2015 February Ethanol Producer Magazine

www.ethanolproducer.com

FEBRUARY 2015

Page 28

EXPORTSPage 28Page 28

Reaching For 1 Billion Gallons

Page 34

China’s Impact on DDGS World

Page 44Page 44Page 44

New Partnerships in Market Development

INSIDE: BRAZIL SCORES TRUE FLEX-FUEL CAR

THIS HOLIDAY SEASON, WE HAVE A LOT TO BE THANKFUL FOR.

THANKS FOR BEING SOME OF THE FIRST RETAILERS TO OFFER E15.

Growth Energy commends CENEX, MAPCO, Minnoco, Protec Fuel and Petro Serve USA for their pioneering

spirit and their efforts to expand consumer access to higher blends of renewable fuels. They are offering

consumers a choice and savings at the pump, while at the same time supporting a homegrown industry that

supports farmers across the country.

Together we’re making progress towards the next generation of sustainable, renewable fuels.

Learn more at GrowthEnergy.org

™ Trademark, Solenis or its subsidiaries, registered in various countries© 2014, SolenisAD-10040

Each day offers the opportunity to transform the potential of your ethanol plant. Reinvent your performance and growth potential with our advanced chemistries, unique application insights and practical expertise. Together, we will transform multiple parts of your operation—boost corn oil yields, drive production efficiencies and find inventive new ways to cut costs. Discover the full potential of your plant today.

Learn more at solenis.com/biorefining

Open windows of opportunity with good chemistry.Reinvent Potential.

4 | Ethanol Producer Magazine | FEBRUARY 2015

FEBRUARY 2015 VOLUME 21 ISSUE 2CONTENTS

DEPARTMENTS6 EDITOR'S NOTE More Volume, More Places By Tom Bryan

7 AD INDEX

10 THE WAY I SEE IT Hats Off to the American Farmer By Mike Bryan

11 EVENTS CALENDAR

12 VIEW FROM THE HILL Time For a Reality Check On Computer Models By Bob Dinneen

14 DRIVE 2015—The Year of E15 By Tom Buis

16 GRASSROOTS VOICE ‘I Wish Someone Would Do Something About How Fat I Am’ By Ron Lamberty

20 BUSINESS BRIEFS

22 COMMODITIES

24 DISTILLED

58 BUSINESS MATTERS Export Incentive Viable Option For Producers By Donna Funk

65 MARKETPLACE

Ethanol Producer Magazine: (USPS No. 023-974) February 2015, Vol. 21, Issue 2. Ethanol Producer Magazine is published monthly by BBI Interna-tional. Principal Offi ce: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offi ces. POSTMASTER: Send address changes to Ethanol Producer Magazine/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

EXPORTS Regaining Ground In 2015, will the industry again export 1 billion gallons of fuel ethanol? By Holly Jessen

MARKET DEVELOPMENT Opening Channels For Export A new partnership works to reduce trade barriers and other constraints By Susanne Retka Schill

28DDGS Beyond Boats to China Traders are cautiously optimistic about China lifting ban on Syngenta’s MIR 162 By Tom Bryan

34

FEATURES

PHOTO: KEVIN MAY, MARQUIS ENERGY

ON THE COVER

USE TotalFlex Capabilities Brazil’s Volkswagon Gol runs on any blend of ethanol up to E100 By Susanne Retka Schill

54

CORN Swings in Corn Supply, Demand Impact Global Markets Some factors limit U.S. corn exports, while others promote growth By Chad Hart

CONTRIBUTION

60

44

CLARIFICATION JMP, a data analysis software from SAS Institute, can import data from a variety of sources. The software was featured in “Putting Data to Work,” a story published in the January issue of Ethanol Producer Magazine.

For years, we’ve been told that cellulosic ethanol is a “fantasy fuel.” And it is.

So we’ve spent a decade planning, researching, and working hard to make that fantasy a reality.

And now it’s going to change the world. For real.

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Advanced Biofuels

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FOR INDUSTRY NEWS: WWW.ETHANOLPRODUCER.COM OR FOLLOW US: TWITTER.COM/ETHANOLMAGAZINE

There are a lot drivers behind today’s robust ethanol and distillers grains exports, but the abundance of cheap U.S. corn tops the list. Inexpensive corn, after all, yields competitively priced ethanol that easily competes in a global market hungry for octane and renewables. And because distillers grains is frequently shipped in combination cargos that include corn, ethanol’s principal coproduct often enjoys ride-along sales when corn is sold overseas.

In our page-44 cover story, “Opening Channels of Communication,” we learn that America’s last two corn harvests—both huge—played into the U.S. Grains Council’s decision to pursue federal funding and authorization to promote biofuels exports. EPM Senior Editor Susanne Retka Schill explains how and why the USGC teamed up in 2014 with the Renewable Fuels Association, Growth Energy and the USDA Foreign Agriculture Service to build global markets for U.S. ethanol. The landmark effort just got under way and it began with trips to Japan, South Korea, Panama, Peru, Singapore and Philippines.

In fact, Southeast Asia, writ large, is showing tremendous potential as a destination for U.S. ethanol exports, which are projected to top 800 million gallons in 2014 and could reach 1 billion gallons next year. In our page-28 feature, “Regaining Ground,” EPM Managing Editor Holly Jessen reports that Canada and Brazil remain the top takers of U.S. ethanol, but unlikely customers like United Arab Emirates and Peru, which sells ethanol into the EU, have signifi cantly boosted their purchasing. Notably, ethanol producers that export, like Illinois-based Patriot Renewable Fuels LLC, seem to share an understanding that exporting ethanol isn’t just a discretionary, side market of their primary product, but a critical outlet for the industry as a whole.

Our feature on distillers grains exports, “Beyond Boats to China,” on page 34, gauges the reactions of American traders following China’s late-2014 acceptance of MIR 162, the genetically modifi ed corn trait at the center of the country’s temporary pseudo ban on DDGS last year. Coming off a record 10 million metric-ton-exports year, DDGS marketers say it is great news that China is poised to buy the industry’s main coproduct again, but they’re also calling out their top foreign customer for being unreliable. Trust issues aside, the end of China’s DDGS timeout means the global market for the product is bullish once more, and prices refl ect it.

No doubt about it, China’s renewed acceptance of DDGS represents a rebound for the product's global market, but exporters are applying a disciplined approach to this vast opportunity. Simply put, marketers don’t want to get stung by China again, and many of them now refuse to blindly overserve the world’s top DDGS importer at the expense of steady foreign and domestic buyers.

EDITOR'S NOTE

More Volume, More Places

Tom BryanPresident & Editor in [email protected]

FEBRUARY 2015 | Ethanol Producer Magazine | 7

VOLUME 21 ISSUE 1

TM

EDITORIALPresident & Editor in Chief

Tom Bryan [email protected]

Vice President of Content & Executive EditorTim Portz [email protected]

Managing EditorHolly Jessen [email protected]

Senior EditiorSusanne Retka Schill [email protected]

News EditorErin Voegele [email protected]

Copy Editor

Jan Tellmann [email protected]

ARTArt Director

Jaci Satterlund [email protected]

Graphic DesignerRaquel Boushee [email protected]

PUBLISHINGChairman

Mike Bryan [email protected]

CEOJoe Bryan [email protected]

SALES

Vice President of OperationsMatthew Spoor [email protected]

Business Development DirectorHoward Brockhouse [email protected]

Senior Account Manager/Bioenergy Team LeaderChip Shereck [email protected]

Account ManagerJeff Hogan [email protected]

Sales & Marketing DirectorJohn Nelson [email protected]

Circulation ManagerJessica Beaudry [email protected]

Traffic & Marketing CoordinatorMarla DeFoe [email protected]

Customer Service Please call 1-866-746-8385 or email us at [email protected]. Subscriptions to Ethanol Producer Magazine are free of charge to everyone with the exception of a shipping andhandling charge of $49.95 for anyone outside the United States. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to 701-746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at 866-746-8385 or [email protected]. Advertising Ethanol Producer Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Ethanol Producer Magazine advertising opportunities, please contact us at 866-746-8385 or [email protected]. Letters to the Editor We welcome letters to the editor. Send to Ethanol Producer Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to [email protected]. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

COPYRIGHT © 2015 by BBI InternationalPlease recycle this magazine and remove inserts or samples before recycling

ADVERTISER INDEX2015 International Biomass Conference & Expo 422015 International Fuel Ethanol Workshop & Expo 502015 National Advanced Biofuels Conference 522016 National Ethanol Conference 59BetaTec Hop Products 15 Buckman 20CHS Renewable Fuels Marketing 13DuPont Industrial Biosciences 67Eco-Energy Inc. 51EcoEngineers 33Fagen Inc. 43Fluid Quip Process Technologies, LLC 63Growth Energy 2Hydro-Klean LLC 21ICM, Inc. 11Indeck Power Equipment 36INTL FCStone Inc. 32Iowa Economic Development Authority 64J.C Ramsdell Enviro Services, Inc. 56Lansing Trade Group 24Leaf Technologies 25Louis Dreyfus 40Mason Manufacturing, LLC 37Mole Master Services Corporation 48Nalco, an Ecolab Company 49Natwick Associates Appraisal Services 31Novozymes 17Pan American Hydrogen, Inc. 62Phibro Ethanol Performance Group 19POET-DSM Advanced Biofuels 5Renewable Fuels Association 41RPMG, Inc 38SGS North America, Inc. 47Solenis LLC 3Sukup Manufacturing 53Sulzer Pumps Solutions, Inc. 26Syngenta: Enogen 8-9The Greenbrier Companies, Inc. 68Thermal Refractory 46Tower Performance, Inc. 30U.S. Grains Council 39WestAgro Executive Brands 57WINBCO 27

Ironically, the latest breakthrough in the fi eld of energy, is a fi eld.While most innovation begins with the seed of an idea, the greatest advance in the making of ethanol starts with a seed. The � rst corn seed technology speci� cally developed to increase the efficiency of ethanol production, Enogen® corn can reduce costs by up to 10% and helps generate more ethanol per bushel than any corn feedstock ever grown. Recently named AgriMarketing’s Product of the Year, Enogen is de� nitely making waves in the � eld of energy.

© 2015 Syngenta. Enogen®, the Alliance Frame, the Purpose Icon, and the Syngenta logo are trademarks of a Syngenta Group Company. Syngenta Customer Center: 1-866-SYNGENT(A) (796-4368). www.FarmAssist.com MW 11114036-SP 12/14

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Ground Hog Day is Feb. 2 and it will be Punxsutawney Phil's 129th prognostication. No matter what the outcome, spring is just around the corner. Farmers across America will be getting equipment ready, buying seed and planning their planting regime for the coming year.

When businesses start up, expand or undertake a new venture, one of the key factors is an analysis of risk vs. reward. Farming is one of the few industries where the risk-reward ratio often does not apply. Yet, if we think about it, farming is one industry we literally could not live without. The risk farmers take every spring is almost like taking a trip to Vegas and putting everything they own on the craps table.

Despite the risk, agriculture has been one of the greatest success stories in the history of the world. The ethanol industry has been, and continues to be, the bearer of criticism for using corn as its primary feedstock. Yet with very few exceptions over the past 30 years, American agriculture has risen to the challenge of increased demand for food and fuel. American agriculture has played a significant role in reducing our dependence on foreign oil and improving our environment.

In 1900, the U.S. population was just over 76 million and it took 41 percent of our workforce as farmers to feed that population. Today the population is nearly 320 million and it takes about 1.5 percent of our workforce as farmers to feed us.

In the early 1900s, as many as 116 million acres were planted to corn to help feed those 76 million people. In 2014, 84 million acres of corn were planted to help feed 320 million people, plus exported

worldwide to feed millions more, as well as make a significant contribution to our nation’s fuel supply. So, if you are looking for a success story, look no further. Agriculture is America’s (the world's) winning hand, despite the risk. It is important to add that all of this has been done with far fewer chemicals and less water consumption than before, farming practices that minimize erosion and research that continues to produce better and better hybrids.

So, whenever I read something about food vs. fuel, it riles the hell out of me, because I know that American agriculture will, as it has for the past hundred-plus years, rise to the occasion. Every spring, farmers roll the dice and bet against the odds, and every year, food finds its way to the supermarket shelves to feed a growing global population.

Ethanol has been a great boon, not only to America as a whole, but to the American farmer. It has helped stabilize prices, helped rural communities survive and helped make farming just a little less risky. So I say, hats off to the American farmer. May 2015 be a year of great success. May the rains fall, the sun shine brightly and your harvest be bountiful.

That’s the way I see it.

Hats Off to the American FarmerBy Mike Bryan

Author: Mike BryanChairman, BBI International

[email protected]

THE WAY I SEE IT

National Ethanol ConferenceFebruary 18-20, 2015Gaylord Texan Resort &Convention CenterGrapevine, TexasThe NEC provides attendees with timely information on critical regulatory, marketing and policy issues facing the ethanol industry. Experts will speak to the current market situation, and address how we as an industry can continue to grow through innovation, new technologies and feedstocks, and by developing more diverse and global markets.202-289-3835 | www.nationalethanolconference.com

International Biomass Conference & ExpoApril 20-22, 2015Minneapolis Convention Center, Minneapolis, MinnesotaOrganized by BBI International and produced by Biomass Magazine, this event brings current and future producers of bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries. 866-746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & ExpoJune 1-4, 2015Minneapolis Convention Center, Minneapolis, MinnesotaThe FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine.866-746-8385 | www.fuelethanolworkshop.com

National Advanced Biofuels Conference & ExpoOctober 26-28, 2015Hilton OmahaOmaha, NebraskaProduced by BBI International, this national event will feature the world of advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry.866-746-8385 | www.advancedbiofuelsconference.com

EVENTS CALENDAR


Policy wonks and regulatory agencies have long had an affinity for predictive computer models. The allure is understandable. Assumptions and hypothetical scenarios chosen by the user can be fed into a model, processed through a series of complex equations and algorithms, and—voila—tidy results are spit out the back end. Certainly, these models can be useful in guiding policy and regulatory development. But too often, regulators treat these models as “answer machines” and use them as tools for rigid regulatory enforcement. And, frequently, the results from these models just don’t make any sense when compared to real-world data and observations. Two prime examples of the disconnect between model results and reality have surfaced in recent months.

First, a new study by economists at Iowa State University exposed the absurdity of the results from economic models used by the California Air Resources Board to estimate indirect land use change (ILUC) emissions for biofuels regulated under the Low Carbon Fuel Standard. The Iowa State study found that farmers around the world have responded to higher crop prices in the past decade mainly by using existing land resources more efficiently, not by converting forest and grassland into cropland. According to the paper, “the primary land use change response of the world’s farmers in the last 10 years has been to use available land resources more efficiently rather than to expand the amount of land brought into production. This finding is not new ... however, this finding has not been recognized by regulators who calculate indirect land use.”

In response, CARB staff told stakeholders that looking at real-world land use data is “not productive.” In other words, the agency would rather regulate biofuels based on predictive model results rather than real-world outcomes. Indeed, CARB recently proposed new ILUC penalties for biofuels that entirely ignore the results of the Iowa State research in favor of new computer modeling results. Because every point of carbon intensity under the LCFS means dollars and cents to ethanol producers, CARB’s blind faith in computer modeling has real financial consequences for our industry. Fortunately, Oregon regulators working on their own LCFS program seem to understand that the real world matters. They recently elected to exclude ILUC, stating that “recent data has shown that both food (human and animal) and fuel

production has increased while the amount of land farmed has stayed constant.”

The second recent example of trusting models over real-world experience is a paper published by University of Minnesota researchers. Using a black box computer model and a series of questionable assumptions, the study asserts that increased ethanol use would cause higher emissions of ozone and fine particulates (PM2.5). But there’s one little problem with this finding: actual data from 222 U.S. EPA air sensor sites show that ozone and PM2.5 concentrations have trended downward during the period in which the use of ethanol-blended gasoline has dramatically increased. Ozone concentrations have fallen 33 percent since 1980, while PM2.5 is down 34 percent since 2000. In recent years, both ground-level ozone and PM2.5 emissions have dropped below their respective national standards, according to EPA.

Further, there is a substantial body of evidence based on actual tailpipe testing that shows ethanol reduces both exhaust hydrocarbons and carbon monoxide emissions, and thus can help reduce the formation of ground-level ozone. After all, ethanol’s high oxygen content and ability to reduce exhaust hydrocarbons and carbon monoxide emissions is the primary reason it is used as an important component of reformulated gasoline in cities with high smog levels. In addition, studies have shown that increasing the oxygen content in gasoline reduces primary PM2.5 from the tailpipe.

Again, I’m not suggesting that all computer models are useless and should be ignored. Model results can be instructive, but they should be validated with empirical data whenever possible. Computer models can and should be used to fill knowledge and data gaps, but where concrete real-world data and observations exist, they should take precedence. Sound policymaking and regulation must be grounded in reality, not hypothetical fancy. If there are data points available on actual global land use responses to higher crop prices during the biofuels era, why not see what we can learn from them? If we have air quality data from air sensors across the country, and results from actual tailpipe emissions studies, why not use that information to shape our understanding of ethanol’s impact on air quality? Models are fine, but insight and wisdom gained from real-world data and experience are simply irreplaceable.

Time For a Reality Check On Computer Models By Bob Dinneen

VIEW FROM THE HILL

Author: Bob DinneenPresident and CEO,

Renewable Fuels Association202-289-3835

JOB #: 53528 Print Scale: NoneCLIENT CODE: CHST03 Version: NoneCLIENT: CHS

Description: Renewable Fuels Ad, Seamless EthanolPublication: Ethanol ProducerDocument Name: 53528_2014_CHS_AD_Renewable-

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Cyan Magenta Yellow Black

GCD: Dustin Black AD: KB CW: CP AE: AK/JC PM: John Zegoski PA: Kara NielsenTE

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In unity there is strength, and there is tremendous unity within the ethanol industry. As a proud partner of the Fuels America coalition, Growth Energy is working closely with all stakeholders in the industry to succeed and break though the blendwall. Our industry is also coming together to make 2015 the year of E15.

First-generation producers, second-generation producers, farm groups, seed companies, equipment manufacturers, enzyme companies and a whole host of others have joined together in pursuit of a common goal—improving our nation’s energy security, national security, environment and economy. All this while giving consumers a choice and savings at the pump. No one individual can accomplish these ambitious goals alone. It takes a team and, unquestionably, we have the best.

Each day, the strength of our voice and the reach of our story grows. Hardworking individuals in the Heartland are being heard from Washington state to Washington, D.C., as we have engaged in grassroots activism with top officials and lawmakers. You took part in our Step Up to the Plate campaign, as well as other grassroots campaigns, which energized and encouraged farmers, vendors, consumers and community leaders who benefit from our industry to speak up and advocate for ethanol.

Many of you even made the journey to Capitol Hill to sit down and share our industry’s story with policymakers in person. It is essential that Congress understands how important the renewable fuel standard (RFS) is for our nation, and no one communicates this message better than you. You are the heart of our industry, and I’d like to thank everyone who took the time out of a busy schedule to advocate for the industry. It truly made a difference. With our combined efforts, no legislative changes were made to the RFS in 2014.

Additionally, a terrible proposed rule from the U.S. EPA regarding the 2014 RFS renewable volume obligation (RVO) numbers was sent back to the drawing board after our industry overwhelmingly rose in unity against a shortsighted policy. That proposal would have taken our nation backward. Although the delay in announcing the 2014 RVOs is disappointing and the uncertainty created by it is frustrating, the most

important part is that EPA gets it right. We commend the agency for listening to all stakeholders and revisiting the rule.

The momentum for high-performance, low-cost renewable fuels is unstoppable. Stations offering E15 will continue to pop up across the nation as we work together to make it a standard offering at the pump. Nationwide, moving to E15 will create another 136,000 American jobs that can’t be outsourced, reduce our demand for foreign oil by 7 billion gallons and reduce greenhouse gas emissions relative to regular gasoline, all while saving consumers between 5 and 15 cents per gallon at the pump. Currently, E15 is available at more than 100 stations in 15 states: Alabama, Arkansas, Florida, Illinois, Iowa, Kansas, Michigan, Minnesota, Missouri, North Carolina, North Dakota, Nebraska, Ohio, South Dakota and Wisconsin. We know that it’s only a matter of time before E15 is offered in every state in the nation, and we know that we’re going to get to that point by working together.

Through efforts, like Prime the Pump, our industry is working to get higher blends into the marketplace. 2015 is going to be the year we are going to see E15 break through and break down the blendwall. Market development is critical and we are seeing continual growth and adaption of E15 by savvy retailers who understand that consumer choice and savings will drive more business to their stores.

We are united by an unwavering belief in the U.S. ethanol industry and its ability to feed the world and fuel America. Together we will continue to grow, enter into new markets, create new coproducts and break down that mythical blendwall once and for all. Our friends in the oil industry may have deep pocketbooks, but we have the facts, the momentum and the numbers on our side. When we put all of our energy and resources toward a common goal, there is nothing that can stop us.

All of our accomplishments would not have been possible without each and every one of our members and industry supporters, and for that, I am deeply thankful. It is a true privilege to work with such a passionate, talented and driven group of people. The dedication and determination of our industry is unmatched and will take us far. I can’t wait to see what great things we will accomplish together in 2015!

Author: Tom BuisCEO, Growth Energy

[email protected]

DRIVE

2015 – The Year of E15 By Tom Buis

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‘I Wish Someone Would Do Something About How Fat I Am’ By Ron Lamberty

The title above is stolen from a story in the satirical newspaper, The Onion, about a guy who is disgusted that he’s hugely fat, and is even more disappointed that no one—not the government, medicine or people working at fast-food joints—seems to be doing anything to make him thin. And while I would love for someone to make me thin, this column is about the attitude displayed in that story, not the subject. You’ll see. I promise.

The series of events that drew that story from my memory bank started with a really good deal I got on a used car. I drove it to work to check it out before I let one of my kids have it, but that made me unsure I wanted to give it up. It’s really fast, has a great sound system, rear wheel drive and manual transmission, and driving a stick makes me feel superior to all the less accomplished drivers on the road.

But that feeling of superiority disappeared when I got the car stuck in a snowbank recently. We got some snow at the American Coalition for Ethanol headquarters one day, and that evening, two drifts formed at the top of the driveway coming out of our garage. I got the car unstuck from one drift just in time to promptly get stuck in the other nearby drift. And when I eventually rocked the car loose from that one, I slid down the driveway and was engulfed by a much larger snowbank.

Fortunately, I joined AMCM Motor Club a couple weeks earlier, and I called them to come and pull me out of the snowbank. I didn’t want to admit to family and friends that I can no longer handle my rig in a minor snowstorm. For those unfamiliar with AMCM, they are the auto club that, along with affiliated company Travelers Motor Club, issued a press release last fall, saying that despite AAA’s “warnings” and anti-E15 efforts over the past two and a half years, not one of the 18 million members of AMCM or Travelers auto clubs had ever reported a problem with E15. They even encouraged anyone with a car approved by the U.S. EPA or the manufacturer to use E15, to buy it with confidence.

Sitting in the car, waiting for a tow truck, I had an opportunity

to try one more time to form a civil answer to an infuriating question that I had started and stopped answering several times that day. A member had asked for some reasons and, or statistics to convince other ethanol supporters to join AMCM Motor Club instead of AAA. Hell, that was my best reason—AMCM isn’t AAA.

AMCM motor club costs $35 a year for four drivers, and AAA charges four or five times that much. And how about these stats: Number of AMCM press releases telling drivers not to use E15: Zero. Number of dollars AMCM has spent lobbying Congress to stop E15: Zero. Number of times the AMCM CEO has testified to Congress urging suspension of E15 sales: Zero.

When AMCM and Travelers Motor Clubs first talked to us about their E15 findings, we encouraged them to publicize it. Ethanol supporters need that information to refute AAA’s E15 disaster “predictions,” (not a single one of which has proven to be correct, by the way). I also thought—given the number of ethanol folks who were infuriated about AAA’s anti-E15 statements and other ethanol opponents’ exploitation of those statements—that literally thousands of ethanol supporters would jump at the chance to dump AAA (if they hadn’t already) and join AMCM Motor Club.

When I confidently asked AMCM how many people had taken advantage of the biofuels discount a couple weeks after AMCM’s announcement of its support for E15, it wasn’t the thousands I had hoped. It wasn’t hundreds either. It wasn’t even one hundred. It was embarrassing. In fact, the number of new AMCM “biofuels members” was less than one-third the number of emails I received over the past two years that said, “I wish someone would do something about how mad I am at AAA.”

Fortunately, the tow truck arrived 38 minutes sooner than I was told it would get there. The driver hooked me up and pulled me out of the snowbank, giving me the answer to the last concern some people have mentioned. Service. AMCM’s service worked just fine.

Now, I wish someone would do something to thank AMCM for their support of E15.

Author: Ron LambertySenior Vice President

American Coalition for Ethanol605-334-3381

[email protected]

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DuPont has upgraded its membership to the Renewable Fuels Association and will now sit on the RFA governing board. DuPont has been an associate RFA member for more than 10 years.

Rockwell Automation Inc. has pur-chased the assets of ESC Services Inc., a global hazardous energy control provider of lockout-tagout services and solutions. Frank-lin, Wisconsin-based ESC Services will be in-tegrated into Rockwell Automation’s Control Products & Solutions segment as part of its customer support and maintenance business unit.

The government of India’s Department of Biotechnology, Indian corporate leaders and Washington University in St. Louis have invested $2.5 million to launch the Indo-U.S. Advanced Bioenergy Consortium for Sec-

ond Generation Biofuels, a joint binational center led by Jawaharlal Nehru University, the Indian Institute of Technology in Bom-bay and Washington University.

U.S. Water Services Inc. has been rec-ognized by the California Governor’s Office of Business and Economic Development with the California Game Changer Com-pany of the Year Award. California facilities are aiming to reduce water use by 20 percent by 2020 in an effort to conserve freshwa-ter resources. U.S. Water has been working with California agriculture, medical centers and businesses to integrate solutions that combine chemical, equipment, engineer-ing, automation and service to help facilities achieve water reduction goals. The award recognizes individuals and companies that have made a significant impact on the state.

Louis Dreyfus Commodities has an-nounced the appointment of Mayo Schmidt as CEO, effective Jan. 5. Schmidt will suc-ceed interim CEO Claude Ehlinger, who will continue in his existing roles of chief

financial officer of Louis Dreyfus Com-modities and nonexecutive chairman of the board of Biosev. Ehlinger will also serve as deputy CEO of Louis Dreyfus Commodi-ties. Schmidt previously served as president and CEO of Viterra Inc. and has held posi-tions at ConAgra Foods and General Mills.

The National Corn Growers Associa-tion has promoted Joe Hodes to director of development. Hodes served as marketing manager at the NCGA for seven years. In his new roles, Hodes will oversee the organiza-tion’s development, industry relations, grass-roots advocacy and membership service func-tions, including serving as staff lead for the Grower Services Action Team and the NCGA

BUSINESS BRIEFS People, Partnerships & Deals

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tailoring chemistries to boost production and increase profitability — from evaporator efficiency to corn oil recovery to water treatment issues. To find out more or to schedule a system audit, contact your Buckman representative or email [email protected].

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Hodes Abney


Agri-Industrial Council. In addition, Rita Abney has joined NCGA as the marketing administrative assistant in the St. Louis office. Abney recently served as group sales manager for the Hilton St. Louis Frontenac and will support Hodes and others in projects related to development, state relations, membership, NASCAR and grassroots activism.

The International Association for Continu-ing Education and Training has awarded re-accreditation status to Siemens. IACET au-thorized providers are the only organizations approved to offer IACET continuing educa-tion units. The accreditation period extends for five years, and includes all programs of-fered or created during that time.

The Iowa Renewable Fuels Association has honored three Iowa state legislators leaving their posts in 2014 with the Lifetime Cham-pion of Renewable Fuels award for their long,

distinguished careers and steadfast support of renewable fuels. The recognized legislatures include state Sens. Daryl Beall, Nancy Boett-ger, and Hubert Houser.

Alex Toro has been named director of en-gineering at Aventine Renewable Energy Inc. He will lead the engi-neering departments of the company’s four ethanol plants, including a 100 MMgy wet mill plant and a 60 MMgy

dry mill plant in Pekin, Illinois, and a 110 MMgy dry mill plant and a 45 MMgy dry mill plant in Aurora, Nebraska. Toro serves as a technical resource in all aspects of opera-tions, project engineering, capital investment, environmental compliance, process improve-ments and expansion projects. Most recently he served as director of process engineering for Solazyme Inc. He also previously worked for Aventine, which was then known as Williams Bio Energy.

Ag Growth International, a manufacturer of portable and stationary grain handlings, storage and conditioning equipment, has launched a multilingual version of its website, providing information in both English and Russian. The site allows customers to flip eas-ily from both languages while accessing AGI’s complete product portfolio as well as informa-tion on worldwide site installation projects the company has participated in. Visitors to the site will also be able to easily access details to reach the right sales person for their inquiries. AGI’s website will soon be available in Portu-guese and Spanish as well.

Dynamic Recycling LLC has announced it has made several upgrades to its distilled spirits plant in Abingdon, Virginia. The company revamped the facility’s distillation column reboiler process and increased flow through the facility’s mechanical vapor recom-pression evaporator. The plant converts liquid wastes, including waste beverages, into renew-able fuels.

Toro


Dec. 19—Domestic dry gas production stairstepped its way to new output records month after month in 2014, easing concerns about in-ventory levels and quietly raising questions about the sustainability of prices above $4 for 2015. Weak demand to start the winter was sufficient to start prices tumbling by mid-December. However, despite the bear-ish picture for the start of the New Year, crumbling oil prices suggest serious headwinds for ongoing supply growth, perhaps as early as the second half of 2015. The upcoming year is looking encouraging for the consumer of natural gas but the assessment is not an unqualified posi-tive. In the short run, however, it’s hard to imagine a better scenario for the end-user.

While supply growth is putting downward pressure on prices in the short term, there is a dark cloud lurking on the horizon. One of the key factors driving the fantastic gains in U.S. natural gas production has been the colocation of natural gas with other hydrocarbons that are priced based on the value of crude. With West Texas Intermediate Crude prices tumbling from over $100 per barrel to below $60 per barrel, the incen-tive to drill for crude has taken a substantial hit, and the gas market can

expect to feel the reverberations as associated gas production falls. Iden-tifying the timing of the impact of lower crude prices on gas production is uncertain, but as supply growth slows, and demand catches back up, upward pressure on prices will return to the gas market.

Natural Gas Report

Corn Report

Dec. 19—The corn market has been on a bull run since the low was posted at the end of September. Corn consumptive end-users were experiencing profitable margins but the reallocation of commodity prices has seen forward profitability decrease. The end result may limit upside opportunities of corn. Other factors influencing corn have been China’s acceptance of GMO feed grains and oilseeds and political and economic issues impacting Eastern Europe. Furthermore, rapidly de-clining energy prices could limit upside potential for corn.

The USDA left corn acreage and yield unchanged in the December report, thus total supply was steady at 15.668 billion bushels. Usage was relatively unchanged except there was an increase of 10 million to the food, seed and industrial sector, excluding ethanol. Ultimately carryout fell just under the 2 billion bushel mark. Corn usage for ethanol was left unchanged at 5.15 billion bushels versus 5.134 billion bushels a year ago. World corn carryout increased by 0.7 mmt to 192.20 mmt. This com-pares to 172.84 mmt a year ago and 137.80 mmt in 2012/’13.

Traders will be looking for anticipation of changes to acreage and yield in the January USDA report. Leading up to that report be ready for some choppy and volatile trades. The managed money has increased length into the fourth quarter and positioning may be critical to the mar-

ket after the New Year. But there is a legitimate fundamental to support downside pressure: the cash market. Robust demand and slow producer movement may limit downside opportunities. Traders expect this mar-ket to stay on either side of $4.

Natural gas price trends encouraging for consumer by Ben Straus

Corn market expected to hover around $4 by Jason Sagebiel

COMMODITIES Prices & Market Analyses


DDGS Report

Ethanol Report

Dec. 19—Ethanol supplies are be-coming much more manageable at the end of the year. This has lessened concern about gaining access to needed gallons and sparked aggressive price pressure in all eth-anol markets.

Ethanol futures prices have fallen 64 cents per gallon over the past month. This has buyers, sellers and analysts looking away from the corn market and more at RBOB gasoline and energy market moves.

Currently, spot month ethanol prices are still holding an 8-cent premium to the spot RBOB gasoline contract. This rela-tionship is likely to erode after the first of the year, as demand for ethanol will start to lessen if ethanol supplies are not priced under gasoline market prices in the long term.

Dec. 19—Just before Christmas it looked as though the Chinese had given the market an early present with the an-nouncement of the approval of MIR 162. As of this writing, there has been no of-ficial pathway presented to obtain import container permit, but the market is trading as though that is right around the corner.

The market had begun its apprecia-tion in value at the end of the first week in December, with the bulk market rising about $40 a ton, with widespread buying. Now, several weeks later, we are starting to see some stalling out of prices in the delivered markets like California, which had been demanding DDGS due to lack of competitive protein prices. Imports of things like canola meal from both Canada and Europe have dropped the basis about $75 a ton. Mexico, however, had not seen that kind of move, and still have been buy-ing a lot of rail DDGS. There still has not

been many, if any, container bookings to China, but the market is expecting it in the first quarter.

Looking ahead, we will have to see how the domestic market reacts to the price run up. DDGS is now priced well above the price of corn, in some places 120 to 130 percent (up from 90 percent in November). Another factor is how well railcars move in the system. Local trucks have been a huge discount to rail netbacks for ethanol plants due to the in-ability of plants to load everything out on rail. However, if cars move quicker—and we have seen them start to—it is less tons that must be sold to that local market. In the end though, the speed of the Chinese market’s ability to begin shipping product again with regularity is going to influence prices the most.

Regional Ethanol Prices ($/gallon)Front Month Futures (AC) $1.6150Region Spot RackWest Coast 1.775 1.950Midwest 1.750 2.048East Coast 2.070 2.449

SOURCE: DTN

Regional Gasoline Prices ($/gallon)Front Month Futures Price (RBOB) $1.535Region Spot RackWest Coast 2.013 1.683Midwest 1.988 1.837East Coast 2.083 1.752

SOURCE: DTN

DDGS Prices ($/ton)LOCATION Feb 2015 Jan 2015 Feb 2014Minnesota 160 95 215Chicago 195 125 245Buffalo, N.Y. 200 130 250Central Calif. 242 195 287Central Fla. 225 160 281

SOURCE: CHS Inc.

Corn Futures Prices (Dec Futures, $/bushel)Date High Low CloseDec 19, 2014 4.11 1/4 4.05 4.10 1/2Nov 24, 2014 3.85 3/4 3.78 1/4 3.80 1/4Dec 19, 2013 4.31 4.24 1/4 4.30 1/2

SOURCE: FCStone

Cash Sorghum ($/bushel)Location Dec 19,

2014Nov 20,

2014Dec 19,

2013Superior, Neb. 4.61 4.21 4.19Beatrice, Neb. 4.21 3.68 4.01Sublette, Kan. 4.22 3.55 4.18Salina, Kan. 4.60 4.18 4.34Triangle, Texas 4.13 3.81 4.23Gulf, Texas 5.88 5.43 5.33

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu)LOCATION Sep 30,

2014Dec 26,

2014Dec 26,

2013NYMEX 4.12 3.01 4.43NNG Ventura 3.99 2.84 4.76Calif. Citygate 4.40 2.83 4.62

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production (1,000 barrels)Per Day Month End Stocks

Oct. 2014 924 28,641 17,265Sept. 2014 919 27,577 18,660Oct. 2013 903 27,995 15,569

SOURCE: U.S. Energy Information Administration

DDGS priced well above corn by Sean Broderick

Gasoline prices influence ethanol market by Rick Kment


DISTILLED Ethanol News & Trends

In December, the U.S. Energy Informa-tion Administration announced that the U.S. ethanol industry had set a new monthly average production record in November, with produc-tion averaging 963,000 barrels per day during the month. The previous monthly average pro-duction record was set in December 2011, with an average production level of 959,000 barrels per day.

On a weekly basis, three new production records were set in the final weeks of 2014. The first was set in November, with produc-

tion averaging 982,000 barrels per day the week ending Nov. 21. The previous weekly average record of 972,000 barrels per day was set the week ending June 13.

The weekly record set in November, how-ever, didn’t last long. In December, EIA data indicated three new weekly records were set. Production averaged 988,000 barrels per day the week ending Dec. 5, 990,000 barrels per day the week ending Dec. 12, and 992,000 barrels per day the week ending Dec. 19.

US ethanol industry sets new production records

The U.S. Department of Energy has award-ed $7 million to two projects aimed at develop-ing and demonstrating ways to reduce the cost of delivering biomass feedstocks to biorefineries.

The State University of New York-College of Environmental Science and Forestry of Syra-cuse was awarded $3.5 million to lower the deliv-ered cost of short rotation woody crops; rapidly, accurately, and reliably assess feedstock quality, and improve harvest and preprocessing opera-tions to produce feedstocks that meet key biore-finery specifications.

An additional $3.5 million was awarded to the University of Tennessee of Knoxville, where researchers will study how blending feedstocks could play a role in increasing the amount of available feedstock within a given delivery radius. The project will develop and demonstrate a state-of-the-art biomass processing depot to reduce sources of variation along the supply chain of multiple, high-impact biomass sources and de-liver a consistent feedstock optimized for perfor-mance.

DOE funds 2 feedstock logistics projects

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Report predicts high cost of DOT rail rule A report prepared by The Brattle Group, an economic research firm, shows that

the proposed U.S. Department of Transportation rule on rail tank cars could cost the economy as much as $60 billion. That includes billions of dollars in costs to the ethanol industry.

According to the report, the proposed regulation would have substantial costs for the ethanol industry, not only for retrofitting the existing tank car fleet, but in added costs as product movement shifts to trucks during the modification process. The report forecasts the impact to the ethanol industry will reach its peak in 2019, with costs reaching nearly $5.3 billion during that year.

The costs are expected to decline as retrofits proceed, however. Within the re-port, the authors predict annual costs to the ethanol industry could remain above $1 billion through 2021.

DISTILLED

Novozymes has launched Eversa, a new en-zyme for the conversion of lower-grade oils, such as waste cooking oil or corn oil, into biodiesel meeting the same trade specifications as biodiesel created through traditional chemical processing.

“The flexibility of the enzymatic biodiesel process creates new opportunities for ethanol producers to optimize revenues from extracted corn oil by making biodiesel onsite while also accepting waste greases from their local commu-nity,” said Frederik Mejby, Novozymes marketing director, grain processing. “The process can be easily bolted onto the back end of their existing facility with minimal additional capex (capital ex-penditure).”

The idea of enzymatic biodiesel is not new, said Mejby, but the costs have been high. “Eversa changes this and enables biodiesel producers to finally work with waste oils and enjoy feedstock flexibility to avoid the pinch of volatile pricing,” he added.

Some advantages of the enzymatic biodiesel production process include lower energy require-ments, and the elimination of a chemical catalyst, which Mebjy said can lead to safer working condi-tions for plant operators.

Novozymes releases Eversa enzyme

After a decade of presence within the industry through Fermentis, Lesaffre is proud to launch Leaf Technologies a business unit dedicated to serve the fuel ethanol and bio based chemicals producers. With Leaf Technologies we are starting a new path in our development with the will to offer our partners more

specialized products and services, to continue innovating in the field of first and second generation ethanol and to exceed the industries expectations. Based on our expertise in genetics, scaling up, fermentation, yeast production and through technical support we will be focused on turning science into industrial reality.

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Flammable liquids tank car fleet projected for 2015Ethanol Crude oil and other

flammable liquids Nonjacketed legacy DOT-111 27,037 47,880Jacketed legacy DOT-111 88 16,429Nonjacketed CPC-1232 751 24,937Jacketed CPC-1232 23 37,383Total 27,899 126,719

SOURCE: THE BRATTLE GROUP


On Dec. 2, the USDA announced more than $5.6 million grant payments to 220 producers under the Advanced Bio-fuel Payment Program. An additional $4 million in grants were awarded though three programs supporting bioenergy initiatives under the USDA’s National In-stitute of Food and Agriculture. Organi-zations that received NIFA funds include South Dakota State University, Iowa State University and the Biodiesel Fuel Educa-tion Program.

Nearly 20 ethanol producers received payments through this round of the Ad-vanced Biofuel Payment program. The program, which was established by the 2008 Farm Bill, provides payments to eligible producers based on the amount of advanced biofuel pro-duced from renewable biomass, other than corn kernel starch. Since the program began, the USDA has made more than $280 million in payments to more than 350 producers.

DISTILLED

USDA awards advanced biofuel payments, announces bioenergy grants

Trestle Energy’s fuel pathways win approval in British Columbia

A new approach developed by Trestle Energy LLC to driving down the carbon intensity of corn ethanol has received approval from the British Co-lumbia Ministry of Energy and Mines.

Trestle Energy has announced three of its pathways were given approved carbon intensities of 29.10, 29.68 and 35.66 grams CO2 equivalent per megajoule (CO2e/MJ). That compares with an average rating of 55 CO2e/MJ for the 15 Midwestern ethanol producers that have received carbon intensity ratings under British Columbia’s Renewable and Low Carbon Fuel Requirements Regulation. The ratings are comparable with the 33.31 CO2e/MJ carbon intensity rating given to Peruvian sugarcane-ethanol producer, Maple Bio-combustibles.

While Trestle Energy President Jamie Rhodes was unable to release details of the approach, he did indicate the pathways leverage carbon intensity reductions in the agricultural sector.. The com-pany has a pathway petition pending with the U.S. EPA and has applied for a carbon intensity rating under the California Low Carbon Fuels Standard.

Ethanol producers that received more than $10,000 in Advanced Biofuel Payments include:Arkalon Ethanol LLC

Aventine Renewable Energy Inc. Bonanza Bioenergy LLCCentral Indiana Ethanol LLCDiamond Ethanol LLCKansas Ethanol LLCPacifi c Ethanol Holdings Co. Prairie Horizon Agri-Energy LLCPratt Energy LLCWestern Plains Energy LLCWhite Energy Inc. SOURCE: USDA

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Environmental Entrepreneurs (E2) recently released its third quarter clean en-ergy jobs report, reporting that 18,035 clean energy and clean transportation jobs were announced in 23 states during the quarter. This includes 849 jobs in the advanced biofuel sector, which is the second-highest quarterly performance for the sector since E2 began tracking jobs in 2011.

According to E2, the top nine states for clean energy job announcements during

the quarter were Nevada, New York, Cali-fornia, Colorado, North Carolina, Michi-gan, Connecticut, Louisiana and Texas. Il-linois and Maryland tied for tenth.

The single largest biofuel announce-ment came from Sierra Biofuels, which is building a 10 MMgy biorefinery in McCar-ran, Nevada.

E2 quarterly report shows strong growth for biofuel jobs

New distillation technology ready for pilot-scale testing

DISTILLED

A new ethanol distillation technology un-der development by Distillation Technologies Inc. is ready for pilot-scale testing. CEO Dick Burton and his brother Sam Burton have spent seven years developing the technology, which is trademarked Bubble Spray Distillation.

According to the company, the proof of concept was achieved at bench scale with the help of the Midwest Research Institute and Aerosol Research and Engineering. A patent has been received for the ethanol distillation con-cept, and a second patent covering a method for water purification is pending.

Burton said the distillation system operates at 104 degrees Fahrenheit, producing 99.5 per-cent alcohol in one pass. The system has been calculated to achieve energy savings of 75.6 percent when compared to standard distillation systems. With the proof of concept established at bench scale, the brothers are looking for part-ners to test the concept at pilot scale.

Q3 clean energy and clean transportation jobsSector No. of jobs No. of job announcements Renewable Energy 6,094 25Biofuel 849 6Manufacturing 9,892 7Other 2,049 9

SOURCE: ENVIRONMENTAL ENTREPRENEURS


ACCESS TO RAIL: Patriot Renewable Fuels, located near Annawan, Illinois, less than 150 miles from Chicago, is situated on an Iowa interstate short line that connects to Class I railroads. Its products, some for export, ship to the Gulf Coast and the East Coast. PHOTO: CHICAGO STREET PHOTOGRAPHY

EXPORTS


Year-end U.S. fuel ethanol exports are expected to exceed 800 million gallons, second only to the record-breaking 1.19 billion gallons exported in 2011. By Holly Jessen

EXPORTS

Since startup in 2008, 10 percent or more of the ethanol produced at Patriot Renewable Fuels LLC has been exported. Judd Hulting, plant commodity manager, emphasizes the plant’s proactive strategy to exports. It’s an approach he believes more ethanol producers need to adopt. “We need to be more proactive and do what we can to open new markets, expand markets and educate, whether it’s the consumer in America or the consumer in any of these destination markets,” he says.

The 130 MMgy plant exports the majority of the distillers grains produced there and the amount of fuel ethanol exported is growing. To handle production of anhydrous ethanol for export markets and also meet domestic specifi cations, the company has installed addi-tional mole sieves. “We continue to believe exports are very impor-tant, not only for our business but for the whole ethanol industry,” he says.

Patriot Renewable Fuels has participated in U.S. Grains Council-led trade missions overseas and has hosted foreign distillers grains buyers at its plant, something Hulting would like to also offer to

Regaining Ground Regaining Ground Regaining

fuel ethanol buyers from other countries. “You’ve got to go out there and meet those customers, face to face, shake their hand, and at the same time, welcome them back to your plant and your local commu-nity and develop that trust,” he says.

Green Plains Inc. is another ethanol producer that sells its fuel into the ex-port market. During the company’s Oct. 28 third-quarter fi nancial results call, Todd Becker, president and CEO, said a minimum of 15 percent of its fourth-quarter ethanol production had already been sold into export markets. “We have volumes sold and destined to India, the Philippines, Brazil and other developing countries, along with our normal buyers like Canada and others,” he said. “Inter-estingly enough, we're booking export sales into 2015, extending into the third quarter.” This is not typical, he said, add-ing that Green Plains has more gallons booked ahead for export than it’s had in the history of the company.

Becker also talked about how the specs for export gallons actually result in slower production speeds for Green Plains. “I don't think people think about that, but there is defi nitely an inverse re-lationship because of the water spec that we have to produce,” he said during the call.

Ideal Combination It’s been an interesting year for ex-

ports for the industry as a whole. “We have seen demand growth in a number of existing markets, places where we have

been exporting for the last several years, but we have also seen the emergence of several new markets,” says Geoff Cooper, senior vice president of the Renewable Fuels Association.

Looking at the data through October, the latest numbers available at press time, year-to-date exports sat at 669.3 million gallons, roughly 40 percent higher than exports through October in 2013. By the end of the year, the U.S. ethanol industry is expected to export about 803 million gallons, the RFA estimated, considering that exports are typically up in the fourth quarter, following seasonal patterns. “I think we could be as high as 825 or 830 million gallons, somewhere in that range,” Cooper said in December, adding he ex-pects continued growth in 2015. “Based on what we know today, we would ex-pect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.”

On the import side, only 67.5 million gallons of ethanol from other countries had come into the U.S., through October. In fact, imports have averaged less than 7 million gallons per month. This puts the U.S. in the net exporter category, a title it had held 14 months consecutively at that time.

Cooper pointed to two factors for growth in exports. One is the price of ethanol, which created favorable blending economics for the high-octane fuel. A sec-ond stimulant is demand created in coun-tries with renewable energy programs. “In

EXPORTS

‘Based on what we know today, we would expect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.’


many cases, their local or domestic capac-ity isn’t adequate to meet the requirements or targets of those programs so the alter-native is to import from countries that have surplus capacity,” he says.

Max Thomasson, director of global ethanol trading at CHS Inc., sees the same thing. “There’s been an increase in ex-ports with the cheap price of ethanol on the forward curve, which is brought about mostly by relatively cheap corn,” he says.

CHS has offices in Brazil, Switzer-land and Singapore, and exports U.S. ethanol to Brazil and Asia, primarily the Philippines. “That demand has grown by about 12 percent, year on year, for the last three years, which is driven by gov-ernment mandates in the Philippines,” he says, adding that the company has ex-clusive marketing agreements with eight ethanol plants and also owns the 133 MMgy plant in Rochelle, Illinois. After

first sourcing from those nine plants, CHS purchases ethanol from third-party sellers for export.

By the Numbers Like last year, Canada is on pace to

be the No. 1 export destination for U.S. ethanol, Cooper says. Through October, the nation’s neighbor to the north was the destination for 44 percent of total U.S. ex-ports. Brazil was in the No. 2 slot, import-ing nearly 80 million gallons through Oc-tober, nearly double the total for last year. “We don’t really know exactly how things are going to go with Brazil until we know what their sugar crop looks like every year, and their market dynamics, whereas Canada has been much more consistent,” he says.

Exports to Canada, Brazil and the European Union helped the U.S. cross the record-setting 1 billion gallon mark in

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SPECIAL DELIVERY: CHS Inc. contracts with independent ship owners to transport ethanol to overseas markets. The tankers, like the one shown here, delivering to Brazil, haul a mixture of vegetable oils, ethanol, caustic soda and other chemicals. PHOTO: CHS INC.


2011. In all, about 800 million gallons went to those three markets alone, Cooper says. Then, exports dropped 38 percent from 2011 to 2012 and another 16 percent from 2012 to 2013. Two of the biggest impacts were a rebound in the Brazilian sugar and ethanol sector and the EU tariff placed on ethanol imported from the U.S.

Interestingly, U.S. ethanol is still mak-ing its way to the EU, most of it via Peru, which doesn’t have to pay the tariff, Cooper says. In 2013, Peru was the fi fth largest mar-ket for U.S. ethanol. Although the numbers are down somewhat this year, the country does continue to import U.S. ethanol, the majority of which then ends up in the EU. It’s a pattern of shuffl ing products around that develops as a result of trade barriers and restrictions on free trade. “Obviously the solution would be to not have any of those tariffs or trade barriers and let ethanol fl ow to where it makes sense, based on the economics,” he says.

Despite the tariff, a small but growing number of gallons is going directly from the U.S. to the EU. By the end of this year it’s expected to end up at about 50 million gallons. “That’s almost double from where we were last year, but still a long way from the high-water mark,” Cooper says, add-ing that 250 million gallons of U.S. ethanol were exported to the EU in 2011.

Looking ahead, lower gas prices at the end of the year may erode demand in export markets where ethanol was being blended due to the price, Cooper says. However, ethanol is also blended for its octane con-tent. For example, through October, the United Arab Emirates had imported 68 mil-lion gallons of U.S. ethanol. “That’s about twice what they did last year, so they very likely will be the No. 3 market in 2014,” he says, adding that the catalyst is the country’s oxygenated fuel requirement. Ironically, the country is a member of OPEC and has its own crude oil resources.

In addition, a handful of countries are rapidly opening up as new markets for U.S. ethanol, Cooper says. On the top of that list is South Korea. In 2013, the country imported 4 million gallons of ethanol and it’s on pace to bring in 31 million gallons by the end of this year. Tunisia is another in-teresting new market. Until October, when the country imported 11.3 million gallons

'If we can get more U.S. ethanol into Singapore, where gas is formulated for that part of the world, I think that’s a big opportunity.'

Cooper

EXPORTS


of U.S. ethanol, Tunisia had only imported U.S. ethanol in three separate months.

Cooper believes there is plenty of op-portunity for future growth both in existing markets like Canada and new and emerg-ing markets. One example of the latter is China. It’s the second largest market for

gasoline in the world, second only to the U.S. “They’ve put their toe in the water on ethanol imports, and we just think there is a huge opportunity to forge a long-term trade relationship with China,” he says. He also mentioned Singapore as a market to watch. It’s a major crude oil refi ning hub for South-east Asia. “If we can get more U.S. ethanol

into Singapore, where gas is formulated for that part of the world, I think that’s a big opportunity,” he says.

Author: Holly JessenManaging Editor, Ethanol Producer Magazine

[email protected]

200020012002200320042005200620072008200920102011201220132014*

U.S. Ethanol Exports

in million gallons

*projected (range of 810-850)

54.674.646.863.447.362.736.8

150.2157.8113.3

396.81193.1738.7619.0830.0

EXPORTS

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GOING FORWARD: Randy Ives, director of ethanol services at Gavilon, says the industry must manage contract performance risk on future DDGS exports to China. PHOTO: IWEN EXPOSURES


After halting distillers grains imports late last year, the world's top DDGS buyer is poised to resume business, but on what terms? By Tom Bryan

DDGS

The prospect of China reissuing distillers grains im-port permits bodes well for the product's American ex-porters, but Randy Ives isn't ready to gloat about it. “We have to be cautious,” says the longtime DDGS marketer and director of etha-nol services at Gavilon. “The uncertainty from China has put the industry in a tough position in the past. Collectively, we need to take additional steps to manage the contract performance risk that’s been an issue before.”

Ives and other DDGS exporters are necessarily guarded about China’s decision in late December to lift its ban on Syngenta’s MIR 162, the genetically modified grain trait at the center of the country’s three-month-long constric-tion on U.S. corn and DDGS. “Of course, it’s huge news for distillers grains, but that doesn’t instantly return them to the pedestal of being an important trade partner to the ethanol industry and to the U.S. ag industry as a whole,” Ives says.

Ives is one of many U.S. DDGS marketers who greeted the late-Decem-ber announcement from China with incredulity and a stern vow to not get stung again. Less than two years after carrying out a questionable anti-dump-ing probe that severely disrupted the international DDGS market, China’s feed regulators claimed to have discovered traces of then-banned MIR 162 in cargos of both corn and DDGS in late 2013 and throughout 2014. By mid-September, China was fully enforcing the ban, quarantining large quanti-ties of U.S. corn and DDGS on its docks and turning shipments away at sea. American exporters, logistics providers and Chinese importers together lost millions as communication was lost, contracts were broken and DDGS prices slid more than $100 a ton. By October, imports to China were nil as the com-modities world waited for a resolution.

As painful as China’s fourth-quarter DDGS timeout was, Ives says, the market displayed incredible resilience and American traders remained buoy-ant through it all. “Our product’s global market is larger, more distributed and more stable than it used to be,” Ives says. “We have buyers in 80 countries now, so when China stepped out last fall, customers in other nations stepped in and have stayed. On top of that, we knew China would come back. We just didn’t know when.”

Beyond Boats To China


DDGS

China’s sudden acceptance of MIR 162 was reportedly accelerated by pressure from the U.S. government as well as an internal push from China's feed millers. Whatever the cause of the decision, it is clearly welcome news for American producers and marketers of distill-ers grains. By Christmas, the announcement’s buzz alone had caused DDGS prices to rise $70 a ton. Traders warn, however, that the MIR 162 resolution is not a panacea for every challenge they face in China. “There are other problems, other barriers, in play yet,” Ives says. “We’re still trying to figure out what the run-ning rules are and what other technicalities we will have to abide by.”

Ives says selling DDGS into China could change. Some exporters might start demand-ing deposits, for example, asking for up to 20 percent down before shipment.

Changes on China’s end may include vol-ume requirements, or DDGS import alloca-tions. In the past, importers have sought and received permits based on shipment orders they had already placed. “That could possibly change, where importers could be required to have an import permit in hand before buying the product,” Ives says, explaining that tighter control over permits could buy China time to work through its grain reserves.

Still, the end of the MIR 162 ban does mean that DDGS exports in 2015 have the potential to exceed the record volumes sold in 2014, according to Alvaro Cordero, man-ager of global trade at the U.S. Grains Council. “Despite how 2014 ended in China, distillers grains had a fabulous year—a record year—

and we’ll probably do it again,” says Cordero. “By October, when China started to shut down, we had already achieved higher annual DDGS export sales than we had for the entire previous year.”

In fact, DDGS exports for calendar year 2014 not only set a new annual record, but sur-passed the long-anticipated 10 million metric-ton mark for the first time in history. While November and December sales were not avail-able at press time, DDGS exports had already reached 9.96 million metric tons—more than any previous year’s total by almost 200,000 metric tons and more than a quarter of the nearly 37 million metric tons produced in the U.S. last year. Sales of DDGS exclusively to China reached 4.24 million metric tons, just 5 percent short of the record set in 2013. “That’s remarkable considering that it happened in less than 9 months,” Cordero says.

Cordero, a former commodities trader, says he understands the unease DDGS mar-keters have about losses they incurred because of China’s actions. However, he says, the wide margins made on DDGS sales in early 2014 more than offset those hits. “If you sum up the money that was made when prices were good, bad and ugly in 2014, the industry came out of it in a positive position,” Cordero says. “Yes, it was hard for a while, but put this in perspective: It was a few bad months.”

Marketers like Sean Broderick of CHS Inc. were somewhat reticent about the DDGS market prior to China’s acceptance of MIR 162. Those bearish positions started to flip when the ban was lifted, Broderick says, telling

Ethanol Producer Magazine before Christmas that DDGS marketers were bullish but tread-ing carefully. “We are cautiously optimistic about this having seen the pitfalls of pricing ourselves out of so many markets,” Broderick says. “Any distillers grains that gets into China right now is going to be valuable. Their desire

TRADE TALK: Alvaro Cordero of the U.S. Grains Council says profits from high DDGS prices in early 2014 should have made up for losses later in the year. PHOTO: USGC

DDGS

to bring it in is going to be pretty huge, but it’s going to contrast with our desire to protect ourselves. The industry will probably load a lot of boats to China this year, but we also have to keep the interests of our other customers in mind.”

At peak, China was importing almost 20 percent of all distillers grains produced in dry form in the United States. “That’s sort of in-sane,” Ives says. “If we want to do what’s best for the industry, we need to continue to diver-sify our demand base.”

Broderick says, however, that diversifica-tion is hard when China is willing to pay more for DDGS than the rest of the world. “You just can’t ignore it despite your best efforts,” he says.

Huge Price Swings DDGS exporters are entering 2015 with

a wind at their backs, having worked fervently to find new destinations for DDGS when China wasn’t accepting the product in the fourth quarter of last year. Losing the China market spurred traders, under pressure, to sell the product at whatever prices worked for op-portunistic buyers. At its lowest price point last year, DDGS was available for 70 percent the price of corn. That was a stark contrast to the product’s market value before China blocked imports. “We were in a very tight year where protein was high-priced and people were will-ing to pay a premium for distillers,” Ives ex-plains. “We weren’t 85, 95 or 105 percent the price of corn, we were 150 percent the price of corn on some spot sales.”

Those big prices—at times hitting $350 per ton FOB to New Orleans—drew criticism from both new and established buyers. “The domestic guys had a problem with it. Thailand had a problem with it. It was hard to blame them for pushing back, but all we could say was ‘China will take it,’” Ives says. “The de-mand was that huge.”

Before China virtually stopped import-ing DDGS in October, it was averaging nearly 500,000 tons a month through August and trending toward 6 million metric tons on the year. By September, restrictions had tightened and just 167,000 tons officially got through

customs before rejections started in earnest the following month. By the time it was over, every major U.S. exporter had been adversely effected. Chinese importers also took big hits. Some traders estimate that as much as $600 million worth of DDGS was stranded in quar-antine on Chinese docks in the thick of the restrictions. Back in the U.S., marketers worked their contacts hard and gradually sold down about 1.5 million metric tons of DDGS origi-nally contracted for China.

“It all happened pretty fast,” Ives explains. “Marketers that owned product at $200 a ton at the plant were faced with buyers in China

CLIMBING AGAIN: Sean Broderick, left, and Steve Markham of CHS Inc. look at DDGS prices as the product's market value sprang up in December before and after China dropped its ban on MIR 162. PHOTO: CHS INC.


that couldn’t perform on their contracts. It was difficult to find destinations for DDGS and financial losses incurred were consider-able.”

Today, U.S. DDGS exporters are hint-ing at taking action to go after those broken contracts in China. “Regardless of what hap-pened, they still bought it and we still have a valid contract that says we owe them a bunch of distillers at that price,” Ives says. “We intend to negotiate some sort of payment for it.”

Predictable Comeback

Prior to China’s acceptance of MIR 162, DDGS values “at the plant,” or the contracted prices paid to producers, had already rebound-ed to $125 to $150 a ton. “The Northern Hemisphere market is actually quite strong,” Jason Charles, senior trading manager with Purina Animal Nutrition LLC, said in mid-December, explaining that the DDGS market was in a state of improving health even with-out the help of its largest foreign customer. “When China went away, we had a half mil-lion tons of distillers to do something with. Somehow, some way, it all started moving.”

Charles said the industry went through about 60 days of “not knowing what direction it was going” as DDGS initially contracted for China slowly found buyers elsewhere. “Thirty days ago, the bid-ask CIF NOLA was $130 on $155. Today, it’s $215 on $230,” Charles said in December, explaining that prices at the time were already lifting as China showed signs of opening back up.

Looking back, Broderick agrees that the removal of excess DDGS from the market, along with improved logistics and a general sense of optimism was boosting prices before China lifted its ban on MIR 162. Broderick says the sheer speculation that China would start issuing import permits in the spring was giving DDGS a boost. Just before and im-mediately after the MIR 162 announcement, DDGS prices shot straight up. “We’re already back where we were when China was going full bore,” Broderick says. “In mid- to late-De-cember, we went from $110 FOB-Illinois to $185. “That’s a huge move, and it was driven by bulk shipments out of the Gulf (of Mex-ico).”

Before the Dec. 22 announcement about MIR 162, China’s commodities import in-spection agency, the General Administration

DDGS

SOMEHOW, SOME WAY: Purina Animal Nutrition's Jason Charles says the DDGS market was in a state of improving health even before China positioned itself to resume imports. PHOTO: GAMUT ONE STUDIOS


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of Quality Supervision, Inspection and Quar-antine, gave no outward indication that it was preparing to allow U.S. corn and DDGS back into the country. However, Ethanol Producer Magazine learned in late December that one major U.S. exporter had been allowed to ship 50,000 tons of DDGS to China, a vessel origi-nating out of the Gulf. Several more shipments were planned for January. That limited activity got people talking. “Our importers called us and said a resolution was coming but nobody really had facts. It was all innuendo,” Ives says. “I really didn’t expect anything to happen until spring and then there it was.”

Portfolio BroadensChina’s renewed acceptance of DDGS

represents a huge opening for the product's global market, but exporters are applying a disciplined approach to the opportunity. While China consumes 50 percent of all DDGS ex-ports, Cordero says it is important to remem-ber how critical other large, medium and small markets are. Since October, for example, Mex-ico has been the world’s top DDGS importer as China momentarily left the picture. In fact, America’s free-trade partner to the south was trending toward 1.5 million metric tons of DDGS imports at the end of 2014. “Mexico stepped up pretty seriously in the fourth quar-ter,” Broderick says.

Cordero says 13 of the world’s top 15 DDGS importers increased their consump-tion of the product last year. “Mexico was up 21 percent. Japan was up 36 percent. Ko-rea ended up more than 70 percent,” he says. “Look around the world. Look at exports to the U.K., Columbia, Thailand and Indonesia. They’re all up by two digits.”

Charles says North Africa is another bright spot for DDGS exports. “Algiers, Al-geria and Morocco are getting additional trac-tion,” he says.

Egypt, too, is a growing market for distill-ers grains. Cordero says importing corn into Egypt has opened a door for more DDGS. “Once corn starts moving into these markets, combination cargos become a reality,” he says, explaining that low corn prices allow exporters of DDGS to enter markets where they have been losing market share to other feeds in re-cent years. “Once we walk in with corn, we’re going to walk in with those combination car-gos that include distillers,” he says.

In Europe, where DDGS is difficult to import because of EU restrictions on geneti-cally modified corn, only Ireland, Turkey and Spain remain significant buyers of the prod-uct. Turkey, however, rejected three shipments of DDGS in late November and early Decem-ber, supposedly on the basis of the cargos be-ing contaminated with an unapproved genetic corn trait. Ireland made a resurgence in buying when DDGS prices came down to 80 percent the price of corn in October. “Those low prices really brought back customers,” Ives says. “It’s amazing how fast everyone started putting on new sales around the world when

the prices came down. Customers in countries that hadn’t used a pound of DDGS in six to nine months came back pretty quickly.”

Bargain DDGS prices, while short-lived, may have even gained the attention of buyers in prospective markets like the southern states of Mexico where, Cordero says, there is a large untapped market. “The potential there is enor-mous at more than 1 million metric tons of DDGS,” he says. “They have 4 million head of cattle or more.”

Nicaraugua, too, has huge growth poten-tial with more than 5 million head of cattle. “They already buy DDGS—very little and just


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for poultry—so we just need to educate their beef industry,” Cordero says. “These almost untouched markets, which are barely on our charts today, could bring a lot of stability to our industry.”

The global DDGS market will be much less susceptible to disrup-tions if the USGC can successfully build more midsize markets outside of China. “Japan and South Korea are consistent 500,000-metric-ton markets,” Cordero says. “Those steady buyers help us sustain drops like the one we just experienced.”

In fact, Ives says, every DDGS-importing nation is critical to the market’s total non-U.S. sales volume. “Somebody cares about every one of those countries, all the way down to the bottom of the list,” he says. “Somebody is trading to Panama, even though they only take 12,000 tons a year.”

Cordero agrees, saying that the USGC’s principal goal is to build a broader global marketplace, as well as a larger one. “Some of these nations that buy DDGS are individually small, but they all add up,” he says. “And most of them are growing their purchases.”

In fact, the only notable nongrowers in 2014 were Canada and Morocco. Canada, typically a top-three international buyer of DDGS, only imported 327,000 metric tons through October and was surpassed by South Korea, Vietnam, Japan and Turkey. Canada’s 2014 buying was down 20 percent while Morocco had dipped by nearly a third.

Another Big Year Marketers of DDGS expect the product's price to stay around

110 to 120 percent the price of corn in 2015, but they’re remaining conservative with their predictions. “I am not really bullish on any feed or coarse grain going into the next six months,” Charles says. “It all comes down to feedstock and in the U.S. we are going to have close to a 2 billion-bushel corn carryout and a 400 to 425 million-bushel bean carryout into August. This in itself is bearish enough, but when look-ing at massive global stocks, one becomes additionally bearish. We are harvesting every ninety days around the globe. It’s a revolving door. Things change often and volatility calls for vigilance.”

Broderick says the global demand for distillers grains will stay strong in 2015 and the market will be ready to supply China when it starts issuing new import permits and fully reenters the market. “In the end, it all depends on their reserves,” he says. “They have the ability to switch things on and off very quickly. The demand is over there and it sounds like the demand exists right now for it.”

Cordero believes that, with low corn prices encouraging combina-tion cargoes, this year’s DDGS exports could easily match 2014 num-bers. “If you ask me, that would be a great thing,” he says. “With the way we ended last year, it would be awesome if we achieved the same or better numbers in 2015.”

Author: Tom BryanEditor In Chief, Ethanol Producer Magazine

[email protected]

DDGS

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Trade missions set out to identify opportunities and constraints in ethanol export markets.By Susanne Retka Schill

The U.S. Grains Council is teaming up with Growth Energy, the Renewable Fuels Association and the USDA Foreign Agriculture Service on a new four-way partnership in ethanol export market devel-opment.

There’s a big difference between trade and market development, says Tom Sleight, CEO of the U.S. Grains Council. “Marketing is seizing on current activity. There are some curious markets that have developed in the current ethanol scheme that are quite good, but somewhat built on curiosities in market access. For instance, the Philippines brings in ethanol and sends some of that blended fuel up to China, which actually has a current ban on the importation of ethanol as ethanol. The United Arab Emirates is a big, strong importer of ethanol right now, mainly because of octane reasons. Norway is a fairly good market right now, because of some of the curiosities of biofuel policies in the European Union. All these current markets are very important. We want to main-tain them. But we want to get after those core constraints that exist in markets that prohibit them from growing.” Those may be trade barriers, internal policies or other market constraints, he explains.

By year-end, three trade teams organized by the U.S. Grains Coun-cil visited six countries to assess those opportunities and constraints:

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Japan, Korea, Panama, Peru, Singapore and Philippines.

Eric Mosbey, general manager of Lin-colnland Agri-Energy LLC, was on the team that visited Japan and Korea. “The purpose was to learn as much as possible about mar-ket opportunities in these countries. I think we learned there are potential opportuni-ties, but we do have a lot of work to do, just as we do here in the U.S., on education and selling the benefits of our product. There are potential doors to open, but they’re not going to open on their own.”

Alex Marquis, logistics manager at Mar-quis Energy LLC, was part of the team that visited Peru and Panama. Opening chan-nels of communication is an important first step, he says, “developing relationships and connections with the key players, be it gov-ernment officials or private entities, in Peru, Panama and these other areas where the U.S. Grains Council is sending representa-tives on these trade missions. Being able to share information and outline where things are and where things need to go.”

The initiative has been in the mak-ing for two or three years, Sleight says. “It’s been an ongoing conversation with our constituents, corn states, agribusiness members and the ethanol industry, includ-ing Growth Energy and the Renewable Fu-

els Association.” The big corn harvests of the past two years, growing year-end stocks and increased competition globally for corn exports entered the conversation, he says. “A lot of discussion within the corn sector started to gravitate towards, ‘should we be looking a lot more aggressively at export market development for ethanol?’”

Long a promoter of distillers grains ex-ports around the world, the USGC needed two more things to happen. First, the Farm Bill had to make it through Congress to reauthorize and fund the Market Access Program, a public-private partnership for export market development through the USDA Foreign Agriculture Service. The fi-nal piece was the formal authorization that FAS resources and MAP funding could be

used for biofuels, announced by Secretary of Agriculture Tom Vilsack at the Com-modity Classic last winter.

A steering committee was formed to cement the four-way partnership among USGC, FAS, Growth Energy and RFA and an advisory committee of USGC members was formed with Ray Defenbaugh, CEO of Big River Resources LLC, appointed chair. “We have been working on this for a con-siderable amount of time as an effort be-tween the ethanol producer organizations, independent producers as well as the grains council,” Defenbaugh says. “We could see it coming.” Unusual weather events, primar-ily the drought, shortened the corn crop, he recalls, taking the pressure off for a couple years. “But we knew that wouldn’t last and when we got back to normal, we would have a surplus of grains. A good use of that is for value-added products such as ethanol.”

The grains council was ready to move. “We started in April,” says Ashley Kongs, manager of ethanol export programs at USGC, “putting together a list of countries and creating profiles as to where they cur-rently stand with biofuels policies, if they’re exporting, if they have a mandate, what the environment for renewable energy is there, how focused they are on looking for alter-native sources of energy. We created this

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‘I would encourage any producer to participate in these trade missions that they’re going to have. That’s where the exper-tise comes from and that’s what the grains council is relying upon. Having the expertise to represent us well is important.’


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map of the ethanol markets that we wanted to look at and, from there, we decided to highlight some of the countries that most interested us in the initial stage of exploring the markets.”

The three trade missions were planned for the end of the year, plus USGC was able to add an ethanol component to a USDA market development mission to China con-ducted in May. The trade teams have been quite small, just five or six people. The list includes Kongs, a USGC regional or coun-

try director, an ethanol producer or two, and a staff member from an ethanol orga-nization partner. The groups have met with academics, government officials and poten-tial buyers in each of the countries.

First LookThe trip to Japan and Korea was first.

Korea uses industrial ethanol, but no fuel ethanol, says Kongs. “We talked to policy marketers and researchers in Korea about why that is.” Japan has an E3 blend limit,

not a mandate, she continues, but has done little ethanol blending. “They’ve done a limited-scale ethanol trial in Okinawa. They have about 100 filling stations where E3 gasoline is on sale. But it’s only in that one area and it hasn’t spread to the rest of the country.”

Food security is a big issue for densely populated countries like Japan and Korea, says Mosbey. “The spike in prices all the way back in 2008 really turned those countries off,” he says. “We’ve had a lot of improve-


ments and efficiency gains in the industry in the last five to seven years, but they’re still using old, outdated information.”

Ethanol can help these two densely populated countries with other issues, Mos-bey suggests. “The one thing those coun-tries do need is a cleaner fuel, and carbon emissions are definitely on their minds. Ethanol has to stay in the conversation for them because of that.”

Peru and Panama have very different dynamics regarding biofuels. Panama ad-opted an E5 mandate in 2013 that has since been suspended, leaving a sour taste with the public when it emerged that some gov-ernment officials might have personal inter-ests in Panama’s sole ethanol plant. Pana-ma’s past experience with ethanol also left some unfavorable impressions. There was a price disconnect that put the price of etha-

nol too high, Marquis reports. The key to introducing ethanol more successfully will be education of the general public and gov-ernment officials on the benefits of ethanol and what it can do, he says, benefits such as clean emissions, high octane, the poten-tial price benefits and the boost it gives to transportation fuels.

Where Panama is using no ethanol right now, Peru has a 7.8 percent blend rate. “They’re using ethanol, they’re im-porting it,” Marquis says. “It’s encourag-ing that there’s a base to build off. Coming from Marquis Energy where we produce and ship ethanol domestically and globally, we want to see that 7.8 percent grow.” The trade mission’s task was to learn more about Peru’s industry and trade. Peru’s domestic ethanol production has grown in recent years, though it still doesn’t meet the coun-try’s needs. On top of that shortfall, Peru’s sugarcane-based ethanol’s low-carbon rat-ing attracts European buyers, making room for imported ethanol from the U.S.

While countries like Japan and Korea could benefit from the lower carbon scores of U.S. ethanol, the benefits of ethanol im-ports wouldn’t be as significant for Peru in that area, given the low-carbon scores of its own production, Marquis says, though etha-nol might be attractive for another reason. “The benefits might be seen for the refin-ers and also for the consumers more on the octane rating,” he says. “We learned the re-finers are blending their gasoline to a 95 oc-tane rating before blending in the ethanol.”

The last trade mission in December sought to learn more about what appears to be a very promising Southeast Asian mar-ket with visits to Singapore and the Philip-pines. Singapore, for instance, is a refining hub and trade center for the region and could potentially become a destination for more U.S. ethanol. The Philippines has an enforced E10 mandate that its four etha-nol producers fall short of meeting. Last year, the country imported 51 million gal-lons of U.S. ethanol, making it the second largest market after Canada. The country’s domestic industry lacks the scale and effi-ciencies necessary to be competitive in the

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MARKET DEVELOPMENT

global ethanol market, and availability of feedstock remains one of its largest con-straints. The USGC reports the Philippine Department of Energy has ambitious plans to continue to ramp up the ethanol blend rate which has moved from E5 to E10 over the past two years and is set to reach E20 by 2020.

Steps AheadSleight explains the market assessment

initiative for ethanol follows the formula the council has successfully used since it began in 1960 to develop a coordinated, strategic market development strategy. “We go and start talking to our contacts, the cur-rent people who may be importing, talk-ing about policy barriers and constraints to market access, be that price or policy or whatever,” he says. He is pleased with the initiative’s progress in the first year. “It’s happening quickly, it’s going well, and it’s going better than I thought it would be. It’s going faster than I thought it would,” Sleight says. The next steps for the steer-ing committee representing the four part-ners—USGC, FAS, Growth Energy and RFA—will be to evaluate what’s been learned, decide whether a few more coun-tries need initial assessment missions and where to focus 2015 efforts, as well as plan for 2016. “When the U.S. Grains Council builds market develop programs, our di-rectors overseas are always taught to think strategically,” Sleight says, “to think in se-quential steps, identify constraints and plan activities to address those constraints and implement those. It’s a marriage between our ability to create export market devel-opment strategies combined with RFA and Growth’s technical and marketing expertise. It makes a really strong partnership.” The USGC used about $125,000 worth of pro-gramming for fiscal year 2014, which ended Sept. 30, and has earmarked about $500,000 for export market development activities in 2015. The budget and goals for 2016 will be determined in the next few months as well.

Recalling his several trips with the USGC in promoting distillers grains ex-ports around the world, Defenbaugh adds,

“I would encourage any producer to par-ticipate in these trade missions that they’re going to have. That’s where the expertise comes from and that’s what the grains council is relying upon. Having the exper-tise to represent us well is important.”

“It’s been really great to take produc-ers and ethanol industry folks on these missions,” Kongs concurs. “It’s been really helpful to be able to involve them in discus-

sions when we go and meet with policymak-ers in Korea or trading houses or groups in Japan and Peru and Panama. It’s been really helpful to have that hands-on experience in the room.”

Author: Susanne Retka SchillSenior Editor, Ethanol Producer Magazine

[email protected]

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BASIC POPULARITY: Volkswagen do Brasil has built the Gol since 1980. The economical subcompact meets the needs of Brazilian consumers, including running on any blend of ethanol, up to E100. PHOTO: VOLKSWAGEN DO BRASIL


Volkwagen Gol sets shining example for flex-fuel vehicles. By Susanne Retka Schill

USE

The Volkwagen Gol is a subcompact with admi-rable capabilities. It runs on any blend ethanol up to E100, auto-matically adjusting the engine for differing blends. Plus, a unique system solves the problem with cold starts on straight ethanol. VW calls it a TotalFlex vehicle. Unfortunately for U.S. ethanol supporters, it’s only available in Brazil and handful of neighboring countries.

John Voelcker is one American who’s gotten a close look at the Gol. The editor of Green Car Reports, he test-drove the Gol in Brazil. “Given that this was a smaller and simpler vehicle for an audience that is less demanding in some ways than wealthier North American buyers, I was curious to see if there were compromises,” he says. “I couldn’t find any. It behaved exactly as I expected it to. The responsiveness, the engine behavior did exactly what it should do. There was no stumbling, none of that—it’s a perfectly modern car that was able to accommodate different liquids in its tank. I think that’s a huge accomplishment.”

In writing about his trip to Brazil to test drive the Volkswagen, Voelcker told his readers, “While many North Americans may not know it, Brazil presently leads the world in deploying biofuels for road vehi-cles. Specifically, a majority of cars sold in Brazil—especially lower-price, high-volume models built in the country—can run either on gasoline or pure ethanol.”

That wasn’t always the case. “Brazil has had two waves of ethanol cars,” Voelcker tells Ethanol Producer Magazine. “The first ones in the late ’70s and early ’80s were pretty substandard compared to today’s cars and to gasoline cars at the time.” Most used carburetors or poor fuel injection systems when compared to today’s fuel injectors that benefit from 30 years of improvements in computer software, microprocessing speed and sensors, he explains. “You couldn’t have made the car we have today, 30 years ago. Those cars were only ethanol, they weren’t flex fuel. Wave two has been flex fuel, which in the states we define as E85 but in Brazil can be up to E100.” The base fuel in Brazil is anywhere from

TotalFlex Capabilities


USE

SURE START: The heating element for the engine fuel rail in a Volkswagen Gol enables easy starting on E100 in cold weather in Brazil. PHOTO: JOHN VOELCKER, GREEN CAR REPORTS

E20 to E25, he adds. “I didn’t ask about G100 [straight gasoline], because it wasn’t relevant.”

When Brazil adopted stricter emissions controls, VW moved away from carburetors to fuel injection and catalytic converters. “That technology enabled the flex-fuel capability, but still they’re doing it as inexpensively as they can, while maintaining reliability,” he explains. “The goal was to make a car that could run on gasoline or ethanol or any combination of the two without the driver re-ally noticing. What has enabled that is modern sensors and engine control software.”

“Modern emissions control equipment on engines is really remarkably sophisticated,” he continues. “You have three-way cata-lytic converters that monitor each combustion cycle, in effect, and

adjust on the fly.” The current Gol can discern what fuel is coming into the engine and adjust its combustion programming accord-ingly. “Two lambda sensors in the exhaust system—one before the catalytic converter, one after—continuously monitor the oxygen content of the exhaust. Their input lets the engine-control system choose one of roughly 2,000 different combustion maps to opti-mize power, smoothness, and fuel efficiency. And the car remem-bers what fuel it has in its tank, so it effectively resets its engine programming after each fill-up.”

The first wave of ethanol cars were known to be temperamen-tal starters in cold temperatures, and most included a small, ancil-lary gasoline tank for cold starts that consumers would forget to keep full. VW eliminated that by building a heating element directly

Gol 1.0 liter Total Flex (2 door) PERFORMANCE Acceleration

E22 E100

1-100 km/h (in seconds)

13.4 12.9

0-1,000 meters (in seconds)

35.5 35.1

80-120 km/h, 5th gear (in seconds)

19.6 18.7

Top Speed (km/h) 163 165

Gol 1.6 liter Total Flex (2 door) PERFORMANCE Acceleration

E22 E100

1-100 km/h (in seconds)

9.9 9.7

0-1,000 meters (in seconds)

31.6 31.3

80-120 km/h, 5th gear (in seconds)

13 12.9

Top Speed (km/h) 188 190SOURCE: VOLKSWAGEN DO BRASIL

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NO G100: Basic fuel in Brazil ranges from E20 to E25. PHOTO: JOHN VOELCKER, GREEN CAR REPORTS

into the fuel-injection rail. In cold weather, as soon as the driver’s door opens, the car uses battery energy to heat up the element even before the driver turns the key. It heats up the fuel enough to elimi-nate the problem with ethanol starts.

A Volkswagen do Brasil spokesman explains the Gol was de-veloped for the Brazilian market, where the lowest temperature ob-served is about minus 5 Celsius (23 degrees Fahrenheit). At that temperature and using hydrated ethanol, the VW Gol starts within two seconds.

Hydrated ethanol, he goes on to explain, is used for cars de-signed to handle E100. It contains between 4 and 5 percent water. “Obviously, this water is not burnt in the combustion of ethanol, but its presence increases the octane number of the fuel, which allows for a higher compression ratio, increasing the performance and efficiency of the vehicle. However, the presence of water also

increases the corrosion of ethanol, forcing the use of stronger met-als.”

Built since 1980, the VW Gol has been Brazil’s most popular vehicle for 27 years, Voelcker reports, with Volkswagen do Brasil building more than 7.5 million. “The one thing to remember about Brazil is that it is not as affluent a car market as the U.S., so the Gol, which is extremely popular in Brazil, is what we would con-sider a subcompact that does not include a number of the safety or entertainment features we would expect in even a low-priced sub-compact,” the Green Car Reports editor says. “It’s a car designed specifically for Brazil and a handful of nearby markets.”

Author: Susanne Retka SchillSenior Editor, Ethanol Producer Magazine

[email protected]


In the past four years, U.S. ethanol exports have increased 47 percent. If you're one of the many producers who sell ethanol internationally, you may qualify for the Interest Charge-Domestic International Sales Corp. export incentive. To encourage export activity in the global market, the government incentive rewards businesses for global reach and impact by offering up to a 20 percent lower tax rate for certain types of products sold internationally.

The export incentive is a great way to manage tax impact and preserve cash, ultimately returning value to shareholders. Under this tax strategy, the exporter pays commissions to the IC-DISC. The commissions are deductible as an ordinary business expense by the exporter. The IC-DISC then pays a qualified dividend to the shareholder or shareholders of the IC-DISC. Generally, the ordinary tax rate for income on exports of inventory items is about 34 percent. The IC-DISC lowers this, generating approximately 15 percent savings, an incredible strategy for selling a product in the global market.

While a huge benefit, the rules are complex. There are qualifications that must be met in order for

international sales to qualify as export sales eligible for IC-DISC treatment, as well as certain thresholds that must be met and maintained as they relate to classes of stock, minimum capital, asset levels, etc. It is important to know and understand all the details, but also important to remember that once you understand them, it is not hard to create and maintain the IC-DISC structure to maximize the tax benefits associated with it.

The IC-DISC benefit is recognized by the Internal Revenue Service and has withstood scrutiny in the past. Like all good things seen as too good to be true, it comes under attack occasionally and is therefore targeted for repeal. So far, the benefit has been accepted widely enough to withstand the attacks.

If you are exporting just once or inconsistently, the incentive might not be a good option for your business. But for those producing a product manufactured in the U.S. and exported—and can prove it was exported—it could be considered a qualifying activity.

For instance, one K-Coe Isom ethanol client began exporting several years ago. We monitored export activity for about three years and, when the plant reached a significant export volume level, we recommended they implement the IC-DISC strategy. Currently, the company exports about 35 percent, or about 40 million gallons, of its total production and is maximizing its tax savings.

Given the trend, K-Coe Isom expects ethanol export activity to continue at varying levels based on competitive market conditions, making this incentive a viable option for even more ethanol producers. We are working with many clients who export due to ethanol being such an attractive, low-cost, carbon molecule. By helping establish the right structure, and ensuring they are complying with the rules and regulations as defined by the IRS, they are realizing the tax advantages of the export incentive.

To determine the benefit for your specific circumstance and if the export incentive is worth pursuing, consult with your financial services partner.

Authors: Donna Funk, CPAPrincipal, K-Coe Isom

[email protected]

Export Incentive Viable Option For Producers

BUSINESS MATTERS

By Donna Funk


Record global supplies and increased competition limit growth for U.S. corn exports in the short-term.By Chad Hart

CORN

CONTRIBUTION: The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Ethanol Producer Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

The past several years have been a wild ride in the corn market, from the record high prices in 2010, 2011 and 2012 to the record high production of 2013 and 2014. It’s been a tale of swings, in both supply and demand. One of the demand areas that has swung the most

is export demand. As the U.S. is the world’s major producer of corn, often the rest of the world looks to the U.S. to source its feed grains. But several factors have come together to limit potential corn exports. Global supplies have grown, more players have entered the export markets, and global demand is precarious, as much of the global economy is still moving more slowly than expected.

Swings in Corn Supply, Demand Impact Global Markets


CORN

Table 1. Global Corn Production2010/11 2011/12 2012/13 2013/14 2014/15

(million bushels)World 32,887 34,965 34,170 38,947 39,037 U.S. 12,447 12,360 10,755 13,925 14,407 Argentina 992 827 1,063 984 866 Brazil 2,260 2,874 3,208 3,122 2,953 Canada 474 447 514 559 453 China 6,978 7,589 8,095 8,602 8,484 EU 2,294 2,682 2,317 2,527 2,897 India 855 857 876 953 827 Mexico 829 737 850 905 905 Russia 121 274 323 457 472 South Africa 430 502 487 583 531 Ukraine 469 899 824 1,216 1,063

As Table 1 outlines, global corn production has increased dramatically over the past few years. Those record high prices from 2010 to 2012 created a strong incentive for producers around the world to grow more corn and the producers responded. World corn supplies are up nearly 20 percent over the past five years. And the expansion has truly been global with the U.S., Brazil, China, EU, Russia, South Africa and Ukraine all experiencing double-digit growth. In fact, the corn expansion in the Black Sea region has been tremendous, with corn production more than doubling in the region. World corn production has reached record levels the past two years. Thus, global corn markets are dealing with a lot more corn than usual.

And, much of this added production has been targeted for export markets. Argentina and Brazil ramped up corn exports to fill in the hole left in the global corn market by the drought in the U.S. in 2012. Russia is projected to export roughly 25 percent of its corn crop. Ukraine will likely export over half of its corn production. So the global marketplace has a number of new important shops open for business. At the same time, many of the major corn importers have raised more of their own corn as well, limiting the amount of corn needed to be brought in country.

Factors Limiting GrowthAs Figure 1 on the next page shows, U.S. corn exports this

year are running slightly behind last year’s pace. The U.S. corn market saw a drastic pullback in export demand with the 2012 crop, given the drought and the $7-per-bushel price that accompanied it. Since then, the rebound in corn exports has been significant, but

the market is still well below record levels. Global corn consumers have come back to U.S. corn, but the availability of corn from other markets dampened the response. The record year for corn exports was 2007-’08, when roughly 2.4 billion bushels crossed the U.S. border. Current estimates for the 2014-’15 crop year put exports in the 1.75 billion bushel range. So there is a lot of potential room for growth in export demand. But record global supplies and increased competition are limiting that growth.

Another factor working against U.S. corn exports is the strength of the dollar. As corn and energy prices have weakened over the summer and fall, the dollar has been strengthening. Since July, the U.S. dollar index has increased by approximately 10 percent. That strength is coming from concerns about the growth of global economies. As economies around the world slow, investors look for a safe haven, and the dollar is still seen as that. As the dollar strengthens, it makes U.S. goods, like corn and ethanol, look more expensive relative to the same products from other countries. However, the impact of the dollar is not uniform across the globe. Some countries do not feel the swings in the value of the dollar as they fix or peg the currency exchange rate. These countries are mainly smaller economies from Asia and Africa, but China was the last major economy to peg its exchange rate. Most countries and economies, however, do feel the value swings in the dollar and, therefore, react to the strengthening of the dollar via lower export demand.

A third factor working against U.S. corn exports over the past year has been the trade dispute between China and the U.S. over genetically modified corn. While that dispute is coming to an end,


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CORN

FIGURE 1: U.S. CORN EXPORTS OVER TIME

FIGURE 2: U.S. CORN EXPORT SALES FOR 2014/15

it was a significant disruption to the corn export market. In the fall and early winter of 2013, China was the third-largest export market for U.S. corn, accounting for roughly 10 percent of exports at the time. The dispute reduced China’s corn purchase from the U.S. to near zero, as Figure 2 shows. The temporary loss of the Chinese market limited the potential for export growth.

Factors Promoting GrowthThere have been other factors, however, that are promoting

growth in U.S. corn exports. The major one at the moment is the expansion of trade with partners under trade agreements. Trade

agreements with Asian and Central and South American countries continue to pay dividends for corn exports. Just as Mexico grew to be a major corn trade partner after the signing of the North American Free Trade Agreement, Colombia, Peru and South Korea are growing corn markets for the U.S. after the signing of trade agreements with those countries. And, the general reduction in U.S. corn prices over the past two years has boosted export prospects.

In the short term, the corn outlook is for a slight reduction in corn exports for the 2014 marketing year (Sept. 1, 2014, to Aug. 31, 2015), with the large global supplies and the strength of the dollar being the overriding factors. But longer term, U.S. corn exports are projected to rise during the next decade. In mid-December, USDA released a preliminary view of its long-term agricultural projections. Those projections showed corn exports growing from 1.75 billion bushels for the 2014 marketing year to 2.5 billion bushels in 2024. Much of this projected growth is based on improving global economic conditions, larger populations and slowly rising corn prices and production. On a percentage basis, we currently export about 12 percent of the total U.S. corn crop. By 2024, USDA projects we’ll export roughly 17 percent of the crop. The U.S. is still the dominant player in the global corn market. We produce approximately one-third of the world’s corn. And as the USDA projections indicate, export markets will remain a crucial outlet for U.S. corn for years to come.

Author: Chad E. HartAssociate Professor of

Economics/Extension EconomistIowa State University

[email protected] 515-294-9911


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Transcript of 2015 February Ethanol Producer Magazine