INSIDE: LEVERAGING CROP IMAGING FOR CORN SUPPLY OCTOBER 2012
In the Face of Drought Corn Varieties Only Get Better Page 40
RFS Waiver Unnecessary, Wonâ€™t Reduce Corn Prices Page 30
Drought Drains Ethanol Yield Page 46 www.ethanolproducer.com
OCTOBER issue 2012 VOL. 18 ISSUE 10
Resilience in the Face of Uncertainty By TOM BRYAN
RFS Under Scrutiny Critics blame ethanol for drought-induced problems By Holly Jessen
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
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
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
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
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 email@example.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
EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan firstname.lastname@example.org
Vice President of Content & EXECUTIVE EDITOR Tim Portz email@example.com
2012 National Advanced Biofuels Conference & Expo
2013 International Biomass Conference & Expo
2013 International Fuel Ethanol Workshop & Expo
2013 National Ethanol Conference
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Susanne Retka Schill firstname.lastname@example.org
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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 firstname.lastname@example.org. 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 email@example.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 firstname.lastname@example.org. 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 email@example.com. Please include your name, address and phone number. Letters may be edited for clarity and/ or space.
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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 firstname.lastname@example.org
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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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 email@example.com
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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 firstname.lastname@example.org
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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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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 email@example.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 firstname.lastname@example.org. 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
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-
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.
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.
Regional Ethanol Prices Front Month Futures (AC) $2.601 REGION
$2.891 SOURCE: DTN
Regional Gasoline Prices
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
$3.139 SOURCE: DTN
DDGS Prices ($/ton) location
Oct 2011 190
228 SOURCE: CHS Inc.
Corn Futures Prices Date
August 27, 2012 July 27, 2012
(Dec. Futures, $/bushel)
August 27, 2011
6.91 1/2 SOURCE: FCStone
Cash Sorghum Prices ($/bushel) LOCATION
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
SOURCE: Sorghum Synergies
Natural Gas Prices
Aug 27, 2012
Aug 1, 2012
sep 1, 2011
SOURCE: U.S. Energy Services Inc.
U.S. Ethanol Production
SOURCE: U.S. Energy Information Administration
OCTOBER 2012 | Ethanol Producer Magazine | 25
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€™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€œThis is a real example of how USDAâ€™s Rural Development Program helps bring new and innovative technologies and jobs to some of the areas hardest hit by the economic downturn,â€? 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€™s low-severity feedstock processing technology for integration with Poetâ€™s cellulosic ethanol technology. â€œPoet is committed to working with new and innovative technologies that will improve the cost and value of cellulosic ethanol production,â€? said Wade Robey, Poet senior vice president and chief technology officer. â€œIf successful, Agrividaâ€™s novel approach to increase the functionality and value delivery of corn stover will work well with other technologies being developed by Poet.â€?
1 6 5
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€™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.
The savings. s 3AVED ON PLANT SULFURIC ACID USAGE RESULTING IN NET SAVINGS OF TO YEAR s 4EN #)0S PER YEAR WERE ELIMINATED SAVING LABOR DOWNTIME AND CHEMICAL COSTS FOR ACID WASH s (YDROBLASTING FREQUENCY AND TIME WAS REDUCED s /VERALL HEAT TRANSFER PERFORMANCE HAS BEEN IMPROVED WHICH PROVIDES ADDITIONAL mEXIBILITY TO optimize water balance and backset usage. s ! REDUCTION IN $$'