Ag Lenders Conference Fall 2014 David Ripplinger Biofuels Outlook Ag Lenders Conference Fall 2014 David Ripplinger

The Renewable Fuel Standard

RFS The Renewable Fuel Standard mandates minimum use of biofuels by type and year. EPA can change the mandate for the next year in the case of - economic harm - inadequate supply Obligated parties (blenders and others) are required to blend or purchase RINs to show compliance with the law.

2014 Proposed Rule (November 2013) Original Mandate 2014 Proposed Cellulosic 1.75 .017 Biomass-based diesel 1/1.28 1.28 Other advanced 1 .263 Total advanced 3.75 2.2 Corn-starch ethanol 14.4 13.01 Total renewable 18.15 15.21 Limited production ‘Blend wall’

Final Rule - Implications For corn ethanol: ‘adjust the net’ For advanced biofuel and cellulosic: - slow or stop ethanol activity - support drop-in fuels activity It’s all about the reasoning. Is the ‘blend wall’ justification?

RFS Outlook Mandate Original Mandate 2014 Proposed Outlook Cellulosic 1.75 .017 Biomass-based diesel 1/1.28 1.28 Other Adv. 1 .263 Total 3.75 2.2 Corn-starch 14.4 13.01 13.8 Total renewable 18.15 15.21 16 Guarantee – The EPA will be sued by the biofuels industry, the oil and gas industry, or both (billion gallons)

Corn Ethanol Outlook

Key Factors Large corn crop Higher than expected domestic use Large crush margins Exports

Domestic Use

Source: CME

Brazil may increase its gasoline blend from 25 to 27 Brazil may increase its gasoline blend from 25 to 27.5% Corn-ethanol is an extremely affordable source of octane

The New Normal? Corn ethanol – unsubsidized, weakly supported by the RFS Economics driven by US corn prices, exports

Should we be building more corn ethanol plants? 2014 margins have been very attractive Need to make 20% reduction in GHG Risk management Size Site/Market

CAFE Standards Corporate Average Fuel Economy (CAFE) - federal law intended to increase the fuel economy of cars and light trucks in the United States. Penalizes manufacturers whose fleets fall below the standard. 2025 passenger vehicles need to achieve 54.5 mpg One way to achieve this is with higher octane gasoline, with the octane coming from ethanol (E20 or E30).

Corn Ethanol Outlook Production 14.25 billion gallons Capacity Use 95 % Corn Use 5,100 billion bushels DDGs 43.4 million tons Consumption 13.125 billion gallons Exports 1.125 billion gallons

Advanced Biofuels

Energy Beet-Ethanol Langdon, Cando, Carrington, Jamestown, and Valley City under consideration for first 20 MMGPY biorefinery Require 750,000 tons of beets 30,000 dryland acres (@25t/AC) Most feedstock sourced within 20 miles of plant Grower meetings held last winter – chemical carryover

Biodiesel Big soybean crop Production on track to exceed RFS, less than 2% of distillate fuel oil production Running at 2/3rds capacity; margins are tight Expecting biodiesel income tax credit ($1/gallon) which expired 12/31/13 to be renewed for a year and retroactive to Jan. 1

Cellulosic Biofuel POET’s Project Liberty (Iowa) had its grand opening in September Abengoa (Kansas) had its grand opening in October Dupont’s refinery in Iowa is under commission

Summary The justification for the 2014 final rule has HUGE implications for the renewable fuel sector Corn ethanol margins should remain positive for the 14/15 year. The industry should run near capacity, barring logistics issues. Cellulosic biofuel is here, kind of…