THE ECONOMIC FEASIBILITY OF ETHANOL PRODUCTION FROM SUGAR IN THE UNITED STATES USDA report released July 2006

Study Outline The U.S. Ethanol Industry Price Outlook for Ethanol Feedstock Available for Production of Ethanol Byproducts of Ethanol and Sugar Industries Starch and Sugar Content of Grains and Sugar Crops Feedstock Production Costs, Net Feedstock Costs & Processing Costs Costs in Other Countries Capital Costs Other Issues: Plant Location; New Technologies; Market Outlook for Sugar

Feedstocks Available for Ethanol Production Sugarcane Sugar beets Sugarcane or sugar beet molasses Raw sugar (domestic and imports) Refined sugar

Byproducts of Ethanol Production Corn: –DDGs, CGF, CGM, corn oil, CO 2 Sugarcane: –Electricity, CO 2, bagasse, vinasse Sugar beets: –Beet pulp, CO 2, vinasse Molasses: –CO 2, vinasse Raw and refined sugar: –CO 2, vinasse

Corn (dry mill)Sugarcane Grind & add H 2 O to create mash Grind to extract sugar juice Add enzymes & heat to create sugar juice Add yeast & ferment Add yeast & ferment Distill out ethanol Distill out ethanol Bagasse CO 2 Vinasse CO 2 DDGs Production Process Overview

Ethanol per ton of Feedstock Gallons

Feedstock Costs $/gal –Corn (dry mill) 1/ 0.53 –Corn (wet mill) 1/ 0.40 –Sugarcane1.48 –Sugar beets1.58 –Molasses0.91 –Raw sugar3.12 –Refined sugar3.61 –Brazil sugarcane0.30 1/ Net of byproduct credits Data are except sugarcane and sugar beets, , and Brazil is for 2004 from F.O. Licht

Processing Costs Sugarcane: –Adjusted processing cost of sugarcane to raw sugar ( average) Sugar beets: –Adjusted processing cost of sugar beets to beet sugar ( average) Molasses, raw and refined sugar: –Adjusted processing cost of corn to ethanol ( average)

Processing Cost Adjustments Sugarcane & sugar beets compared with corn: –Reductions due to energy, enzymes; increases due to transportation, maintenance, labor Molasses, raw and refined sugar compared with corn: –Reductions due to energy, enzymes

Estimated Ethanol Production Costs ($/gal ) Net feedstkProcessingTotal Corn (dry mill) / Corn (wet mill) / Sugarcane Sugar beets Molasses Raw sugar Refined sugar Brazil sugarcane / Net of byproduct credits Processing costs are , except Brazil, 2004 based on F.O. Licht

Ethanol and Gasoline Prices 1/99-5/06: ethanol averaged $0.50 premium 5/06: ethanol is $0.94 premium

May Spot and Futures Prices during the week of July 3 NYMEX gasoline, CBOT ethanol $/gal

Sugarcane & Sugar Beet Ethanol Economic Advantages Not Considered in Cost Estimates Sugarcane ethanol is a green renewable fuel and could be eligible for 2.5 credits per gallon under the renewable fuels standard (RFS) Byproducts may offset costs more than assumed Electricity produced by burning bagasse is green renewable electricity and could be eligible for 1.9 cents per kwh credit (closed loop) or half that under (open loop)

Sugar Yield per Acre, Tons/ac

Conclusions Molasses competitive with cornbut supply issues exist While production costs for other sugar feedstocks are more than twice that for corn, production is feasible if ethanol price are high enough –Current ethanol futures price (MERC) for 1/2007 deliver is $2.50/gal. (buyer pays freight from Chicago) – Suggests sugarcane and sugar beet ethanol return would drop to breakeven or less by then, excluding capital costs Report addresses efficient plant location, capital costs and new technologies Results of the study are uncertain, given volatile and uncertain global oil markets, no sugar-to-ethanol plants in the U.S., and uncertain relationship between ethanol and gasoline prices in the longer run