful of sues and untimely precipitapockets where drought could tion amounts were the main become a nuisance or a potencauses for those states showtial yield issue for corn growers ing a drop in corn acres plantin the U.S., but topsoil moised compared to the previous ture levels in nearly every corn year. state are all at surplus levels. Irwin In most of the main Weather temperatures have corn-growing regions, the planting season also been within 5 to 10 percent of historiand mid-summer growing conditions have cal numbers, research from USDA shows. been a positive. According to USDA, by At the beginning of August, 92 percent of May 31, producers had 93 percent of the the nationâ&#x20AC;&#x2122;s corn acreage was at or past the corn crop in. According to Hubbs, that is silking stage (20 percent ahead of 2019â&#x20AC;&#x2122;s
pace and 5 percent ahead of the five-year average). Corn conditions in August largely mirrored July, and is also considered good to excellent. The pace of the dough stageâ&#x20AC;&#x201D; when the kernels dent and develop the deep yellow toneâ&#x20AC;&#x201D;was also above last yearâ&#x20AC;&#x2122;s pace and the five-year average. During the dough stage, corn is very susceptible to heat stress and harsh weather conditions. Because of the growing conditions and moisture levels in key corn growing areas, Irwin believes the 178.5 bushel per acre estimate, along with the total poundage of corn bushels harvested, could be low. â&#x20AC;&#x153;The potential for higher harvest is there,â&#x20AC;? he says, â&#x20AC;&#x153;if we continue to get rain throughout the Corn Belt, the potential is higher.â&#x20AC;?
Corn Used For Ethanol
The USDAâ&#x20AC;&#x2122;s June World Agriculture Supply and Demand Estimates report indicated that the 2020-â&#x20AC;&#x2122;21 outlook for corn used for ethanol would total roughly 5.4 billion bushels. (30.2 million corn acres). After bottoming out in early May, ethanol production has risen from a low point of 567,000 barrels per day to 932,000 b/d produced as of early August. Regardless of the fluctuation in daily production, ethanol continues
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a basic trend line in regard to the link between corn volumes used for ethanol. For the last three years, the volume of corn used in ethanol production has remained in a steady range between 29 percent to roughly 40 percent, according to USDA data on corn supply, disappearance and volume of corn used for ethanol. For the third quarter of the fiscal year, (which started in May and ended in August) the amount of corn used for ethanol was down sharply when compared to the previous quarter. But, Irwin says, so was the amount of all corn bushel volume usage—because of COVID-19. Corn used for ethanol typically does decline in the third quarter of every year, however. For the past three fiscal years, the amount of corn usage related to ethanol production has been in the mid-30s percentile range. For ethanol producers looking for a margin gain from increased demand for biofuel gallons, it may be unclear when that will happen. There is a possibility that a record corn crop in 2020-’21 could secure corn prices in the $3.40 to $3.60 per bushel range by keeping the supply part of the curve higher than the demand portion. While both Hubbs and Irwin are focused on the continuing impact of the virus, both have thoughts on major variables facing the 2020-’21 corn crop. “The election doesn’t have a strong bearing on the economic outlook for corn,” Irwin says. “It is all about the virus.” Hubbs believes that although there may be short-term market turmoil with corn pricing during and immediately following the election, the outcome will not have a long-term impact on pricing. Farm and agriculture policy is a different story, however. For Hubbs, the election is important because it will play a role in future farm policy, most notably, the farm bill. Should corn prices fall to low levels again, both Hubbs and Irwin believe the U.S. will review or reinforce the use of the Conservation Reserve Program (CRP). Irwin says
CRP acres will go up because the U.S. can use the program (right or wrong) as a supply control arm. A dramatic uptick in corn demand isn’t likely until the pandemic subsides, both economists believe, but it isn’t out of the question depending on virus-related activity around the world. Can weather move us to $4 corn? Irwin is clear in his answer. “Absolutely.” The USDA forecasts that corn
prices for 2021 will be around $3.60 per bushel. The Illinois economists believe the number is $3.40. Author: Luke Geiver Associate Editor, Ethanol Producer Magazine 701.738.4944 lgeiver@bbiinternational.com
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At POET, the workday ends, but the work never does. Weâ&#x20AC;&#x2122;re using renewable resources and our endless passion to create biofuels, nutrient-rich protein and oil alternatives.
