1. Is the Biofuels Tank Half-Full or Half-Empty
Is the Biofuels Tank Half-Full or Half-Empty? National Farm Business Management Conference June 15, St Louis, MO
Ron Plain, Ph.D.
D. Howard Doane Professor
Dept of Agricultural Economics
University of Missouri-Columbia 1

2. Basics of Ethanol Production
Ethanol is an alcohol made by fermenting grain and other carbohydrates
This is an old process which traditionally has been used to produce ethanol for use as a beverage
97% of U.S. ethanol is made from corn
Rest: milo, wheat, brewery waste, whey, etc

3. water
A bushel of corn will produce ~2.8 gallons of ethanol, 17 lbs of CO2 and 17 lbs of DDGS

5. Laddonia Ethanol Plant

6. Ethanol Plants Were Very Profitable
In 2006, U.S. plants produced ethanol for about $1.34 per gallon. The average price of ethanol was about $2.58 per gallon.

7. Ethanol Capacity Growth
Source: Renewable Fuel Association website

8. Formulation of Alcohols
H-C-H
Methanol
CH3OH
62,800 BTU H O
H-C-H
Ethanol
C2H5OH
84,400 BTU H O
H-C-H
Propanol
C3H7OH
100,000 BTU H O
H-C-H
Butanol
C4H9OH
110,000 BTU
Gasoline is mostly C8H18
Gasoline has 125,000 BTU/gallon

9. Biofuels Policy

10. Spot Crude Oil Prices 1995-2009 WTI, Monthly Average Price, Cushing, Oklahoma
Source: U.S. Energy Information Administration

11. U.S. Retail Gasoline Prices, All Grades, All Formulations, 1996-2009
Source: U.S. Energy Information Administration

12. Energy Sources

13. Ethanol Production,
Source: Renewable Fuels Association 13

14. 2007 Renewable Fuels Mandate14

15. Daily Ethanol Production, 2006-09
2009 mandated use: avg 685,000 barrels/day

16. Ethanol Production, 1990-2016 actual production
mandated use
actual production
Beginning in 2015, the U.S. will annually use more corn to make ethanol than the U.S. produced in any year before 1971

17. Source: U.S. Energy Information Administration
Weekly U.S. Gasoline Prices,
Source: U.S. Energy Information Administration 17

18. Ethanol-Gasoline Price Relationship
Source: Ron Plain

19. Livestock Marketing Information Center
Weekly Iowa Ethanol Prices,
Livestock Marketing Information Center 19

20. Source: U.S. Energy Information Administration
Weekly Gasoline & Ethanol Prices, Dollars Per Gallon,
Source: U.S. Energy Information Administration 20

21. Ethanol-Corn Price Relationship
Source: Ron Plain 21

22. Source: LMIC

23. Weekly Corn & Ethanol Prices, 2007-09
Source: LMIC 23 23

24. Source: U.S. Energy Information Administration
Weekly Gasoline & Corn Prices,
Source: U.S. Energy Information Administration 24 24

25. Corn futures
Crude oil
futures

26. Impact on feed prices

27. Corn Milled for Ethanol
Forecast
% corn for ethanol:
: 6%
: 14%
: 23%
: 31%
: 34%

28. Source: LMIC

29. Weekly Corn & Soybean Meal Prices, 2006-09
Source: LMIC

30. Livestock Marketing Information Center30

31. Livestock Marketing Information Center
Monthly Corn & Alfalfa Prices,
Livestock Marketing Information Center 31

32. Northwest Iowa Prices, 2006-09
Source: LMIC

33. DDGS Price as % of Corn Price, Northwest Iowa, 2006-09
Source: LMIC

34. WDGS Price as % of DDGS Price, Northwest Iowa, 2006-08
Source: LMIC

35. Impact on crop acres

36. Million Acres Planted by Crop
2006
2007
Change
Corn
93.600
Soybeans
64.736
Wheat
60.433
Cotton
10.827
Sorghum
7.718
Oats
3.760
Barley
4.020
18 crops

37. Million Acres Planted by Crop
2007
2008
Change
Corn
85.889
Soybeans
75.878
Wheat
63.047
Cotton
9.414
Sorghum
8.327
Oats
3.217
Barley
4.234
18 crops

38. More planted acres drives up:
Seed prices
Fertilizer prices
Equipment prices
Land prices

39. U.S. Farmland Values,
USDA/NASS

40. Impact on livestock 40

41. U.S. Corn Usage
2000 crop
2007 crop

42. U.S. Feeding of Corn,
Source: PRX ProExporter Network

43. Cost of Slaughter Hog Production Iowa State University Calculations, 1987-2009
Source: John Lawrence, Iowa State University

44. Breakeven Hog Price & U. S
Breakeven Hog Price & U.S. Corn Price Iowa State University Calculations,

45. Hog Price & Cost,
2008 hog prices were $2.60 above the 13 year average production cost was $13.85 above the 13 year average

46. Source: LMIC 46

47. Source: LMIC 47

48. January 2008 Feeder Cattle Futures
March 2008 Corn Futures
A dime increase in the price of corn reduces the value of feeder cattle by $6-9 per head
January 2008 Feeder Cattle Futures

49. Forecast Change in Meat Production
--Percent Change-- Type
Pork % %
Beef % %
Chicken % %
Turkey % %
All Meats % %
Source: USDA/OCE WASDE, April 2009

50. Impact on Food Prices 50

51. Ethanol’s Impact on Food Prices
Less corn for livestock and more for ethanol
Less food and more fuel
Higher food prices and lower fuel prices 51

52. Ethanol’s Impact on Food Prices
Primary
Through corn products
Secondary
Through animal products
Tertiary
Through competitive crops
More corn acres = fewer acres for other crops 52

53. Source: USDA/ERS data for 200253

54. Impact on Food Prices
In 2002, the farm value of U.S. consumer food expenditures was 18.7%. Corn made up 11.3% of that farm value. Thus, corn, directly and mostly indirectly, accounted for 2.1% of consumer food expenditures. 54

55. Impact on Food Prices
Since corn only accounted for 2.1% of consumer food expenditures, doubling corn prices should raise the cost of food by 2.1%; tripling the price of corn should raise the cost of food by 4.2%. 55

56. Over time, the price of a commodity will equal the cost of production

57. U.S. Average Corn Price,
Source: USDA/NASS

58. U.S. Average Corn Price, 1908-2008 1942-1972 30 years Avg $1.26
35 years
Avg $0.78
34 years
Avg $2.37
Source: USDA/NASS

59. U.S. Average Corn Price, 1908-2008 What’s the next level?
34 years
Avg $2.37
30 years
Avg $1.26
35 years
Avg $0.78
The 1940s step raised corn price 62%; the 70s step 88%. A 75% step will take corn to $4.15/bu

60. U.S. Average Corn & Broiler Price, 1960-1985
Source: USDA/NASS

61. U.S. Average Corn & Pork Price, 1960-1985
Source: USDA/NASS

62. U.S. Average Corn & Beef Price, 1960-1985
Source: USDA/NASS

63. U.S. Average Corn & Milk Price, 1960-1985
Source: USDA/NASS

64. Meat Consumption

65. U.S. Per Capita Meat Consumption Retail Weight, 1960-2008
In 2007, the average American consumed 60 pounds (34%) more meat than in 1960

66. U.S. Monthly Average Soybean Price

67. Source: LMIC

68. Illinois Monthly Soybean Meal Price

69. Cellulosic Ethanol

70. Cellulosic Ethanol
Cellulosic ethanol is ethanol made from cellulose. It is the same as grain ethanol: C2H5OH. The only difference is the source material.
The interest in cellulosic ethanol comes from the huge supply of low-value source material:
Wood – trees, limbs, paper, cardboard
Grass - switchgrass, corn stalks, straw, fescue
Distillers Grains

71. Cellulosic Ethanol
Producing ethanol from cellulose is something we’ve known how to do for over 100 years
Doing it in a cost-competitive manner is something we have yet to learn
However, there are many people seeking research grants who claim to be close to solving the cost problem

72. Cellulosic Ethanol Challenges of cellulosic ethanol Feedstock
Purity and consistency
Production process
By products

73. Feedstock for Cellulosic Ethanol
Cost competitive cellulosic ethanol plants are not likely to be small or operate part time
Other than wood, most feedstock is bulky, i.e. costly to haul and store
Harvesting is not cheap
Opportunity cost, i.e. impact on soil
Nutrients
Ground cover

74. Cellulosic Ethanol Challenges of cellulosic ethanol Feedstock
Purity and consistency
Production process
By products

75. Purity and Consistency of Feedstock
The feedstock for a cellulosic ethanol plant will not be pure cellulose
collect and move a lot of non-cellulose?
corn is consistently ~70% starch
Cellulosic ethanol plant not likely to work well on all potential feedstocks
Is there any plentiful, uniform, year-round source material other than wood (and distillers grain)?

76. Cellulosic Ethanol Challenges of cellulosic ethanol Feedstock
Purity and consistency
Production process
By products

77. Cellulosic Ethanol Production
Two production methods
Hydrolysis – breaks the cellulose chain into sugar molecules that are then fermented to produce ethanol, then distilled
Gasification – ligno-cellulose is transformed into carbon monoxide and hydrogen which are then fed to a special fermenter or a catalyst bed to produce ethanol

78. Cellulosic Ethanol Production
Two types hydrolysis processes
Chemical
Enzymatic

79. Cellulosic Ethanol Production
Chemical hydrolysis –
Cellulose is mixed with a mild acid under a lot of heat and pressure, or a strong acid with less heat and pressure.
Water is then added to form simple sugars.
The acid is then neutralized.
Sugar is separated from the residual materials.
Yeast is added to ferment ethanol which is then distilled.
Acid + heat + pressure = $

80. Cellulosic Ethanol Production
Enzymatic hydrolysis –
Following a pre-treatment process, various enzymes are used sequentially to break cellulose into glucose molecules, a la rumen bacteria.
The sugar is separated.
Yeast is added to ferment ethanol which is then distilled.
Availability and cost of the enzymes are the primary obstacles to enzymatic hydrolysis

81. Cellulosic Ethanol Production
Gasification –
The cellulose is partially combusted to yield carbon monoxide, carbon dioxide and hydrogen.
The microorganism, Clostridium ljungdahlii, converts the CO, CO2 and H into ethanol and water.
The ethanol is distilled from the water.
An alternative is to use a catalytic reactor to convert the synthesis gas into alcohol.

82. Cellulosic Ethanol Challenges of cellulosic ethanol Feedstock
Purity and consistency
Production process
Byproduct

83. Byproduct
Corn ethanol plants produce a byproduct, DDGS, that is as valuable as the feedstock
For what price will we be able to sell the byproduct from cellulosic ethanol plants?

84. Biodiesel

85. Biodiesel Production
Typically, a fat or oil is reacted with alcohol that contains a catalyst (usually sodium or potassium hydroxide) to produce glycerine and methyl esters or biodiesel.

86. Biodiesel Production Glycerine Biodiesel Vegetable Oil
Methanol + Catalyst
Alcohol recovery
Alcohol recovery
Reactor
Washing
Settler
Neutralization
Purification
Settler
Evaporation
Fatty acids
Glycerine
Biodiesel

87. Soydiesel
Although soybean oil is a liquid, you should not blend it with diesel fuel.
The glycerine in soy oil will ruin a diesel engine.
Soy oil must be transesterified before blending with diesel fuel.

88. Economics of Soydiesel
Soy oil is worth 36¢ per pound
Diesel is worth 22¢ per pound
Cost of conversion is 8¢ per pound
There is a federal government subsidy of 13¢ for each pound of soy oil converted to diesel fuel

89. Soybean Oil Futures

90. Biodiesel
The U.S. produces about 3 billion bushels of soybeans per year.
At 11.3 pounds of oil per bushel, this is potentially 33.9 billion pounds of soy oil
At 7.4 pounds per gallon, this is 4.6 billion gallons of soy oil

91. Feedstock Costs per Gallon of Biofuel Reduced by Federal Tax Credit
Corn price
Cost/gallon of ethanol*
$4.00/bu.
$1.44
$5.00/bu.
$1.80
$6.00/bu.
$2.16
Veg. oil price
Cost/gallon of biodiesel**
$0.40/lb.
$3.00
$0.50/lb.
$3.75
$0.60/lb.
$4.50
*Assumes 2.77 gal./bu. of corn
**Assumes 7.5 lbs. veg. oil/gallon

92. Biofuel Conversion Factors, 2012
Crop yield per acre
Vegetable oil yield
Biofuel yield per unit
Biofuel yield per acre
Ethanol from
corn
158.6 bu.
2.77 gal/bu
439 gal/ac
Ethanol from sugarbeets
23 tons
24 gal/ton
552 gal/ac
Biodiesel from soybean oil
42.8 bu.
11.3 lbs/bu
7.7 lbs/gal
63 gal/ac
Biodiesel from canola oil
1557 lbs.
0.383 lbs/lb
7.7 lb/gal
77 gal/ac
Crop yields and vegetable oil yields from FAPRI Jan baseline for 2012.
Biofuel yields are assumptions from various sources

93. Need for Both Ethanol and Animal Agriculture
100 million gallon ethanol plant
37 million bushels of corn
80 workers directly employed
37 million bushels corn Direct Jobs
Farrow-finish
Or wean-finish
Or beef feedlot
Source: Dr. John Lawrence, Head of ISU Beef Center

94. Impact of Ethanol Building lots of ethanol plants
Driving up corn prices
More corn acres
Fewer acres of other crops
Higher prices for other crops
Record net farm income
Driving up cash rents and land prices
Driving up livestock production costs
Less meat, milk and eggs being produced
Lots of DDGS will benefit cattle
New grain storage/shipping patterns

95. The New Ag Market? Crude oil drives ethanol prices
Ethanol drives corn prices
Corn drives livestock production
Livestock production drives meat prices 95

96. Impact on Rural Communities

97. What Ethanol Plants Need
Corn
Water - roughly 4 gallons of water per gallon of ethanol
Heat – usually natural gas
Roads & Rails
Some space

98. Ethanol and Rural Jobs 50 million gallon ethanol plant
18 million bushels of corn
35 workers directly employed
18 million bushels corn Direct Jobs
Farrow-finish
Wean-finish
Beef feedlot
Source: Dr. John Lawrence, Head of ISU Beef Center

99. U.S. Net Farm Income
Source: USDA/ERS

100. USDA Farm Payments,
Source: USDA/OCE

101. Impact on Environment

102. Ethanol: energy gain or loss?
The energy gain from ethanol in new dry milled plants is above 75%. This is higher than in the past because of efficiency gains
On the farm
Reduced tillage
In ethanol plants
Faster, higher yielding conversion

103. Greenhouse Gas Emissions
Corn Biomass
Gasoline Ethanol Ethanol
--grams of GHG/MJ of energy--
Feedstock
Refining fuel
Vehicle
Feedstock Uptake
Land use change
Total
Source: Searchinger, et al, Science, February 29, 2008

104. Source: Takle & Hofstrand, Iowa State University

105. Recent EPA Decisions U. S
Recent EPA Decisions U.S. corn ethanol has a worse impact on the environment than gasoline due to land use impact, i.e. more acres being cropped Brazilian sugarcane ethanol reduces GHG emissions by 64% compared to gasoline

106. Impact on Gas Prices

107. U.S. Gasoline Usage,
Source: U.S. Energy Information Administration

108. Ethanol Production,
Source: Renewable Fuels Association

109. Gasoline & Ethanol Production, 1986-07
Source: U.S. Energy Information Administration

110. U.S. Gasoline Usage 142 billion gallons gasoline used per year
Mandating 10% ethanol in all gasoline would require that nearly half of the U.S. corn crop be processed into ethanol
If all U.S. corn were made into ethanol, it would produce 33 billion gallons per year
To replace all U.S. gasoline would require 78 billion bushels of corn annually

111. 78 Billion Bushels of Corn
Record U.S. corn yield is 160 bu/acre
78 billion bushels at 160 bu/acre would require 488 million harvested acres of corn
Equals 164% of 2007 U.S. harvested acreage of corn, soybeans, wheat, sorghum, cotton, rice, sunflowers, barley, oats, rye, peanuts, tobacco, canola, sugar beets, sugarcane, potatoes, dry edible beans, proso millet and hay combined.

112. Questions?
112