1. Economics of Ethanol and Biodiesel Allan Gray Dept. of Ag. Economics Purdue University

2. Basics of Ethanol  Ethanol is an oxygenate used to help gasoline burn cleaner  MTBE is the primary alternative oxygenate used today but is being phased out in many states  3.0 billion gallons of ethanol are added to gasoline today to normally create a 10% Ethanol blend (other blends are possible)

3. Corn Use and Availability  Best Technology: 1 bushel grain converts to 2.7 gallons ethanol  30 MGY plant uses 11.1 million bushels per year  Over 30,000 bushels used each day  If Ethanol were used in 10% of all US auto fuel it would take approximately 50% of current corn production  5.5 Billion Gallons would require 21% of U.S. Corn and we currently use about 11/12%

4. Corn Prices  Corn for Ethanol is at least 50% of production costs when corn is $1.60/bu. And 70% of costs when corn is $3.20/bu.  30 MGY plant: each 25 cent increase in corn price increases expenses about $3 Million per year or $0.10/gallon

5. U.S. Ethanol Production Facilities January 2003

6. Corn Basis Map, 2003 Legend

7. Unleaded and Ethanol Prices

8. Biodiesel Basics  Biodegradable, renewable energy created from vegetable and animal oils  Runs in existing, unmodified diesel engines  Just over 25 million gallons biodiesel production used to create B100, B20, B5, or B2 but is less than 1 percent of distillate fuel oil.  Has a net energy ratio of 3.24 to 1

9. Soyoil Use and Availability  Best Technology: 1 gallon of Soyoil Converts to 1 gallon of Soy Methyl Ester  10 MGY plant uses 6.8 million bushels of Soybeans per year  If Biodiesel were used in 5% of all US distillate fuels it would take approximately 56% of current soybean production  We currently use about 1% of soybean production

10. Soyoil Prices  Soyoil is about 85% of production costs when soyoil is $22/cwt.  10 MGY plant: each 10% increase in soyoil price increases expenses about $1.6 Million per year or $0.17/gallon

11. Soyoil and Wholesale Diesel Prices

12. Major Biodiesel Production Facilities

13. B20 and Diesel Prices Estimates within the U.S.

14. Summary  Ethanol and Biodiesel production/consumption continues to grow  Fuel and feedstock prices drive ethanol and biodiesel prices  Positive impacts on corn and soybean prices  Sustainability is questionable because corn and soybean oil are primary input cost  Plants will locate near cheapest feedstock supplies  Subsidies are key for these industries