Industrial Beet Production: Revenue, Costs, and Returns David Ripplinger March 18-20, 2014

Agenda Project Background/Update Production Economics

Industrial Beet Background A project to convert beet to biofuels and other products is moving toward commercialization Economic, environmental, and engineering studies have and are being conducted Identified five potential sites: Cando, Carrington, Jamestown, Langdon, Valley City Critical factor: feedstock availability

Industrial Beet Background Production/operation as soon as 2016 No grower contracts or securities offering at this time

Other US Projects Tracy, CA/Delta Distillers Arranging financing Has growers contract Will use waste steam/energy from desalinization plant Spring of 2015 Start Mendota, CA group also active - Received $5 million grant from State of CA in 2013

A non-beet sugar project Solazyme has partnered with ADM to develop a commercial scale facility next to ADM’s Clinton Corn Wet Mill The search is for low-cost, low-carbon sugar

NDSU Activities ARPA-E Grant Extension Proposal

Industrial beet production economics

What are the costs of production? What are the expected returns? The Big Question(s) What are the costs of production? What are the expected returns?

How we’re going to get there. Information -Yields -Historical cost and returns for beet production Tools -Enterprise budget -Partial budget

Yield Data (Handout 1) Litchville Dryland Notes 2012 33.2 2013 16.2   2013 16.2 Saline 24.7 Langdon Dryland 2011 26.5 2012 31.3 2013 29.1   29.0 Carrington Irrigated 2009 23.9 2010 37.8 2011 25.2 2012 31.2 2013 28.1   29.2 Carrington Dryland 2009 23.4 2010 25.2 2011 25 2012 21.4 2013 23.6   23.7

Historical Returns (Handout 2)   2007 2008 2009 2010 2011 2012 Yield per acre (ton) 12.99 14.5 27.6 17.07 25.39 19.19 Value per ton 40.13 37.6 50.1 64.63 66.53 52.64 Total product return per acre 521.21 545.14 1,382.58 1,102.91 1,688.87 1,009.93 Crop insurance per acre 234.34 149.19 2.01 99.23 - 101.75 Other crop income per acre 1.76 7.55 12.01 5.76 12.25 7.64 Gross return per acre 757.3 701.88 1,396.59 1,207.90 1,701.11 1,119.32 Source: FINBIN, North Dakota Averages, 2007-2012 Beet price includes returns to processing/marketing

Total direct expenses per acre 691.23 616.1 800.04 942.84 1,055.60 2007 2008 2009 2010 2011 2012 Seed 91.15 140.43 159.78 168.78 179.41 146.57 Fertilizer 90.84 101.51 81.6 104.21 140.07 101.09 Crop chemicals 121.45 36.76 66.93 72.05 100.92 77.33 Crop insurance 25 21.87 25.07 26.11 35.88 26.13 Fuel & oil 83.67 44.15 53.44 72.36 72.02 64.32 Repairs 80.2 70.21 77.55 99.5 109.03 85.81 Custom hire 13.11 6.74 6.83 18.23 24.01 13.03 Hired labor 21.35 26.24 18.2 26.56 49.86 26.93 Land rent 100.05 95.5 100.24 88.61 111.95 98.28 Stock/quota lease 53.81 61.55 190.86 231.77 210.68 147.11 Machinery leases - 1.39 0.31 Hauling and trucking 19.04 4.19 Operating interest 10.59 10.5 19.53 10.4 21.5 14.05 Miscellaneous 0.64 3.82 0.27 1.02 Total direct expenses per acre 691.23 616.1 800.04 942.84 1,055.60 806.16 Return over direct exp per acre 66.08 85.78 596.56 265.06 645.52 313.16 Seed technology and chemical costs are likely higher due to stronger pressure from long-term production Source: FINBIN, North Dakota Averages, 2007-2012

Dues & professional fees 3.56 2.11 2.87 4.68 3.93 3.39 Interest 8.42 Overhead Expenses 2007 2008 2009 2010 2011 2012 Custom hire 0.04 - 0.41 14.15 2.12 Hired labor 36.97 33.29 49.73 45.77 39.2 41.23 Machinery leases 3.29 5.38 4.73 6.02 4.48 4.83 Farm insurance 4.72 4.17 6.98 6.48 8.91 6.08 Utilities 2.69 2.58 3.55 3.78 4.71 3.38 Dues & professional fees 3.56 2.11 2.87 4.68 3.93 3.39 Interest 8.42 7.64 6.21 5.56 4.54 6.58 Mach & bldg depreciation 68.27 51.78 77.35 87.5 66.55 70.68 Miscellaneous 3.94 6.3 17.69 3.17 7.34 Total overhead expenses per acre 131.91 110.73 157.72 177.9 149.64 145.64 Total dir & ovhd expenses per acre 823.13 726.83 957.76 1120.74 1205.23 951.8   Net return per acre -65.83 -24.95 438.83 87.16 495.88 167.52 Source: FINBIN, North Dakota Averages, 2007-2012

Historical Price Review Beet price includes returns to processing/ marketing Yields averaged less than 20 tons/acre Seed and chemicals averaged more than $220/acre over the six year period Two years with very high returns (>$450/acre)

Custom Beet Work Rates 2010 Average 2013 Average Planting with Fertilizer 16.73 19.51 Planting without Fertilizer 15.32 19.19 Topping 20.98 * Lifting 47.75 Hauling ($/ton) 5.07 * Not reported due to small sample size Source: Custom Farm Work Rates, North Dakota State University, EC499

Industrial Beet Enterprise Budget Langdon   Per Acre Your Numbers Notes: Market Yield 25 29 Based on yield trials & historical records Market Price 33.00  33.00 8x Corn Market Revenue 825.00 DIRECT COSTS -Seed 150.00 -Crop Chemicals 75.00 -Fertilizer 100.00 80.00 Fertilizer credit -Crop Insurance 25.00 -Fuel & Lubrication 65.00 -Repairs 90.00 -Miscellaneous 45.00 -Operating Interest 15.00 SUM OF LISTED DIRECT COSTS 565.00 545.00 INDIRECT (FIXED) COSTS -Misc. Overhead 60.00 -Machinery Int. & Dep. Some used equipment -Land Charge 55.50 SUM OF LISTED INDIRECT COSTS 229.00 180.00 SUM OF ALL LISTED COSTS 725.00 RETURN TO LABOR & MGMT 69.50 232.00 LISTED COSTS PER BUDGET UNIT (t) : -Direct Costs 22.60 -Indirect Costs 9.16 -Total Listed Costs 31.76

Industrial Beet Comparison Tool Cando/Langdon   Handout 5 Industrial Beet Comparison Tool Cando/Langdon Prices which provide the same Return over Variable Costs between crops - North East N.D. Select reference crop Canola Enter the futures price $0.19 <= enter cash price if no futures market Enter expected local basis (cash-futures) -$0.01 <= enter 0 basis if no futures market Expected local cash price Beet S. Wht Durum Barley Corn Soybean Drybeans Oil Snflr Conf Snflr Yield 25 45 40 64 104 29 1500 1340 1170 1720 Relative Price $22.60 $3.87 $4.13 $2.58 $2.95 $6.17 $0.17 $0.13 $0.18 Income $565.00 $174.16 $165.33 $165.34 $306.29 $178.93 $248.23 $169.14 $205.24 $320.61 Variable costs: Seed $150.00 $21.44 $22.50 $22.00 $83.78 $69.60 $45.00 $31.24 $46.55 $48.50 Herbicide 75.00 21.80 19.00 20.00 45.30 26.70 28.90 20.50 Fungicide 0.00 5.50 Operating Int. 15.00 Total Var.Costs $200.28 Return Over $0.00 $120.33 Variable Costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

Industrial Beet Compare Tool (Handout 5) Based on the Crop Compare Tool (A. Swenson, NDSU) Will be available online Considers variable cost – which isn’t the right way to frame the decision to grow beets for the first time

Partial Budget Langdon Scale 160 acres   A. Added Income C. Added Costs Yield 25 700 Price 33 Revenue 132000 112000 B. Reduced Costs D. Reduced Income 244 1720 .2 38960 55040  Net Change A+B-C-D 3920 Per Acre 24.50

Partial Budget Langdon Scale 160 acres   Added Income Added Costs Yield 29 665 Price 33 Revenue 153120 106400 Reduced Costs Reduced Income 244 1720 0.20 38960 55040 Net Change 30640 Per Acre 191.50

Shortcomings No prices (grower contract) Imprecise data (inaccurate!?!) Risk! (Yield, harvest activity, inputs) Equipment – depreciation/interest Transport to pile? Application to your operation Long term commitment More detailed analysis (change in rotation/not crop) Insurance!

What returns do you require to grow? A question for you What returns do you require to grow?

Thank You. Questions?