June 2015 Ethanol Producer Magazine

www.EthanolProducer.com

JUNE 2015

INSIDE: FUEL ETHANOL: STARTING POINT FOR REVOLUTION

EPMJune 2015

NEW CHEMISTRY 21 MMgy Facility Aims for High-Value Biotech Market

PLUSA Seller’s

Market, Still

Strategic Planning for Healthy Finances

,Page 36

Page 46

Page 52

2015: THE YEAR OF

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

Growth Energy commends CENEX, Kum & Go, MAPCO, Minnoco, Murphy USA, Petro Serve USA, Protec Fuel,

Sheetz and Zarco USA for their pioneering spirit and efforts to expand consumer access to higher blends of

renewable fuels. They offer consumers a choice and savings at the pump, while investing in a homegrown industry

that supports farmers across the country.

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

Learn more at GrowthEnergy.org/E15

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4 | Ethanol Producer Magazine | JUNE 2015

JUNE 2015 VOLUME 21 ISSUE 6CONTENTS

FEATURES

BUSINESS How Deals Square Up Ten companies bought 13 ethanol plants in 2013, compared to only fi ve transitions in 2014 By Tom Bryan

PROFITABLITY Riding the Performance Curve Lessons learned for long-term business viability By Susanne Retka Schill

36PROFILE ‘Back to the Future’ with N-butanol A Minnesota ethanol plant will be retrofi tted to produce high-value chemicals By Holly Jessen

46

MARGINS Follow the Money Refl ecting on what ethanol producers did with money earned during high profi tabilityBy Holly Jessen

62

54

52

MARKETS Stepping Up to a Currency Model Companies pursue plans to turn fuel ethanol into renewable chemicals By Susanne Retka Schill

70

Reason

You’re

www.uswaterservices.comFEW Booth #413


JUNE 2015 VOLUME 21 ISSUE 6CONTENTS

Ethanol Producer Magazine: (USPS No. 023-974) June 2015, Vol. 21, Issue 6. Ethanol Producer Magazine is published monthly by BBI International. 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.

INVESTING New Laws, Rules Off er Options For Raising Capital Crowdfunding, SEC exemptions and amendments off er diff erent benefi ts, restrictions By Todd Taylor

EMISSIONS Small Changes Aff ect Sampling Methods Seemingly subtle changes in test methodology, plant operations can impact emissions monitoring By Edward “EJ” Juers

76HEDGING Market Tools Help Identify, Manage Margins Considering costs, revenues as a single unit of risk is important hedging strategy By Chip Whalen

80

CONTRIBUTIONS

FINANCE Long-Term Planning Mitigates Risks from Prolonged Downturns Financial advisors can help with lender communications By Frank Baumgardt

8884

DEPARTMENTS8 EDITOR'S NOTE Matchmaking, Money And Makeovers By Tom Bryan

9 AD INDEX

12 THE WAY I SEE IT Present Day Ethanol Trumps Good Ol' Days By Mike Bryan

13 EVENTS CALENDAR

14 VIEW FROM THE HILL Waves of Ethanol Misinformation By Bob Dinneen

16 DRIVE High Hurdle Race By Tom Buis

18 GRASSROOTS VOICE Following the Cool Guys By Ron Lamberty

20 GLOBAL SCENE End the Food Vs Fuel Debate By Bliss Baker

22 BUSINESS BRIEFS

24 COMMODITIES

28 DISTILLED

94 BUSINESS MATTERS Weathering Tight Margins By Donna Funk

96 MARKETPLACE LOCAL IMPACT Ethanol Biorefi nery Boosts Local Corn Production Area farmers benefi t from new market, new storage option By Lyndon Anderson

92

PHOTO: KIMM ANDERSON

ON THE COVER

JUNE 2015 | Ethanol Producer Magazine | 7

VOLUME 21 ISSUE 6

TM

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 and handling 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 specifi c topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To fi nd 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

EDITORIALPresident & Editor in Chief

Tom Bryan [email protected]

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

Managing EditorHolly Jessen [email protected]

Senior EditorSusanne Retka Schill [email protected]

News EditorErin Voegele [email protected]

Copy Editor

Jan Tellmann [email protected]

ARTArt Director

Jaci Satterlund [email protected] Designer

Raquel Boushee [email protected]

PUBLISHINGChairman

Mike Bryan [email protected]

Joe Bryan [email protected]

SALES Vice President of Operations

Matthew Spoor [email protected] Business Development Director

Howard Brockhouse [email protected] Account Manager/Bioenergy Team Leader

Chip Shereck [email protected] Account Manager

Jeff Hogan [email protected] Account Manager

Tami Pearson [email protected] Sales & Marketing Director

John Nelson [email protected] Circulation Manager

Jessica Beaudry [email protected] c & Marketing Coordinator

Marla DeFoe [email protected]

Ethanol Producer IS THE

#1 SOURCEOF NEWS AND INFORMATION ABOUT ETHANOL PRODUCERS AND INDUSTRY PROSWith subscribers in more than 46 countries, Ethanol Producer Magazine is the world’s largest and longest-running ethanol magazine.• The only ethanol magazine in the world• 11,250+ circulation• Distributed monthly to every ethanol plant in North America• We’ll create your advertisement for free of charge


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

The U.S. ethanol industry has appreciably matured in the past six years, but it hasn’t lost its youthful propensity to take chances and explore new things. American ethanol producers are, today, among the most effi cient, disciplined and fi nancially sophisticated agribusinesses in the world. At the same time, the industry’s 200-plus facilities, still owned by roughly 100 different companies, are hungry for innovation, open to change and fl exible enough to look at almost anything. This month’s issue of Ethanol Producer Magazine examines the ethanol industry’s current fi nancial condition against the backdrop of its remarkable affi nity for adaptation.

Our inspection of money management in the ethanol business begins with an instructive look at recent mergers and acquisitions within the sector. In “How Deals Square Up,” on page 36, we see that ethanol plant M&A has historically been driven by distress and more transactions occur on the heels of downturns than after profi table periods. For comparison, there were nearly three dozen ethanol plants sold after the industry’s well-chronicled 2008-’09 downturn, but just fi ve transactions during and after the recent period of record margins (see “Follow the Money” on page 62 for more insight on what producers did, or plan to do, with last year’s earnings).

Investment bankers tell us, however, that fi nancial distress isn’t the only thing that prompts ethanol plants to be sold. One recent deal, for example, included a seller that was a nonlong-term investor looking to cash out on a healthy asset. Another transaction was based on a strategy to convert a relatively small ethanol plant into a facility that can produce higher-margin chemicals, which is the focus of our cover story, “‘Back to the Future’ with N-butanol,” on page 46. In this feature, EPM Managing Editor Holly Jessen goes inside Green Biologic’s recent acquisition of Central Minnesota Ethanol Co-op in Little Falls, Minnesota. Green Biologic’s plan is to retrofi t the plant to produce n-butanol and acetone while still making some ethanol. The nature of the deal illustrates the incredible versatility of dry-mill ethanol plants and shows us that acquisitions can be carried out with real people in mind. The deal was structured in a way that benefi tted existing shareholders, plant employees and area farmers.

We look more downstream at biobased chemicals in “Stepping Up to a Currency Molecule,” on page 70. In this piece, EPM Senior Editor Susanne Retka Schill reports on how a growing global demand for sustainable products is opening a huge door for renewable chemicals, some of which can be derived from, or made with, ethanol.

Finally, we look closely at the overall fi nancial state of U.S. ethanol plants and how producers are leveraging the hard lessons of their recent past to run their businesses better. We learn in “Riding the Performance Curve,” on page 52, that most producers are still fi nancially comfortable, operating with healthy levels of working capital and generally looking at ways to reinvest in new assets and next-stage technologies.

EDITOR'S NOTE

Matchmaking, Money And Makeovers

Tom BryanPresident & Editor in [email protected]


ADVERTISER INDEX

2015 Fuel Ethanol Conference & Expo 26-272015 National Advanced Biofuels Conference & Expo 974B Components, Ltd. 100ACE American Coalition For Ethanol 19 & 29Arisdyne Systems 39 BBI Project Development 95BetaTec Hop Products 10-11Bilfi nger Water Technologies 38Buckman 28Butterworth, Inc. 54Cereal Process Technologies 42Cloud/Sellers Cleaning Systems 78Direct Automation 50DuPont Industrial Biosciences 45Eco-Energy Inc. 79EcoEngineers 90Ethanol 101 59Fagen Inc. 91Fluid Quip Process Technologies, LLC 17Fuel Ethanol Industry Directory 33GEA Westfalia Separator 13Growth Energy 2Hengye USA 51Hydro-Klean LLC 61ICM, Inc. 86Interra Global Corporation 66INTL FCStone Inc. 43Iowa Economic Development Authority 68J.C. Ramsdell Enviro Services, Inc. 22Lallemand Biofuels & Distilled Spirits 34Leaf Technologies 30Louis Dreyfus 73Mason Manufacturing, LLC 55Minnesota Bio-Fuels Association 65

VOLUME 21 ISSUE 6

Mist Chemical & Supply Company 48Nalco, an Ecolab Company 74Natwick Associates Appraisal Services 67NCAT, Inc. 31New Holland Agriculture 15North American Industrial Services 23Novozymes 35Ocean Park Advisors 41Pan American Hydrogen, Inc. 72Phibro Ethanol Performance Group 99POET-DSM Advanced Biofuels 98Premium Plant Services, Inc. 83ProQuip, Inc. 40Renewable Fuels Association 87RPMG, Inc 75 Seneca Companies 49Solenis LLC 21Sukup Manufacturing Co. 69Swedish Exergy AB 82Syngenta: Enogen 60Thermal Refractory 64Tower Performance, Inc. 44Tramco, Inc. 3U.S. Water Services 5Valicor Separation Technologies 57WestAgro Executive Brands 56WINBCO 58Zeochem LLC 93


Some long for the good ol’ days, when cars were simple and you could do much of the repair work yourself. When in the evening the 9 o’clock whistle blew and you had to get home, or writing a letter meant pen and paper.

Myself, I’m glad we no longer live in the good ol’ days. I don’t want to work on my car. The cars today are much more reliable and more fun to drive. I really am not terribly concerned that kids spend more time on the computer than they do playing outside. It’s the age we live in and they are preparing themselves for a new and exciting future. Frankly, I like being able to send an email rather than sit down and handwrite a letter, and I am a better communicator as a result.

I’ve heard some say that they long for the good ol’ days of the ethanol industry, when it was young and we all felt a sense of comradery and we knew who the enemy was. Frankly, I’m not interested in reliving the past of the ethanol industry either. It was often painful. We are much more sophisticated now, we have years of research under our belts and can stand toe-to-toe with the enemy rather than throw rocks and sticks at them, as that’s all we had back then.

I don’t think there is a better time to be in this industry, with technology moving forward at breakneck pace. We have matured and replaced the rocks and sticks with billions of miles of trouble-free consumer use and reams of data that substantiate the viability and performance of ethanol. We have a whole new generation of bright young talent working in the industry who will carry us into the next tier of success.

Many of us remember when a woman named Roberta Nichols from Ford Motor Co. introduced the fi rst fl exible fuel vehicle. Exciting as it was, it seems so long ago now, given where things are with E85 today. The good ol’ days sometimes consisted of organizing corn farmers to stand at service stations handing out

ethanol brochures and offering to fi ll the customer’s car up for them, just to get product recognition. While it was fun at the time, I don’t want to do that anymore.

There are lots of things that had to be done to get the industry where it is today, that most of us who did them would not really want to do again. The young talent in the industry today are creating their own good ol’ days and a decade or two from now will likely write a column reminiscing about those days, glad that they don’t have to relive them.

Personally, I’m happy where the industry is today, still with challenges, still with much work to be done, but with the ability to do that work on a much more level playing fi eld. We have set aside the rocks and sticks and replaced them irrefutable facts and a mountain of well-researched data. We have moved from a niche industry to a major contributor to energy security, cleaner air and economic stability.

So for me, while I may look back from time to time with fond memories of the battles and the things we did to build the industry, I think now is the best time ever to be in the ethanol industry. Besides, there is little need to look back, because, before you know it, today will be one of the good ol’ days.

That’s the way I see it.

Present Day EthanolTrumps Good Ol’ Days By Mike Bryan

Author: Mike BryanChairman, BBI International

[email protected]

THE WAY I SEE IT

ACE ConferenceAugust 19-21, 2015Omaha, NebraskaHilton OmahaACE’s annual conference is tailored to the interests and needs of the people of ethanol, the folks in the trenches. It’s a gathering of ACE’s commitment to connect ethanol producers with the farmers, researchers, retailers, and support businesses to continue what all of them started a long time ago. It’s also an excellent place to learn and share ideas. And, it has all the fun of a family reunion.605-334-3381www.ethanol.org/events/conference

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 fi nance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defi ning the national advanced biofuels industry.866-746-8385www.advancedbiofuelsconference.com

International Biomass Conference & ExpoApril 11-14, 2016Charlotte, North CarolinaOrganized 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. 866-746-8385www.biomassconference.com

International Fuel Ethanol Workshop & ExpoJune 20-23, 2016Wisconsin Center, Milwakee, WINow in its 32nd year, the FEW provides the ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. As the largest, longest running ethanol conference in the world, the FEW is renowned for its superb programming—powered by Ethanol Producer Magazine —that maintains a strong focus on commercial-scale ethanol production, new technology, and near-term research and development. 866-746-8385www.fuelethanolworkshop.com

EVENTS CALENDAR

2019

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There is nothing quite like the feeling of being on the water on a clear summer day. Tennis champion Rafael Nadal once described it as, “I like fi shing. Not actual fi shing, I like the peace and quiet of being at sea. It’s different.” Boating is a beloved pastime for many Americans, whether taking part in fi shing, water skiing or simply enjoying the exhilarating feeling of cruising on the water.

Over the years, a lot of misinformation has been creating waves when it comes to ethanol use in marine engines. In a sign of their desperation, API actually ran ads last year claiming that ethanol—and the renewable fuel standard (RFS)—will strand boaters on the water. Nothing could be further from the truth. But as the summer months rapidly approach, we must once again equip the boating community with the facts they need to cut through the wake of misinformation being churned up by the petroleum industry.

All boaters must know that E10 can safely be used in their marine engines. Oftentimes marine publications will exaggerate concerns about E15 marine use to vilify all ethanol blends; but E15 is not approved for use in these engines. However, E10 is perfectly fi ne for marine engines. It doesn’t matter whether their boat has a two-stroke or four-stroke engine, an in-board or out-board motor, or a built-in or portable fuel tank.

But, don’t just take my word for it. Every marine engine manufactured today provides warranty coverage for E10. The Honda owner’s manual for the BF25A/30A Outboard Motor states that “You may use gasoline containing up to 10 percent ethanol by volume.” Additionally, Yamaha owner’s manual for the F115 notes that “Gasohol containing ethanol can be used if ethanol content does not exceed 10 percent and the fuel meets minimum octane ratings.” Manufacturers would certainly not approve a fuel

that would harm the product or the consumer. Similar language appears in the owner’s manuals for Kawasaki, Mercury Marine, OMC (Johnson/Evinrude), Pleasurecraft, Tigershark (Artco) and Tracker marine engines.

In addition to the owner’s manuals clearly approving E10, Vernon Barfi eld, former vice president and technical chairman of the National Boat Racing Association said that “There is a myth out there that 10 percent ethanol is not good for marine engines, but we have been operating for over 20 years and have not had any issues with it whatsoever.” He continues, “…there are absolutely no problems running on 10 percent ethanol.”

We now have the facts from manufacturers and experts alike. So how do we disseminate the information? The new digital age offers a plethora of opportunities to easily get the word out at very little cost. It can be as easy as posting the information on Facebook or Twitter. E-mail also offers a quick and easy way to send the information to family and friends.

But, let’s not forget traditional media and the power of one-on-one interaction. Individuals or groups can write an op-ed or submit a letter to the editor of the local paper, ultimately reaching a larger audience. But, nothing can compete with one-on-one conversation. Have a conversation with boaters fi lling up at the local gas stations, strike up a discussion when launching your boat at the boat dock or chat with the local gas station owner to make sure they have the correct facts for their customers. Every little bit helps calm the waves of ethanol misinformation and create a more informed boating community.

Author: Bob DinneenPresident and CEO,

Renewable Fuels Association202-289-3835

Waves of Ethanol Misinformation By Bob Dinneen

VIEW FROM THE HILL

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THAT’S NEW HOLLAND SMART.When you use the Cornrower™ attachment with your New Holland CR combine and chopping corn head, you windrow corn stover at the same time you harvest, eliminating extra trips through the fi eld and associated labor and fuel costs. That’s SMART for your bottom line. The Cornrower™ attachment “catches” stalk material under the chopping corn head, creating a uniform windrow, then the CR combine drops high-energy chopped cobs and husks on top—without dirt or rocks that spoil your corn stover, and without hindering combine performance or maneuverability. Find out how you can save with the New Holland Cornrower.

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The journey to making E15 the standard fuel option across the country is like a high hurdle race. As soon as we clear one hurdle, we have to focus on the next. Although we are making constant progress with retailers and E15 is now available at more than 120 stations in 18 states, there are still challenges ahead. The largest regulatory obstacle standing between consumers and access to higher ethanol blends is the absence of a Reid vapor pressure (RVP) volatility waiver for E15.

Currently, E15 and higher ethanol blends do not receive the same 1-pound RVP volatility waiver that is granted to E10, which restricts summertime sales of E15 in many states. This regulatory restriction creates a disincentive for retailers to sell E15 or higher biofuel blends and denies consumers access to a fuel that meets their price and performance needs. E15 should not be treated as a seasonal fuel and the American consumer should not have to check their calendar to see if they will have a choice when they pull up to the pump.

Since Growth Energy applied for a fuel waiver for E15 in 2009, the ethanol industry has repeatedly asked the U.S. EPA to level the playing fi eld and grant a similar 1-pound RVP waiver for ethanol blends above 10 percent. Unfortunately, when EPA fi nalized the misfueling mitigation rule for E15, they explicitly stated that they would not grant a RVP waiver for E15, even though E15 is a cleaner, higher performing, less expensive fuel.

We commend Sens. Chuck Grassley, R-Iowa, and Rand Paul, R-Ky, Reps. Rod Blum, R-Iowa, and Adrian Smith. R-Neb., for recognizing the need for competition in the marketplace and taking leadership on this important issue in U.S. Congress. These congressmen have introduced legislation in both the Senate and the House of Representatives to remove regulations that limit market access to higher ethanol blends and restrict consumer choice at the pump. They agree that the regulatory treatment of E15 is unfair

and is preventing the adoption of new fuels that could benefi t our environment, our economy and our energy security. We know that others will soon follow their lead and work together to move these measures forward.

For the ethanol industry, E15 is the low-hanging fruit. It’s the most tested fuel in history and is compatible with more than 80 percent of the cars on the road. Nationwide, moving to E15 would create another 136,000 American jobs that can’t be outsourced, reduce the demand for foreign oil by 7 billion gallons and eliminate up to 8 million metric tons of greenhouse gas emissions per year—the equivalent of taking 1.68 million vehicles off the road—all while saving consumers money at the pump. E15 is projected to save consumers between 5 and 15 cents per gallon. And, because ethanol increases the available fuel supply, it will help to drive down the price of gasoline for all drivers. In a time when roughly 8 percent of our annual incomes are being used for commuting costs, those savings really add up.

The oil industry recognizes the obvious benefi ts to consumers and will continue to throw up every hurdle they can to protect their market share and keep our nation addicted to fossil fuels. But each of those hurdles we clear sends a positive signal that America is ready for cleaner technologies that provide consumers with a choice and savings at the pump. As an industry, we know that hurdles are just a series of barriers that are meant to be jumped over, and in the end, we will win this race.

Call your elected offi cials today and let them know that you support S. 889, H.R. 1944 and H.R. 1736.

Author: Tom BuisCEO, Growth Energy

[email protected]

DRIVE

High Hurdle Race By Tom Buis

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Following the Cool Guys By Ron Lamberty

Every year, surveys are performed by advertising and marketing companies to try and measure trust. Who or what do people trust when they are looking for the answer to a question, a recommendation on a purchase, or information about a controversial topic? While the results reshuffl e a little bit each year, near the top of the list in every survey is “someone like me,” or “people I know.”

In reality, sure, we want to know what people like us think, but come on, if you were offered advice from, let’s say, Pat Hawkins, a guy I grew up with in Hilltop, or noted theoretical physicist Stephen Hawking, you’d listen to the guy who is considered one of the greatest minds of our time, right?

Not me. I’m going to listen to Pat, because—I forgot to mention this—the subject is “winning strategies for ‘cans,’” a game that was invented by Pat, my brother Greg and me … and maybe Todd Nussbaum… I don’t remember. Anyway, we would all kick Hawking’s butt in cans. And I bet he can’t give you any tips on hot-waxing a pop can either. Pat could. Pat was awesome at that. If you’re looking for that kind of advice, you can just say, “thanks for nothing, Professor Hawking.”

I guess the point is, for most decisions, studies and spokespeople are important, but most of us still want to get the recommendations of “people like me.” However, we prefer the opinions of leaders and innovators, like Pat. Guys who care enough to fi nd out if waxing a pop can makes a difference, and who don’t mind if it doesn’t, because now they know (and it still looked cool).

The convenience store industry is often described as one where “everyone wants to be fi rst to be second.” Maybe that’s true of most industries, and the meaning is the same in all of them: Before business owners invest time and money in a new product or new line, they want to see it in action. And, whenever possible, they want to talk to people who have already been there and done that, to fi nd out how it’s really working out. Fuel marketers go to trade shows and petroleum industry events to see that stuff and talk to those people.

The challenge for a new product like E15 is most marketers don’t know a station owner who sells E15, and what they think they know has been warped by the ongoing E15 smear campaign. The American Coalition for Ethanol’s Flex Forward campaign introduces fuel marketers to other real, live marketers, who saw through those ghost stories, added E15, and made more money. We can’t bring experienced E15 marketers with us to every trade show or workshop ACE attends, so we’ve done the next best thing. We’ve brought their stories to ethanol.org and fl exfuelforward.com where they will be available 24/7, for marketers who live and work in the 24/7 convenience store world.

Beyond that, in the c-store world, just like every other “world,” there are operators who are watched more closely by other retailers. They are the innovators, retailers who try things nobody else has tried. When it works, they reap the rewards, if it doesn’t, they fi nd a way to make it work. That’s why it was a big deal when Sheetz Inc. announced it will be putting E15 in 60 stations this year. Sheetz is one of those companies. They have a reputation for being an innovator. If you doubt that, the next time you’re talking to a prospective E15 retailer, just drop this into the conversation: “Sheetz is going to sell E15 in 60 of their stores.” Watch for the reaction.

A lot of time and money has been spent to encourage some high-profi le retailers to offer E15. The only way that investment pays off is if other fuel retailers notice and want to “be the fi rst to be second.” Drop those names. Not just Sheetz. Mention Mapco. Murphy. Whoever sells E15 in your area. Every chance you get, let station owners know “someone like you” is selling E15. And it’s one of the cool guys.

Author: Ron LambertySenior Vice President

American Coalition for Ethanol605-334-3381

[email protected]

GRASSROOTS VOICE

End the Food Vs Fuel Debate By Bliss Baker

For several years the biofuels industry has been confronted with misinformation about the role that biofuels production plays in driving up food prices and impairing food security. It has been disseminated in large part by vested interests that have been threatened by the growth of the industry.

While the industry has countered this with the facts, the recent drop in oil prices and global food price index should fi nally put an end to the food vs. fuel debate.

The Global Renewable Fuels Alliance has repeatedly pointed out that the price of oil and energy inputs are the single most important drivers of food and commodity prices. For a number of years the World Bank, International Energy Agency and United Nations Food and Agriculture Organization had been under the misguided impression that food price increases were the result of increased biofuels production. They have since come to the conclusion that the biofuels industry has had a negligible impact on food prices.

The World Bank publication, “Long-Term Drivers of Food Prices,” which examined the relative contribution of various macroeconomic drivers on food price increases from 1997-’04 to 2005-’12 concluded “that most of the price increases are accounted for by crude oil prices (more than 50 percent)…” The report goes on to say, “most of the contribution to food price changes from 1997-’04 to 2005-’12 comes from the price of crude oil, which for maize and wheat is 52 percent and 64 percent, respectively.”

This long overdue “revelation” is not a surprise to the biofuels industry and the GRFA, which published the accompanying chart for the fi rst time fi ve years ago. It compares the global food price index published by the UN FAO with global crude oil prices and the results are undeniable: The recent collapse of global crude oil prices has been followed by the drop in the global food price index.

It is interesting to note that this recent drop in the food price index happened while biofuels production grew to over 90 billion liters per year.

More recently, the UN FAO concluded that biofuels have actually helped the agriculture sector over the years by stating in a recent publication that “increased agricultural productivity and output has ensured that the global supply of crops available for nonbiofuel uses has continued to grow over the long term.”

In a January speech at the Global Forum for Food and Agriculture by Jose Graziano da Silva, director general of UN FAO, he recognized biofuels as a key part of the global agriculture complex with social, agricultural and environmental benefi ts and the necessity for agriculture to accommodate both food and fuel. Perhaps this is a fi tting end to the debate once and for all.

Author: Bliss Baker Global Renewable Fuels Association

[email protected]

GLOBAL SCENE

SOURCE: GRFA

solenis.com/ethanol

2015

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A LEGACY OF PROVEN INNOVATION

Process AidsWater Treatment ChemistriesMonitoring and Control Systems


Vecoplan LLC has promoted Misty Turner to the position of as-sistant service manager. Responsibilities of her new position include connecting customers and fi eld technicians with Vecoplan’s internal

troubleshooting service technicians. She will also oversee the organization and schedul-ing of Vecoplan’s network of certifi ed service personnel throughout North America. Turner joined Vecoplan in March 2012 as a service administrator. She brings 10 years of man-agement and service experience to her new job, including three years as accounts receiv-able manager at HEP Direct and four years in customer service with Furniture USA.

American Ethanol reached a new mile-stone at the Phoenix International Raceway in March, when it topped 7 million miles of rac-ing. Th at equates with roughly 30 trips from the Earth to the moon or 281 laps around Earth. NASCAR began running E15 in 2011. Th e fuel change was in conjunction with its NASCAR Green Platform, which has become one of the most comprehensive recycling, tree planting and renewable energy programs in professional sports. American Ethanol is a partnership of the National Corn Growers As-sociation and Growth Energy.

Aemetis Inc. has appointed Satya Chill-ara as vice president of corporate develop-ment. Chillara has more than 24 years of ex-perience in the cleantech and semiconductor industries and on Wall Street. He previously served as managing director and equity re-search analyst working for several investment banks and hedge funds.

VAC-U-MAX has announced its 55MW industrial sump vacuum cleaner allows op-erators to quickly empty machine tool sumps, machining beds, oil/water separators, parts washers, rinse tanks and clean up liquid spills. Included with the complete system, the chip basket and liner separates solid particles from collected liquid at 1 to 2 gallons per second; and, with the turn of a lever, this industrial vacuum will pump out the fi ltered liquid con-tents of the drum through the discharge hose to a central fi ltration system for coolant/oils or approved fl oor drain at up to 14 gallons per minute.

Celtic Renewables has received £500,000 ($746,150) in a new round of investment, taking its valuation to £10 million. Th e com-pany announced an investment of £250,000 from the Scottish Investment Bank, with an additional £250,000 equity stake acquired by an existing private investor. Scottish Renew-ables converts whiskey waste into biofuels.

asdfGrowmark Inc. and Magellan Pipeline Co. PL have entered into an agreement in which Growmark will acquire the refi ned fuels terminal near St. Joseph, Missouri. Terms of the acquisition were not disclosed. Acquisition of the facility will enable Growmark to ensure continued supply of refi ned fuels. In addition to the current diesel fuel availability at the terminal, Growmark intends to off er ethanol blends of gasoline in the future.

asdfIogen has appoint-ed Gordon McLen-nan vice president of business development. McLennan has 35 years experience in domestic and international sales, revenue generation, project development,

operations management, change management and leadership. As vice president of business development, he will be responsible for de-veloping and delivering new commercial op-portunities, including Iogen’s current strategic initiatives both within and beyond cellulosic ethanol. Gordon will play a key role in build-ing upon Iogen’s commercial initiatives.

asdfAmerplast has entered into a supply part-nership agreement with Braskem to market green polyethylene (Green PE) obtained from a renewable source, sugar cane ethanol. While

BUSINESS BRIEFS People, Partnerships & Deals

Turner

McLennan


environmentally sustainable, Green PE has the performance characteristics of a traditional PE. For Amerplast’s customers, such as tissue producers, it off ers an environmentally sound alternative for meeting packaging needs.

asdfTh e Nebraska Corn Board recently pre-sented Duane Kristensen of Chief Ethanol Fuels Inc. with its Ethanol Industry Appre-ciation Award, which recognizes a producer or person in the industry who has worked hard to develop ethanol markets and expand demand for ethanol in the state while appre-ciating the value of the corn checkoff and its involvement in ethanol market development. Kristensen was selected for his leadership in Nebraska as well as his involvement and en-gagement in ethanol advocacy groups on a statewide, national, and global basis.

asdfMethes Energies International Ltd. recently announced it has received an initial payment for the sale of a Denami 600 bio-diesel processor and a PP-MEC pre-treatment system to be installed in Havelock, Ontario, Canada. Th e buyer, Drain Bros, will become the fi rst facility in the world to use Methes' pretreatment system using the PP-MEC cata-lyst to process corn oil from a local ethanol plant.

asdfEner-Core Inc., a provider of power oxi-dation technology and equipment that gener-ates clean power from low-quality and waste gases from a wide vari-ety of industries, has ap-pointed John Millard as director of Europe and

the Middle East region and Mark Owen as director of sales. Millard and Owen will both report directly to Alain Castro, CEO of Ener-Core. Millard has previously served as CEO of a Swiss energy consulting company focusing on demand-side energy management and most recently the development of smart energy sys-tems. Owen is an internationally recognized expert on industrial pollution control systems and processes. He has 30 years experience in

the commercialization, installation and op-erational servicing of various types of air pol-lution control and waste treatment systems.

asArcher Daniels Mid-land Co. has announced several management ap-pointments in its corn business unit. Craig Wil-lis, a 23-year company veteran, has been named president of the ethanol

group. He had been a vice president of the business since 2011. Prior to joining the etha-nol group in 2007, Willis’ broad-based ADM tenure included experience as commercial manager of three large oilseeds crush plants. He also managed origination and transporta-tion assets within the company’s agricultural services business unit. In addition, Kris Lutt and Andy Moore have been named president and vice president, respectively, of sweeten-ers and starches; Luther Pohlmann has been named vice president of corn operations, and Gary Towne will continue to serve as president of risk management for the corn business unit.In addition, ADM has announced that Mark Schweitzer has been appointed vice president of investor relations, where he will represent the company to the investment community and act as an advocate for shareholder value creation. Schweitzer previously served as man-aging director of ADM’s intermodal and in-ternational container freight business.

Duane Kristensen (left) accepts Ethanol Industry Appreciation Award from Dennis Gengenbach, farmer-director on the Nebraska Corn Board.

Millard


April 27— With NYMEX prices for the summer hovering between $2.50 and $2.70 per MMBtu, by how much will supply exceed demand? More to the point, where will inventory levels be by the end of the sum-mer? While it’s still early in the injection season, the data from the U.S. Energy Information Administration are encouraging from the perspec-tive of a consumer of natural gas. Storage inventory gains have been outpacing prior year levels and point toward an inventory level at the high end of the historic range by the end of the summer. High inventory levels tend to keep a lid on prices, so ultimately the outlook for the sum-mer is positive for the natural gas buyer.

Throughout the winter, the varying temperatures introduce a bit of noise into the supply-demand relationship that sets natural gas prices. While there were some supply disruptions over the course of this winter, April has ever-so-slightly surpassed the peak production levels of 2014. Further, the momentum of strong supply growth throughout last year sets this summer up for strong production, which has contributed di-rectly to the strong storage injection gains the market has seen in April.

For reference, April 2014 brought inventories up by 159 Bcf, and April 2015 is exceeding the prior year by roughly 60 percent, with injections coming in almost 100 Bcf higher. While it’s still early, the combination of a more comfortable starting inventory level and stronger production point to high storage levels by the end of the summer and a good buffer for offsetting next winter’s demand.

Natural Gas Report

Corn Report

April 27—Markets have been under pressure amidst planting progress, bird fl u and the overall comfortable feel-ing with domestic and global corn stocks.

Corn for feed demand is projected at 5.250 billion bushels. Traders will expect to see further declines in this sector for feed demand. Overall, corn carryout was pro-jected at 1.827 billion bushels, up from the previous esti-mates, however, well above last year’s 1.232 billion bushels.

Milo exports are projected at 350 million bushels compared to 212 million bushels a year ago. Milo demand into feed decreased by 25 million bushels compared to pre-vious projections. This indicates a strong milo export pro-gram has priced itself out of current feed rations.

Globally, corn stocks increased and are at comfortable levels. World stocks projected at 188.46 million metric tons vs. 170.84 million metric tons last year and 135.43 in 2012-’13. This growth in corn stocks has eased concerns and that is exhibited in how the managed money has them po-sitioned. Managed money has them in a short position not seen since the fall of 2013. For any upward momentum, the marketplace will need a newsworthy event or major weather headline to buoy prices.

Natural gas price outlook positive for consumer by Ben Straus

Corn, milo markets under pressure by Jason Sagebiel

COMMODITIES Prices & Market Analyses

Comments in this column are market commentary and are not to be construed as market advice.


DDGS Report

Ethanol Report

April 27—Ethanol prices have moved around in a choppy pattern over the past month, following the gyrations of gasoline prices as well as short-term moves in the grain markets. The market has been consis-tently locked in a 10-cent-per-gallon trad-ing range that appears to be willing to hold through the near future.

Gasoline prices, on the other hand, have continued to gain buyer momentum with quotes moving to $2 per gallon level in front-month futures contracts for the fi rst time since late 2014. This rebound in buyer support is driven by falling inven-

tory levels and the expectation that strong demand for gasoline will continue through the spring and early summer months.

Ethanol futures have hit resistance as expected large planted acreage for corn and subsequent falling corn prices are low-ering the fuel's production costs and al-lowing for even more ethanol production through spring months. This will likely add to the already heavy supplies available to the market, and the expected strong gaso-line demand will do very little to interest ethanol buyers over the near future.

April 27—With planting season right around the corner, the conversation about grain prices this time of year normally fo-cuses on soil moisture, and temperatures. This year, though, conversations about DDGS are more focused on Chinese ex-port business, and how sustainable it looks for the summer ahead. The prices that are being paid for distillers grains by exporters is well above its intrinsic value in the do-mestic market. All this spring, traders were booking a substantial amount of product for the second and third quarters, but only for the export market. Domestic buyers have been using a more traditional corn and soy mix, which DDGS usually sup-plants, but is not doing so today.

For domestic users, DDGS is cur-rently priced about $20 to $25 a ton too

high, versus other ingredients. Protein prices have dropped substantially through this spring, and are competitive with distill-ers on a per-protein unit calculation. Corn is priced at about 70 percent the value of DDGS delivered prices. It is most effi -ciently utilized in dairy rations, and the eco-nomics for producing milk right now are poor. There will need to be some serious price movement for DDGS to work into domestic rations, and prices, which were higher in February and March, have started to slip.

Looking ahead, it will be interesting to watch whether prices move enough to be-gin to work more readily into the domestic market, or if Chinese demand will contin-ue to pull it offshore.

Regional Ethanol Prices ($/gallon)Front Month Futures (AC) $1.609Region Spot RackWest Coast 1.790 1.850Midwest 1.570 1.745East Coast 1.670 1.774

SOURCE: DTN

Regional Gasoline Prices ($/gallon)Front Month Futures Price (RBOB) $2.009Region Spot RackWest Coast 2.490 2.747Midwest 2.029 2.438East Coast 1.863 2.641

SOURCE: DTN

DDGS Prices ($/ton)LOCATION Jun 2015 May 2015 Jun 2014Minnesota 170 180 225Chicago 192 210 255Buffalo, N.Y. 185 205 270Central Calif. 234 240 318Central Fla. 206 226 280

SOURCE: CHS Inc.

Corn Futures Prices (June Futures, $/bushel)Date High Low CloseApr 24, 2015 3.77 1/4 3.69 1/2 3.69 3/4Mar 24, 2015 4.01 3/4 3.96 4.01 1/4Apr 24, 2014 5.13 1/2 5.05 1/2 5.07 1/4

SOURCE: FCStone

Cash Sorghum ($/bushel)Location Apr 17,

2015Mar 24,

2015Apr 24,

2014Superior, Neb. 4.65 4.68 4.40Beatrice, Neb. 4.50 4.23 4.15Sublette, Kan. 4.77 4.44 4.58Salina, Kan. 4.55 5.03 4.74Triangle, Texas 4.93 4.08 3.79Gulf, Texas 5.95 5.88 5.60

SOURCE: Sorghum Synergies

Natural Gas Prices ($/MMBtu)LOCATION Apr 28,

2015Feb 27,

2015Apr 29,

2014NYMEX 2.52 2.73 4.83NNG Ventura 2.41 3.88 4.75Calif. Citygate 2.59 2.99 5

SOURCE: U.S. Energy Services Inc.

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

Jan. 2015 960 29,755 20,543Dec. 2014 1,002 31,054 18,739Jan. 2013 799 24,778 19,894

SOURCE: U.S. Energy Information Administration

DDGS priced out of domestic market by Sean Broderick

Ethanol prices remain range bound by Rick Kment

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EXHIBITORS __________________________________________________________________________________________________________

4B Components, Ltd.A&B Process Systems CorporationAaron Equipment CompanyAbengoaADF Engineering, Inc.ADI Systems, Inc.AggrekoAgra Industries, Inc.Air Resource Specialists, Inc.Alfa LavalAllied Locke IndustriesAmec Foster WheelerAmerican Coalition for EthanolAmerican Lung Association in MinnesotaAnderson Chemical Co.Andritz, Inc.Andy J. Egan Co., Inc.Angel Yeast Co., Ltd.AnitoxApache Stainless Equipment CorporationArisdyne Systems, Inc.Arkema, Inc.Barr EngineeringBASF Enzymes, LLCBeta Tec Hop ProductsBiofuels International MagazineBioFuels JournalBion AnalyticalBismarck State College-National Energy Center of ExcellenceBliss Industries, LLCBriggs of Burton, Inc.Brown Tank, LLCBruker OpticsBuckmanBulk Conveyors, Inc.Buresh Building Systems, Inc.Butamax Advanced Biofuels, LLCButterworth, Inc.CarbolineCarter Day International, Inc.CenterPoint Energy Services, Inc.Cereal Process Technologies, LLCChemTreatChristianson & AssociatesCHS, Inc.Clayton IndustriesCloud/Sellers Cleaning SystemsColumbia Pipe & Supply Co.CompuWeigh Corp.Consolidated Water SolutionsConveyor Engineering & ManufacturingCooling Technology InstitueCooling Tower Depot, Inc.CPM Roskamp ChampionCTE Global, Inc.Direct AutomationDPC Industries, Inc.DuPontDürr Systems, Inc.EAD CorporateEcoEngineersEdeniq

Eisenmann CorporationEmerson Process ManagementEnerquip, LLCEnviro-Dyne Industrial Services, Inc.ERI Solutions, Inc.eRPortal Software Group, LLCEthanol Producer MagazineFagen, Inc.Ferm Solutions, Inc.Flottweg Separation Technology, Inc.FLSmidthFluid EngineeringFluid Quip Process Technologies, LLCFremont IndustriesFrontline Warning SystemsGE Water & Process TechnologiesGEA Flow ComponentsGEA GroupGEA PHE SystemsGenesis IIIGlobal Refractory Installers and SuppliersGolder Associates, inc.GreenShit CorporationGrowth EnergyHealthmate International, Inc.Hengye, Inc.HTH CompaniesHydrite Chemical Co.Hydro-Klean, LLCHydro-Thermal CorporationIBT Industrial SolutionsICM, Inc.Inbicon/ DONG EnergyIndustrial Equipment & PartsInnospec Fuel SpecialtiesIntegrated Power ServicesIntegroEnergy Group, Inc.Interpoll Laboratories, Inc.Interra Global CorporationInterstates CompaniesIntertekINTL FCStoneIvanhoe Industries, Inc.J&D Construction, Inc.J.C. Ramsdell Enviro Services, Inc.Jacobs CorporationJatrodieselJMENG Industries, Ltd.JMPK & L Equipment Mechanical, Inc.K·Coe IsomKATZEN International, Inc.Kubco Decanter Services, Inc.Laidig Systems, Inc.LAKOS Separators and Filtration SolutionsLallemand Biofuels & Distilled SpiritsLarson Engineering, Inc.Leaf TechnologiesLotus Mixers, Inc.Luoyang Jianlong Chemical Industrial Co., Ltd.Maas CompaniesMagnetec Inspection, Inc.

Mapcon TechnologiesMason ManufacturingMcC, Inc.Merjent, Inc.Metrohm USAMidland Scientific, Inc.Minnesota Bio-Fuels Association, Inc.Mist Chemical & Supply CompanyMole Master Services CorporationMonitortech CorporationMSW Consulting, Inc.MVTL LaboratoriesNalco, an Ecolab CompanyNational Corn-to-Ethanol Research CenterNationwide Boiler, Inc.Nelson Engineering, Inc.Neogen CorporationNew Age CryoNew Holland Agriculture & ConstructionNew York Blower CompanyNorth American Industrial Services, Inc.NovaspectNovozymesOlsson AssociatesOrbijet, Inc. and Tank Cleaning Technologies, Inc.Pace Analytical ServicesPainters USA, Inc.Pan American Hydrogen, Inc.Paques, Inc.Paul Mueller CompanyPentairPepper MaintenancePerten Instruments-A PerkinElmer CompanyPhibro Ethanol Performance GroupPinnacle Engineering, Inc.PK SafetyPlant Maintenance ServicesPneumat SystemsPOET-DSM Advanced Biofuels, LLCPolar CleanPraj Industries LimitedPremium Plant Services, Inc.ProQuip, Inc.Protectoseal Company, ThePumping Solutions, Inc.Purina Animal Nutrition, LLCQuality Liquid FeedsRayeman Elements, Inc.Refractory & Insulation Supply, Inc.Refractory Service, Inc.Renewable Fuels AssociationRenewal Service, Inc.Roadway Worker TrainingRotary Airlock, LLCRTP Environmental Associates, Inc.Schimberg CompanySchneider Electric-InvensysSchroeder Environmental Cleaning Services, Inc.Scott Equipment CompanySeneca Companies

SiemensSinobios (Shanghai) Imp. & Exp. Co., Ltd.SolenisSorghum CheckoffSOS Leak RepairSponge-Jet, Inc.Sukup ManufacturingSulzer Pumps Solutions, Inc.Sundial SolarSunson Industry Group Co., Ltd.Superior Process TechnologiesSwagelok MinnesotaSwanson Flo-Systems Co.SyngentaTank Consultants, Inc.Team Industrial ServicesThe Cary CompanyThe Walling CompanyThermal Energy Products, Inc.Thorpe Special Services CorporationTotal Filtration Services, Inc.Tower Performance, Inc.TracercoTRAMCO (AGI)Tranter, Inc.Trident Automation, Inc.Trihydro CorporationTrillium Industrial ServicesU.S. Energy ServicesU.S. Grains CouncilU.S. WaterVAA, LLCVAC-U-MAXValicorVeolia Water TechnologiesVertical Software, Inc.Victory EnergyViking Automatic Sprinkler Co.VistaCommVogelbusch USAWalinga USA, Inc.Warrior Mfg., LLCWaters CorporationWB Services, LLCWCR IncorporatedWestmor Fluid SolutionsWhistler Center for Carbohydrate Research, Purdue UniversityWhitefox Technologies LimitedWINBCOZachry Engineering CorporationZeochem, LLC

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As of May 6, 2015


DISTILLED Ethanol News & Trends

In April, the U.S. Energy Information Administration released comprehensive ethanol production, consumption and trade statistics for 2014 as part of its Month En-ergy Review report series.

According to the report, the U.S. etha-nol industry processed 1,969 trillion Btu (TBtu) of feedstock last year, up from 1,825 TBtu in 2013 and 1,814 TBtu in 2012. U.S. ethanol production reached 14.34 billion gal-

lons last year, up from 13.293 billion gallons in 2013 and 13.218 billion gallons in 2012.

The U.S. consumed 13.467 billion gal-lons of ethanol last year, up from 13.216 billion gallons in 2013 and 12.882 billion gal-lons in 2012. In addition, net imports were -18.454 million barrels last year, compared to -5.761 million barrels in 2013 and -5.891 million barrels in 2012.

EIA issues 2014 statistics on US ethanol industry

In March, the U.S. EPA approved fi ve new corn ethanol pathways under the agency’s Effi cient Producer petition process (EP3), including Heron Lake BioEn-ergy LLC, Heron Lake, Minnesota; United Wisconsin Grain Producers LLC, Friesland, Wisconsin; Guardian Lima LLC, Lima, Ohio; Mid-Missouri Energy LLC, Malta Bend, Missouri, and Green Plains- Atkinson, At-kinson, Nebraska.

According to the EP3 approval letters, the green-house gas (GHG) reduction for the plants was: Heron Lake BioEnergy, 20.1 percent; United Wisconsin Grain Producers, 24.6 percent; Guardian Lima, 20.9 percent; Mid-Missouri Energy, 21.3 percent, and Green Plains- Atkinson 20.4 percent GHG reduction.

A total of 24 corn ethanol plants have received ap-provals under the new pathway petition process since it was introduced last year. The Effi cient Producer peti-tion process was designed by EPA to expedite process-ing of the large number of petitions submitted by corn starch and grain sorghum ethanol producers.

Effi cient Producer pathways approved for 5 plants

SOURCE: U.S. ENERGY INFORMATION ADMINISTRATION

U.S. Ethanol Statistics Feedstock

(TBtu)Production

(Mmgal)Net imports

(Mbbl)Consumption

(Mmgal)

2010 1,839 13,298 -9,115 12,8582011 1,919 13,929 -24,365 12,8932012 1,814 13,218 -5,891 12,8822013 1,825 13,293 -5,761 13,2162014 1,969 14,340 -18,454 13,467

Some chemical companies focus only on process. Some focus solely on water treatment. Buckman takes a comprehensive approach and looks at the bigger picture — return on investment and environment. We look at every aspect of your plant’s operation,

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].

© 2014 Buckman Laboratories International, Inc. All rights reserved.

Some chemical companies focus on this or that .

Buckman takes a wider view.


EPA posts 2014-‘16 RFS rulemaking schedule The U.S. EPA has announced it will issue

proposed volume requirements for the 2014, 2015 and 2016 renewable fuel standard, along with 2017 volume requirements for biomass-based diesel, by June 1. All four rulemakings are scheduled to be fi nal by Nov. 30. Regard-ing the 2014 standard, the EPA said it will re-propose 2014 volume requirements by June

1 that refl ect the volumes of renewable fuel that were actually used in 2014.

A portion of the new compliance sched-ule is the result of a proposed consent de-cree in litigation brought against EPA by the American Petrochemical Institute and Amer-ican Fuel and Petrochemical Manufacturers.

DISTILLED

PureVision Technology has announced plans to scale up its biorefi ning technology at ZeaChem Inc.’s industrial site in Boardman, Ore-gon. The two companies expect to break ground later this year on the PureVision building at the Boardman site.

PureVision’s patented biorefi ning technol-ogy converts biomass into sugars, pulp, lignin and other value-added materials for making bioprod-ucts. The company currently operates 0.5-ton-per-day continuous pilot plant at its Fort Lupton, Colorado, headquarters.

“After an 18-month search for a site to de-velop our commercial demonstration-scale bio-refi nery, PurVision is excited to team up with ZeaChem Inc. and colocate our advanced bio-refi ning technology at their existing $70 million biorefi nery in Boardman, Oregon,” said Pure-Vision CEO Ed Lehrburger. “The signifi cant infrastructure in place at the ZeaChem facility will reduce the costs and timing to develop our 25-ton-per-day biorefi ning project. The Board-man, Oregon, location will accelerate bringing our technology to market.”

PureVision to scale up operations at ZeaChem’s Boardman site

2014 RFS Volume Comparison (in billion gallons)Statutory

requirements Initial proposed

rule 2014 production

(No. of RINs)Cellulosic biofuel 1.75 0.017 (range of

0.008-0.030)0.033

Biomass-based diesel

No less than 1 1.28 2.700

Advanced biofuel 3.75 2.20 (range of 2-2.51)

0.140

Renewable fuel 18.15 15.21 (range of 15-15.52)

14.340

SOURCE: U.S. EPA

The Iowa Renewable Fuels As-sociation recently announced that data published by the Iowa Department of Revenue shows a record-setting 11.96 million gallons of E85 was sold in the state last year. The nearly 12 million gallons sold in 2014 beat the previous record set in 2013 by more than 1 mil-lion gallons.

“Another year, and another E85 sales record in Iowa,” said Monte Shaw, executive director of the IRFA.

“The most impressive aspect of this record is that retail gasoline prices dropped signifi cantly in the second half of the fourth quarter of 2014, yet Iowa motorists remained committed to the homegrown, cleaner-burning fuel by setting a new fourth-quarter record for E85 purchases.

According to the IRFA, E85 is currently sold at approximately 200 fueling stations in Iowa.

DISTILLED

Iowa sets annual E85 sales record

Croda to convert ethanol to ethylene oxide

Croda Inc. has announced plans to construct a $170 million upgrade at its Atlas Point manufactur-ing site in Delaware that will convert ethanol into ethylene oxide. Construction is expected to take ap-proximately two years.

Once complete, the company will begin con-verting between 10 MMgy and 14 MMGy of etha-nol into ethylene oxide, opening a new market for U.S. ethanol. Ethylene oxide is the primary chemical used in the manufacture of nonionic surfactants.

“This will be the fi rst facility of its kind in North America,” said Richard Hanson, managing director of performance technologies and indus-trial chemicals for the U.K.-headquartered specialty chemical company.

Currently, Croda rails in ethylene oxide manu-factured on the Gulf Coast from petrochemical-based ethane or naptha. The new project will provide a renewable alternative to traditional fossil-based ethylene oxide. Customers are increasingly looking for sustainable, renewable materials, Hanson said.

SOURCE: IOWA DEPARTMENT OF REVENUE

Iowa E85 gallons sold (in millions)Q1 Q2 Q3 Q4

2014 2.71 2.98 3.34 2.932013 1.83 2.62 3.61 2.782012 2.32 2.31 2.78 1.662011 2.52 3.70 2.57 1.942010 1.62 2.77 2.85 2.08

L E S A F F R E A D V A N C E D F E R M E N T A T I O N T E C H N O L O G I E S

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www.leaftechnologies.com reliability performance yield


In March, Oregon Gov. Kate Brown signed S.B. 324 into law. The bill removes the Dec. 31, 2015 sunset date from the state’s Clean Fuels Program. By signing S.B. 324, Brown has allowed the program to be implemented past the end of this year.

The program, which is similar to California’s Low Carbon Fuel Standard, requires a 10 percent reduction of green-house gases from transportation fuels over a 10-year period.

“I strongly support SB 324's goal to reduce greenhouse gas emissions. It is diffi cult to deny that we are seeing the ef-fects of a warming planet,” Brown said. “This year, 85 percent of our state is ex-periencing drought, with 33 percent ex-periencing extreme drought. This directly impacts 1.5 million Oregonians, hitting our rural communities the hardest. With California, Washington, and British Co-lumbia moving forward with their own

clean fuels programs, which will shape the West Coast market, it is imperative not only that Oregon does its part to re-duce greenhouse gas emissions but also that we build a program that meets the needs of Oregonians.”

Sunset date removed from Oregon Clean Fuels Program

California plant produces low-carbon,whole-beet ethanol

DISTILLED

Mendota Bioenergy LLC’s phase one dem-onstration plant in Fresno County, California, has successfully produced whole-beet ethanol. Project Manager Jim Tischer said the results that arrived in March were quite favorable. “We’ve made the fi rst whole-beet, low-carbon ethanol in the United States,” he said.

The developers now need California En-ergy Commission approval before moving on to phase two, proving the process in larger reactors and with more complex equipment. Though the demo facility has a 1 MMgy capac-ity, Tischer said the initial production runs will be smaller, dependent upon the availability of feedstock. The Phase II demonstration is ex-pected to run in mid- to late-summer, when the next crop of energy beets is ready for harvest.

Sugar beets are a familiar ethanol feed-stock, but until now that feedstock has been produced from the standard sugar extraction process using steam. Mendota Bioenergy’s pro-cess sizes down the whole beets, warms them up and liquefi es using enzymes.

Oregon Clean Fuels StandardRequired reduction

2016 0.25%2017 0.50%2018 1.00%2019 1.50%2020 2.50%2021 3.50%2022 5.00%2023 6.50%2024 8.00%2025 and beyond

10.00%

SOURCE: OREGON DEPARTMENT OF ENVIRONMENTAL QUALITY


The Advanced Energy Economy recently commissioned a study com-pleted by Navigant Research that found the U.S. advanced energy market grew by 14 percent last year, which is fi ve times the rate of the U.S. economy overall. Ac-cording to the report, the U.S. advanced energy market was worth an estimated $199.5 billion in 2014.

According to the report, fuel pro-duction was the fourth largest advanced energy segment last year, with an estimat-ed $148.1 billion in global revenue. The segment grew by an estimated 4 percent from 2013 to 2014, with a 34 percent

increase from 2011 to 2014. “Ethanol and butanol, including both sales of fuel and investment in refi nery infrastructure, continued to be the leading source of revenue with a combined $78 billion in revenue, representing 2 percent growth over 2013,” said Navigant Research in the report.

Globally, sales of ethanol and bu-tanol reached approximately 25.8 billion gallons last year, up from 23.4 billion in 2011. Ethanol made up the majority of that volume. U.S. sales of ethanol totaled an estimated 14.2 billion gallons, equat-ing to $39.1 billion in revenue.

DISTILLED

Report illustrates value of US, global ethanol market

Ceres, Raízen announce sweet sorghum project

Ceres Inc. and Brazil-based Raízen S.A. have signed a multiyear collaboration agreement to de-velop and produce sweet sorghum on an industrial scale. Sweet sorghum can be grown to complement existing feedstock supplies, extending the operating season of Brazilian sugarcane-to-ethanol mills.

Under the agreement, the companies will con-tribute in-kind services and resources and share in the revenue from the ethanol produced from Ceres’ sweet sorghum above certain levels. This season, Raízen has planted Ceres’ sweet sorghum in a single location and plans to expand to multiple mills in the future.

“The ethanol industry in Brazil has a history of successfully competing against low-priced oil and we believe that sweet sorghum, which has lower production costs than sugarcane, can be further developed and scaled up as an integral part of the industry’s feedstock supply,” said Richard Hamilton, president and CEO of Ceres.

SOURCE: NAVIGANT RESEARCH, "ADVANCED ENERGY NOW 2015 MARKET REPORT"

Ethanol and butanol fuel production revenue (millions) 2011 2012 2013 2014 (estimate)

U.S. $39,140 $41,730 $40,371 $40,932Global $68,140 $84,240 $76,645 $77,956


Environmental Entrepreneurs (E2) recently released its fourth-quarter and year-end 2014 jobs report, which shows contin-ued growth of clean energy and clean trans-portation jobs in the U.S.

For the full year 2014, E2 reported 46,783 clean energy and clean transportation jobs were announced at 177 projects. A to-tal of 23,625 renewable energy jobs at 112 projects were announced last year, including

813 biofuel jobs at eight projects, 125 bio-gas jobs at four projects, and 399 biomass power jobs at seven projects. The remain-ing renewable energy jobs were announced for geothermal, solar and wind projects. The 46,783 jobs announced last year also included 16,015 manufacturing jobs, 2,266 jobs classifi ed as “other,” 2,000 public trans-portation jobs, 1,932 recycling jobs and 925 building effi ciency jobs.

E2 report tallies 2014 biofuel industry jobs

Report highlights corn ethanol's role in cellulosic development

DISTILLED

Third Way recently released a report highlight-ing the connection between fi rst- and second-gener-ation ethanol and the need for continued implemen-tation of the renewable fuels standard (RFS).

According to Third Way, 80 percent of com-mercial cellulosic ethanol capacity in the U.S. has been developed by companies with extensive back-grounds in corn ethanol. The report stresses invest-ment from these companies is critical to growing U.S. cellulosic capacity, especially in the near-term. First Way also notes that certain proposals to re-form the RFS would discourage engagement from the corn ethanol industry, causing delays in the com-mercialization of cellulosic ethanol in the U.S. and potentially driving investment overseas.

Within the report, Third Way said the four cel-lulosic ethanol companies it examined all have plans to rapidly expand their technologies to additional facilities. This expansion could help bring the cost of cellulosic ethanol down. Efforts to alter the RFS, however, could derail those plans.

2014 job announcements No. of jobs No. of job

announcements Renewable energy jobs 23,625 112

Biofuel 813 8Biogas

(generation)125 4

Biomass (generation)

399 7

Total clean energy jobs 46,783 177SOURCE: ENVIRONMENTAL ENTREPRENEURS

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34 | Ethanol Producer Magazine | JUNE 2015©2015 Lallemand Biofuels & Distilled Spirits. All rights reserved.©20©20©20151515 LalLalLalLallemlemlemmandandand BiBiBiofuofuofuofuelselselsels & &&& DisDisDisDistiltiltiltilledledleded SpSpSpSpiriririts.ts.t AlAll rl rrrighighig ts ts ts resresservervr ed.ed.

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BUSINESS


BUSINESS

Like golf, ethanol mergers and acquisitions (M&A) is game of opposites. A golfer swings right to draw the ball left, left to cut it right, down to send it up. Ethanol M&A, too, work on ironic inverse relationships. Transaction numbers spike after bad times and dip during good times. High margins work against deals. Low margins produce them. Simply put, when profi tability goes up, ethanol M&A activity generally goes down.

After the 2008 downturn, for example, 29 ethanol plants traded hands in 18 transactions before the end of 2010, accord-ing to Mark Fisler, managing director at Los Angeles-based in-vestment banking fi rm Ocean Park Advisors. “That was a huge amount of volume over a two-year stretch,” Fisler says, explain-ing that improved margins, starting in 2010, yielded only fi ve ethanol plant acquisitions in four deals in 2011. Then low M&A activity continued through the fi rst half of 2012 following a generally profi table 2011.

Production margins sagged in 2012, spurring the sale of six ethanol plants late in the year and setting the stage for double-digit transactions in 2013. “We saw 13 ethanol plants acquired in 10 transactions that year,” Fisler says. “It was driven mostly by weak balance sheets and distress coming off 2012. “Clearly, the industry sees more transactions on the heels of distressed cycles than it does during or after good times.”

That last big M&A run ended when the ethanol industry cycled into an epic 18-month stretch of record margins from

mid-2013 through late 2014. “I would characterize the last year and a half as a period of low M&A activity, but it depends on what you compare it to,” Fisler says, explaining that there were fi ve ethanol asset transactions completed in 2014. “There are a lot of reasons for that, includ-ing the fact that ethanol margins were so good through most of 2013 and 2014.”

Most but not all M&A ac-tivity in the ethanol industry since 2008 has been a story of leaders acquiring laggards. A vast majority of the deals were fi nancially distressed independent plants acquired by large, inte-grated ethanol producers. Today, Fisler says, “strategic produc-ers” remain interested in acquiring ethanol plants, but sellers are scarce. “We’re four months into the year and there really isn’t an announced 2015 deal at this point,” he says. “There are whis-pers about deals—and we are in talks with various people—but ethanol producers just aren’t approaching the table. So there’s a lot of interest in transactions but very few producers looking at a sale.”

Fisler continues, “When you talk to a producer who just made 60, 70, 80 cents a gallon last year, it’s pretty hard for them to get excited about where plants are trading. Ethanol plants are [selling for] roughly $1.60 per gallon on nameplate capacity or

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2013-2014 U.S. Ethanol Plant TransactionsThere have been 22 plants acquired totaling 1,617 MMgyAquirer Target Plants

AquiredMMgy

AquiredTxn. Value

($M)$/Gallon

Pending - Pacifi c Ethanol Aventine Renewable Energy 4(1) 315 $325.00 $1.032014 Flint Hills Resources Southwest Georgia Ethanol 1 100 NA NA2014 Green Biologics Central MN Ethanol Co-op 1 21 NA NA2014 CHS Illinois River Energy 1 133 $160.00 $1.202014 Tyton BioEnergy Clean Burn Fuels 1 60 $12.20 $0.212014 Valero Aventine Renewable Energy 1 110 $34.00 $0.312013 Guardian Energy Hankinson Renewable Energy 1 130 $170.00 $1.292013 Green Plains BioFuel Energy 2 220 $101.00 $0.462013 Flint Hills Resources Platinum Ethanol 1 110 NA NA2013 West Ventures Purifi ed Renewable Energy 1 18 $5.00 $0.282013 Marathon Petroleum The Andersons 3 86 $75.00(2) $0.872013 Global Partners Columbia Pacifi c Bio-Refi nery 1 107 $95.50 $0.89(3)

2013 Granite Falls Energy Heron Lake BioEnergy 1 32(4) $62.50 $1.082013 Ace Ethanol Utica Energy - Oshkosh 1 60 $16.50 $0.282013 Green Plains Choice Ethanol Holdings 1 50 $15.00 $0.302013 Future Fuels Osage Bio Energy 1 65 $13.00 $0.20

TOTAL 22 1,617 (5) $1,085.30 $0.65(6)SOURCES: PUBLIC FILINGS AND OCEAN PARK ADVISORS DATABASE.(1) Aventine Renewable Energy is comprised of two facilities each in Pekin, Ill., and Aurora, Neb. (2) Represents an acquisition of minority stakes in three ethanol plants from Mitsui.(3) Transaction based on marine terminal value. (4) 32 MMgy of capacity acquired by Granite Falls is pro-rata for its 63.3% ownership stake in Heron Lake BioEnergy.(5) Based on announced capacity. (6) Average of transactions.

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Seven buyers have bought 64 percent of plants and 68 percent of capacity since 2009. In all there have been 28 buyers in fi ve years.

SOURCE: OCEAN PARK ADVISORS

Single Acquisition BuyersGreen Biologics / 21 MMgy - 2014CHS / 133 MMgy - 2014Global LP / 107 MMgy - 2013Central Farmers Co-op / 100 MMgy - 2009Poet / 90 MMgy - 2010SiemKapital & North Atlantic Value(1) /87 MMgy - 2011Marathon Petroleum /86 MMgy - 2013Future Fuels / 65 MMgy - 2013TytonBioEnergy / 60 MMgy - 2014Ace Ethanol / 60 MMgy - 2013Aemetis / 55 MMgy - 2012Pratt Biofuel / 55 MMgy - 2012The Andersons / 55 MMgy - 2012Carbon Green / 50 MMgy - 2009REX / 50 MMgy - 2011Nebraska Corn Processing / 44 MMgy - 2009Palmer Energy / 40 MMgy - 2012Aventine / 38 MMgy - 2010Granite Falls / 32 MMgy - 2013Gevo /22 MGPY - 2010West Ventures /18 MMgy - 2013

Top Seven Buyers Flint Hills - 6 Acquisitions in 2010–2014 - 7 plants and 760 MMgy capacity Green Plains - 5 Acquisitions in 2009–2013 - 8 plants and 632 MMgy capacity Valero - 4 Acquisitions in 2009, 2010 and 2014 - 12 plants and 1,220 MMgy capacity Guardian Energy - 3 Acquisitions in 2009, 2010 and 2013 - 3 plants and 304 MMgy capacity Pacifi c Ethanol - 2 Acquisitions in 2014 and 2010 - 5 plants and 335 MMgy capacity Murphy Oil - 2 Acquisitions in 2009 and 2010 - 2 plants and 225 MMgy capacity Big River - 2 Acquisitions in 2009 and 2012 - 2 plants and 155 MMgy capacity(1) Going private transaction.

U.S. Ethanol Plant Acquirers (2009 –2014)


around $1.30 per gallon on their operat-ing rate. So if you made 70 or 80 cents a gallon last year, that’s not very interest-ing. Shareholders remember the last divi-dend check they made, and most of them don’t want to let go of an asset for that low a number right now.”

Notably, M&A activity in the etha-nol sector doesn’t follow industrial M&A activity in general. “The ethanol industry is characterized by single-purpose assets at location,” Fisler says, explaining how some industries offer more opportunities for transactions than others. “There are a limited number of reasons for ethanol plant acquisitions.”

The fact that this year’s lower-mar-gin environment has not spurred ap-preciable M&A activity could be the result of two things. First, it’s early and transaction activity generally lags behind prevailing market conditions by sev-eral months. Second, many U.S. ethanol producers were able to strengthen their balance sheets and reduce their debt last year. “The massive run up in crush spreads provided meaningful liquidity to producers and gave them a number of capital market solutions for the fi rst time in a while,” says Scott Chabina, director at Carl Marks Advisors, a New York-based investment banking fi rm. Chabina cites three high-profi le loans secured by producers in 2014, including a $66 mil-lion senior credit agreement completed by Southwest Iowa Renewable Energy, a $225 million senior secured credit facil-ity completed by Green Plains Renew-able Energy, and a $40 million loan and security agreement secured by Aventine Renewable Energy before the company moved ahead with its pending merger with Pacifi c Ethanol. “This was a great time to provide optionality, which is king in the world of ethanol. It’s defensive. It’s strategic. You need to be a low-cost producer and take advantage of the mar-gins when the margins are there.”

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Chabina says ethanol producers, big and small, are still in good positions and able to act on strategic activities including M&A, refi nancing and inside-the-fence capital projects. “Producers are look-ing at projects,” he says. “In many cases, they're dusting off the CapEx books that have been on the shelf for a while be-cause they’re in a position to take advan-tage of having liquidity.”

Nondistress Deals While fi nancial distress may be the

surest expediter of ethanol plant transac-tions, it is not the only thing that makes deals occur. Fisler says multiple ethanol plants have been sold in recent years by what he calls nonlong-term inves-tors. “These are your pure-play investor groups that see an opportunity in etha-nol, put dollars into a plant, achieve good returns and want to exit their invest-ment,” he says, citing CHS’s acquisition of Illinois River Energy LLC last April. “That’s a perfect example of a plant that was owned by an offshore investor that didn’t see the asset as strategic to retain. That deal was not driven by distress.”

At the other end of the seller spec-trum are farmer-owned ethanol plants, arguably the most unlikely transaction participants. Fisler says that about a third of U.S. ethanol plants can still be char-acterized as “steadfastly independent,” and not interested in giving up control, regardless of margins. “Those types of ethanol plants are usually not going to trade. Even though there might be a real opportunity to merge four or fi ve smaller plants together in a way that creates a greater internal balance sheet, better cash fl ows, greater ability to invest and grab new technology, they may not necessarily be interested in hearing that because they just want to keep what they’ve got.”

Chabina says some near-term etha-nol plant transactions could involve

middle-of-the-road producers who have “earned their way out of trouble” and are considering selling while they’re in a strong position. “Against the outlook of a more moderate 2015, it might make sense for some of these guys to explore their options and look at a sale,” Cha-bina says, explaining that nondistressed facilities can command a premium from buyers seeking assets with specifi c attri-

butes. “Many producers wanted to ac-quire gallons for scale a few years ago. Now, buyers are more disciplined and seeking assets that fi ll out their respective network for a number of reasons. Flint Hills’ acquisition of Southwest Georgia Ethanol is a great example of that sort of approach. It was strategic purchase and it made sense for them given their existing resources.”

BUSINESS


Chabina adds, “The appetite from buyers is still there, but they are more discerning. They know what they want, and it’s often not just a matter of gal-lons. Buyers are looking at the specifi c production history of a facility, its transportation and logistics situation, its management team, third parties ser-vices, grain storage and more. The at-tractiveness of each plant is unique to each prospective buyer. That’s always been true, but today’s buyers are more disciplined and won’t simply stretch for gallons alone.”

A new X-factor in ethanol M&A is the potential for more transactions to be driven by strategies to convert existing ethanol plants into facilities that can produce nonethanol fuels and chemicals. “We’re seeing the emergence of companies interested in buying and retrofi tting ethanol plants for other purposes, one being the possibility of producing higher-value, higher-margin specialty chemicals,” Chabina says. “That tends to lead toward the discus-sion of the diversifi ed, integrated bio-refi nery concept against the backdrop of the big second-generation ethanol plants that are coming online.”

Having spearheaded the sale of the Central Minnesota Ethanol Co-op to Green Biologics last year (see “Back to the Future with N-butanol” on page 46), Fisler knows fi rsthand what the value proposition is, for both buyers and sellers, in transactions based on plant conversions. Green Biologics purchased CMEC in a creatively struc-tured deal that gained a lot of attention in the biofuels M&A space. When com-pleted, the reconfi gured plant will have the capability to produce acetone, nor-mal butanol and ethanol. “I’d be sur-prised if we don’t see more deals like that in the future,” he says.

Clear Signals Help At press time, the ethanol industry

was awaiting the U.S. EPA’s fi nal 2014 and proposed 2015 and 2016 renew-able volume obligation (RVO) num-bers, which instruct oil companies on their mandated biofuels blending obli-gations. Fisler doesn’t expect the RVOs to have a major impact on ethanol plant M&A, but he does think improved pol-icy certainty will invite more capital to the biofuels sector. “The type of im-provement projects that a number of producers are looking at are quite large and would require the support of the lender community,” Fisler says. “Bet-ter policy certainty might help facilitate that process, particularly if it gives the industry a runway for cellulosic ethanol or plant upgrades.”

Chabina agrees that a stable regula-tory and policy environment is key for biofuels fi nance markets. “It’s critical to stay the course and send a clear signal that encourages companies to invest the time and capital in next-generation biofuels and, more broadly, biorefi n-ing,” he says, adding that he believes M&A activity will pick up regardless of where the EPA lands on its RVOs. “Absent any truly adverse changes to the RFS or major weather events, mar-gins are largely expected to be moder-ate. We’re not expecting to see a lot of plants with their backs against the wall. There will still be some distressed asset sales, but they will be less a function of pure crush spreads and more a function of not being the low-cost producers in a normalized market.”

Author: Tom Bryan Editor in Chief, Ethanol Producer Magazine

[email protected]

BUSINESS

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PROFILE

BRIGHT FUTURE: Scott "Butch" Haggerty, operations manager, pauses outside the 21 MMgy ethanol plant in Little Falls, Minnesota, which is in the process of transitioning to n-butanol, acetone and a small amount of ethanol. PHOTO: KIMM ANDERSON


PROFILE

‘Back to the Future’ With N-butanol

A Minnesota ethanol plant is fi rst in line to produce high-value renewable chemicals. By Holly Jessen

Running a 21 MMgy ethanol plant in an industry led by 100 MMgy-plus facilities isn’t easy. Smaller plants are at a major disadvantage, says Dana Persson, who served as CEO of Central Minnesota Ethanol Co-op for four years. “Being a small plant, you question what your future might be, and what that means to the plant, the corn farmers and shareholders.”

Then, along came Green Biologics Inc., a wholly owned subsidiary of a United King-dom industrial biotechnology and renewable chemicals company, Green Biologics Ltd. The company’s business model is to own and operate or become a majority shareholder in ethanol plants for normal butanol (n-buta-nol) and acetone production, says Joel Stone, president of Green Biologics. The plan is to add bolt-on production capacity at ethanol plants or retrofi t them, like at newly renamed Central Minnesota Renewables in Little Falls,

where Persson now serves as interim general manager of the plant and vice president for Green Biologics. Pulp and paper mills are an-other potential target, Stone says.

Acquisition of the Little Falls facility, which closed in December, was the fi rst step. Detailed engineering to retrofi t it for n-buta-nol and acetone production was ongoing in April, with construction expected to begin in early summer, he says.

The plant will continue to produce ethanol with minimal disruption during the transition to renewable chemical production, which is expected to be complete in mid-2016.

Ethanol, a two-carbon alcohol, and n-butanol, a four-carbon alcohol, can both be produced through fermentation of corn, other crops or biomass. Although new dis-tillation equipment will be installed, most equipment will be repurposed, including fer-menters, where Clostridia, small rod bacteria, will replace the use of yeast.


NEW USE FOR CORN: Plant employees will continue producing ethanol until the transition to renewable chemicals is complete in 2016.PHOTOS: KIMM ANDERSON

PROFILE

Going from ethanol to chemical pro-duction is a steep learning curve for the employees, Persson says. The fermenta-tion process is more detailed, for one thing. The facility will also produce another co-product, high-protein fermentation broth concentrate, in addition to distillers grains. “There are going to be some things that are pretty different but there are some things that will be the same,” he says.

Still, the transition into renewable chemicals has been welcomed with open arms, Stone says. In fact, some ethanol plant shareholders rolled over their invest-ments to become minority shareholders in the new company. That enthusiasm also in-cludes everyone from the former ethanol plant employees, who now work for the new company, to the local community, and all the way up to Minnesota government

offi cials. In late April, Green Biologics col-lected the Standout Fundraising Achieve-ment of the Year award from Cleantech Group for raising more than $100 million since December 2013, using a creative combination of of venture debt and equity.

The retrofi t model is one that Green Biologics thinks could work at additional ethanol plants, Stone says. The bolt-on ap-proach, on the other hand, could be pur-

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PROFILE

sued by ethanol producers who want to continue producing fuel while diversifying risk. For example, a 100 MMgy nameplate facility operating close to 120 MMgy could add on n-butanol and acetone production, allowing the company to operate more ef-fi ciently at 90 MMgy and produce renew-able chemicals with some of its feedstock. “Our most logical-sized facility would be producing somewhere between 40,000

and 50,000 metric tons of total solvent, which would be the butanol, acetone and ethanol,” he says.

Old Made NewAlthough, currently, nearly 100 percent

of the global market for n-butnaol and ace-tone is petroleum derived, producing it from renewable sources isn’t a new concept. “We say it’s back to the future,” Stone says. The

QA/QC: Elby Cox, lab manager, center photos, collects and analyzes samples.

GREEN FUTURE: Joel Stone, holding a sample of n-butanol, and Dana Persson say the market for renewable-based n-butanol is growing, thanks to interest from consumers and companies like Coca-Cola and Home Depot.


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PROFILE

fermentation process to produce acetone, butanol and ethanol (ABE) from corn mash or molasses was commercialized in 1915 in England. It wasn’t until 1938 that a process was developed for petrochemical-derived n-butanol and acetone and, by the late-1940s, the last plant producing the chemicals from renewable sources had closed.

In the 1990s David Ramey began to champion butanol as a drop-in replacement for gasoline. In 2005, he drove 10,000 miles in an unmodifi ed 1992 Buick Park Avenue powered by 100 percent butanol. He also founded ButyFuel LLC, which merged with Green Biologics in 2012. While Ramsey fo-cused on butanol or isobutanol, primarily a fuel blendstock, Green Biologics has its sights set on n-butanol. Both are types of butanol with similar characteristics but dra-matically different uses.

N-butanol is an ingredient in prod-ucts like moisturizers, fragrances and other personal care products and n-butanol de-rivatives are used in paints, inks and more. Acetone is a chemical found in nail polish remover and can also be transformed into rubbing alcohol, which can be an ingredient

in fl avor and fragrance compounds. “We’re not locked into a single end use for these products,” Stone says. “There are a myriad of uses of normal butanol and acetone through different consumer products.”

The global annual demand for n-buta-nol is more than 8 billion pounds with 4.4 percent yearly growth, Stone says. It has an intermediate market valued at more than $6 billion as well as downstream chemical in-termediate markets valued at more than $40 billion. And, there’s a signifi cant demand to replace petroleum-based products with bio-based alternatives. “The mix of the normal butanol and acetone that we are producing will be marketed for a value that is probably double what fuel ethanol would market for,” Stone says, adding that chemical markets are not as volatile as fuel markets. “That’s a good rule of thumb. It could be signifi cantly higher, depending on market conditions.”

Just as the ethanol industry has opti-mized operations over time, Green Biolog-ics has improved on the ABE process, and plans to continue to do so. R&D work on ABE fermentation has been done at a pi-lot plant in Columbus, Ohio, and a demo-

TRANSITION TIME: The Central Minnesota Ethanol Co-op has been renamed Central Minnesota Renewables and will begin producing n-butanol and acetone in 2016.PHOTOS: KIMM ANDERSON


scale facility in Emmetsburg, Iowa, which has been operating continuously since 2014, Stone says.

At the Little Falls facility, the plant will continue to produce a small amount of eth-anol after the conversion to n-butanol and acetone production. However, it’s expected to be only about 2 percent of total produc-tion and as the company optimizes its pro-duction process, the amount of ethanol pro-duced may go to zero, he adds.

In addition, Green Biologics believes

the process is superior to petrochemical processes. It’s at least 45 percent more car-bon effi cient, produces higher purity ma-terials and results in n-butanol with lower water content and no hydrocarbon impu-rities, which are intrinsic to the oil refi nery produced n-butanol. The acetone produced will also be free of toxic impurities.

Author: Holly JessenManaging Editor, Ethanol Producer Magazine

701-738-4946 [email protected]

DOWN TO BUSINESS: Scott Warfi eld, vice president of construction, at left, looks over expansion plans with Stone and Persson.

PROFILE

SOURCE: GREEN BIOLOGICS


PERFORMANCE


A good understanding of fi nancial ratios is essential when making strategic plans. By Susanne Retka Schill

PERFORMANCE

A healthy cash balance is a nice problem to have, though it does present its own challenge. The questions etha-nol company boards and management face are simple, but crucial to the long-term viability of their businesses: How much working capital needs to be pre-served? What level should be reinvested in the business? How much should be paid out to investors?

Ethanol Producer Magazine turned to three ethanol industry fi nancial ad-visors––Christianson & Associates PLLP, Ascendant Partners Inc. and K-Coe Isom––to see what lessons they are sharing with boards and managers as they meet in strategic planning sessions.

“EBITDA per gallon is a good place to start,” says Mark Warren, part-ner and chief fi nancial offi cer at Ascendant Partners. It encompasses both revenue, how well a plant buys corn and sells ethanol and distillers grain, and operating performance and effi ciency. “The net result of those dynamics, by defi nition, will result in your performance on EBITDA—revenue less cost of goods sold, less operating expenses—gets you earnings before interest, taxes, depreciation and amortization.” The Figure 1 bar chart for EBITDA per gal-lon since 1990 is calculated using formula-based assumptions and multiple commodity prices. It illustrates the wide swings the U.S. ethanol industry has seen since its early years. It is critical for managers to know where their plants fall on the performance curve, Warren says.

Creating another gauge for comparison, Warren has taken the fi nancials from 26 publicly traded ethanol producers and charted in Figure 2 the average EBITDA per gallon over the past three years, which includes some of the lean-est and best operating margins seen in the ethanol industry. “The graphic shows the variable from the best to the worst,” he says, pointing out that it includes a range of plant sizes, primarily located in the Midwest but including destination plants. The average EBITDA per gallon for that group is 30 cents per gal-

Riding the Performance Curve


PERFORMANCE

lon, ranging from a top performer of nearly 50 cents per gallon, to a low of 15 cents.

The chart of publicly traded companies mir-rors the pattern seen with plants in the Ascendant b e n c h m a r k i n g

group, combined with facilities the company has assisted in selling over the years. “You’ll see a swing of 70 to 80 cents a gallon on an EBITDA basis from a top performer to a mar-ginal producer,” Warren says. That goes from a high three-year average of 50 cents per gallon to a low of negative 20 cents per gallon. The 2012 drought dominated the fi rst year of his analysis, when producers struggled with tight corn supplies and high prices. “Everybody had to experience that drought, and it’s telling in terms of who were able to perform better and keep their heads above water and who lost signifi cant amounts of money,” Warren says. Good years like the last one are easier to oper-ate in, but margin swings will continue. “We can expect volatility going forward. That’s part of it, when you’re dealing a commodity-in and commodity-out enterprise.”

Digging into the performance is the next step, he continues, to evaluate why the plant

is positioned high or low on the curve. “Is it a market thing? A plant thing? A technology thing? Is it a combination?” he asks. “And then, what kind of things can you do to im-prove your position?” Each plant is different, he adds. Some have issues that are diffi cult to overcome, such as a poor location relative to ethanol or distillers marketing, or a local corn

basis that has been permanently restructured. As new technologies are adopted industry-wide, it puts pressure on all to keep driving costs down and effi ciencies up. It is impera-tive, he stresses, that plants keep up, lest they become the marginal producer with a low or negative EBITDA per gallon, putting it in jeopardy whenever margins are tight. He adds

Warren

FIGURE 1 : EBITDA margins per gallon are shown since 1990, calculated using formula-based assumptions and historical prices from OPIS and Feedstuff s. SOURCE: ASCENDANT PARTNERS

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PERFORMANCE

that there is a high risk for that to happen more often, now that ethanol capacity appears to be outgrowing demand.

“It’s a continuous process and there’s continual innovation that is occurring in the ethanol space, which is great for everybody in-volved. That puts more onus on the board and management to make very good, informed de-

cisions on what they’re going to do to improve the asset and underlying performance of that plant, which ultimately improves the evalua-tion of their asset as well,” Warren says. “We had such a good year last year, but we saw a lot of plants distribute a lot of capital coming out of that. I think that was initially great for shareholders but, if we fi nd ourselves in a chal-

lenging year, that could have some cash fl ow implications with these plants which may limit their ability to be as responsive as they need to be to adjust and improve their position on the curve.”

Benchmarking InsightsWhen Christianson & Associates asks

boards for their priorities, much emphasis is put on improving ethanol yields, says Con-nie Lindstrom, benchmarking analyst. She dug into the data to see how well ethanol yield correlates with EBITDA, comparing the EBITDA per gallon from the leaders in etha-nol yield—the top 25 percent in yield—from the laggards, the bottom 25 percent. Figure 3 shows the fi ve-year average EBITDA per-formance in each quarter for the yield leaders in the black line and the laggards in red. “It’s interesting,” she says, “because it shows how little impact it really has whether you’re a leader or laggard in ethanol yield.” In the periods of strong margins, better ethanol yields did trans-late to higher profi tability, she adds, “but it typically isn’t as high as a lot of people think it would be.”

The data also illustrates the situation fac-ing those boards in their strategic planning sessions coming off 2014’s strong margins. Looking at the average fi nancial ratios, found in the Figure 4 table, a current ratio of assets to liabilities hovering around two is considered a healthy number, Lindstrom says. “It indi-

FIGURE 2 : The three-year average EBITDA per gallon is charted for 26 publicly reporting ethanol producers, showing a 30-cent range between the top and bottom performer. SOURCE: ASCENDANT PARTNERS

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cates there isn’t too much capital sit-ting around waiting to be utilized.” In 2014, the current ratio rose to 2.46. “That’s defi nitely a high over the past 10 years even,” she adds. “What that tells us—and what we hear when we

go out to the plants—is they’re in a holding pattern. They’re making decisions on what to do with that capital.” That is confi rmed in the working capital ratio which has doubled from its fi ve-year low point in 2010 to 31 cents per gallon for 2014.

Other ratios add to the story. Long-term liabilities have dropped from 47 cents per gal-lon fi ve years ago to 19 cents per gallon after 2014. “The plants have paid down their debts,” Lindstrom says, “but the negative side to that is that some of these older plants that have been producing 10 to 15 years have not been reinvesting.” That is confi rmed in looking at

Lindstrom

FIGURE 3 : The EBITDA per gallon for ethanol yield leaders in the top 25 percent of benchmarking plants is shown in the black line. In strong margin periods, the better yields result in only slightly better profi tability than that achieved by the yield laggards in the bottom 25 percent. Note, however, that the leaders remain in the positive zone, while laggards dip into the negative. SOURCE: CHRISTIANSON AND ASSOCIATES

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PERFORMANCE

the fi xed assets ratio, which has stayed pretty stable over time, particularly the past three years. “They haven’t been expanding or put-ting in new technologies,” Lindstrom adds, “so they’re looking really hard at doing some of these things now.”

To answer the question of how much working capital should be targeted, the average working capital in the benchmarking group was compared to the leaders and laggards for that metric. Then to gain further insight, Lindstrom took a subset of the 10 best per-forming plants—those with consistently top

earnings in every quarter over the past fi ve years—and compared their working capital. Figure 5 shows those 10 EBITDA best per-formers keep their working capital close to the average. Average working capital, furthermore, is a moving target. “There isn’t a number per se, but there seems to be that ability to not let it pool up too much, but not let it dip down too far either,” she says.

“What that translates to is that they have a policy in place,” Lindstrom explains. “They can distribute [capital] as dividends or they can pay down debt or do some strategic invest-

ing. They’ve got a target for all three of those things: Here’s what we’re going to do when we’re squeezed and here’s what we’re going to do when things are better. So, they are reacting more quickly.”

Success Beyond NumbersAs important as the fi nancial perfor-

mance is, Donna Funk, an accountant and principal with K-Coe Isom, steps back to take a longer view of other factors important to a successful business. “You can have the healthi-est balance sheet in the world, but if you don’t have the right other components to your busi-ness, you may not stand a chance of success, especially during diffi cult times,” she says. “It’s those intrinsic values that really can be the dif-ferentiating factor in what your ultimate suc-cess is.”

In her 20-some years in the business, she’s seeing a shift towards a more relational approach in her own profession and in all sectors she follows. One obvious example is to maintain good relations with employees—both existing and potential future employees.

FIGURE 4 : Key fi nancial ratios are averaged in the table for the plants participating in the benchmarking program. Between 45 and 60 participate each year, representing a range of plant sizes from across the country. SOURCE: CHRISTIANSON AND ASSOCIATES

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“What do people in the community say about your business, as not only a corporate citizen, but what are your employees saying out there as to what it’s like to work for you?” she asks. Another example would be that interactions with vendors need to go beyond placing or-ders. Good vendor relations, including with those you don’t currently buy from, can be particularly helpful for learning about and evaluating new technologies. Similarly, regular

communications with customers—the buyers of ethanol and coproducts—are important to developing better understanding of each oth-er’s businesses and heading off issues.

Having more than strictly business rela-tions with your banker is important as well, she stresses, and with more than just one person. She has seen an instance where a bank—not a small one, but one that wasn’t a traditional player in the ethanol industry—pulled the line

of credit. “It ulti-mately came down to there weren’t enough people at the bank comfortable with the industry,” Funk recalls. While that doesn’t mean the banker needs to become a best friend, it is wise for plant management

and boards to cultivate multiple relationships within their lending institutions, she advises.

“I don’t know that you can say [these in-trinsic values] translate directly to the bottom line,” Funk continues, “but I think it defi nitely can translate into the attitude of people, the willingness of people to do something a little extra for you.” Financial performance num-bers are important, she adds, “I would never say they are not, but you’ve got to look beyond the historical numbers reporting and get to those underlying aspects of the business that ultimately do impact your fi nancial results.” It might be diffi cult to align improved relation-ships with the bottom line, she says. “But I do think if you ignore all those things, you’d cer-tainly see a negative impact on your fi nancials.”

Author: Susanne Retka SchillSenior Editor, Ethanol Producer Magazine

[email protected]

PERFORMANCE

FIGURE 5 : The 10 consistently top EBITDA performing plants maintain working capital levels close to the average cents per gallon, which fl uctuates from year to year. The diff erence between the leaders and laggards in average working capital is 29 cents at the lowest in 2009 and 42 cents per gallon of ethanol produced in 2014. SOURCE: CHRISTIANSON AND ASSOCIATES

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In an industry ruled by volatility, it’s important for producers to position themselves to take advantage of favorable market conditions. “You’ve got to get it while the get-ting is good,” says Scott Chabina, director at Carl Marks Advisors.

The ethanol industry is now on the other side of exactly that type of scenario. In March, University of Illinois economist Scott Irwin pointed out that 2014 was the most profi table on record, in his FarmDocDaily analysis. Looking at a model 100 MMgy Iowa ethanol plant, it lasted 22 months with an average profi t of 43 cents per gallon, more than 10 times the average 4-cent-per-gallon profi t earned in the previous seven years. Driven by relatively high ethanol prices and relatively low corn prices, the record profi ts went from March 15, 2013, and ended on Jan. 2, 2015, representing the longest run of uninterrupted profi ts since the university started keeping records in 2007.

After a period of incredible profi tability, leaders in the ethanol industry are better positioned for thinner margins. By Holly Jessen


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With that strong profi tability now in the rearview mirror, Ethanol Producer Magazine is taking time to refl ect on what savvy companies did to prepare for the new normal. “The more sophisticated, strategic producers that were able utilize that window, from September ’13 to Sep-tember ’14, are the ones that have option-ality to explore the capital solutions or capital projects, in house,” says Chabina. “That can really position them for a bet-ter day in an environment with thinner margins.”

As a result, some companies were able to pay down debt while others were given the opportunity to refi nance outstanding loans. Lenders haven’t always been receptive to that but, for a period of time, deals were being made. “That window opens and closes pretty frequently, given the margin environment,”Chabina says.

Mike Jerke, CEO of Guardian Energy Management LLC, says he heard one particular remark repeated several times at annual meetings. “We can’t expect this to happen with any frequency be-cause it was so unprecedented,” he says.

As a result, Guardian Energy, and the ethanol industry as a whole, is set up to better handle the normal volatility that comes with being an agricultural industry. Besides paying down debt or refi nancing, Jerke added that putting together a rainy day fund was also a move some producers were making, to prepare for leaner times.

Chabina agrees. For those producers able to build up cash, some are thinking about consolidation. “There are defi nitely pro-ducers out there looking for additional gallons,” he says. “We are

aware of people on the hunt for assets at the 100 million gallon level and the 50 mil-lion gallon level.” (See “How Deals Square Up” on page 36, for more information about mergers and acquisitions.) Others are looking at “inside the fence,” toward operational improvement projects or even moving to the true biorefi nery model, he adds.

Mick Miller, president of NuVu Fu-els LLC, which has management contracts with Carbon Green BioEnergy LLC, Iro-quois Bio-Energy Co. LLC and DENCO II LLC, says in times of profi tability the emphasis is on continued investment, including equipment upgrades, debottlenecking projects and potential tech-nology improvements. “These investments are usually focused on increasing plant effi ciencies, throughput and shareholder return,” he says.

Of course, not every producer is in the same favorable po-sition. Some face operational impediments or are located in less desirable geographic areas, Chabina says. The reality is, when times are tough, those plants may idle and come back online depending on the margin environment.

Farmer RootsWhen asked what Big River Resources did with the profi ts the

company brought in, Ray Defenbaugh, president, CEO and chair-man, says the answer is closely tied to the company’s original goals in entering the ethanol industry. “Those goals were to provide good jobs for people in the community and, secondly, to preserve the community—and you have to have good jobs to preserve rural

Jerke Chabina


Financial Highlights Although far from a complete list, here are some examples of refi nancing deals and record profi ts announced by ethanol production companies in 2014 and early 2015.

Refi nancing deals: Green Plains Inc. announced June 10, 2014, that a $225 million senior secured credit facility due 2020 was complete and that the proceeds would be used to refi nance outstanding debt. On Sept. 17, 2014, Aventine Renewable Energy said it had secured a $40 million loan and security agreement in partnership with AloStar Bank of Commerce in Birmingham, Alabama, and MidCap Financial LLC in Bethesda, Maryland. Aventine used proceeds from the refi nancing and its existing stockpile of cash to fully repay debt early, before it matured in 2016. Southwest Iowa Renewable Energy LLC announced that, during its fi scal year 2014, the company paid off $96 million in net debt reduction. In June 2014, the company completed debt refi nancing, with a $66 million senior credit agreement and a $26.2 million subordinated term loan.

Record Profi ts: On Feb. 4, Green Plains announced record operating income of $286 million for 2014. The company produced a record 966 million gallons of ethanol, earned more than $100 million in nonethanol operating income and was close to achieving its goal of zero net term debt.

Aemetis Inc. said March 12 that it had achieved record revenues of $208 million, up from $178 the previous year, and record gross profi t of $37 million, up from $18 million. The company also made term debt net cash payments of $29.6 million. On March 30, Rex American Resources Corp. released its fi scal year 2014 results, which revealed gross profi ts more than doubled to $141.9 million, up from $64.3 million the previous year. The company also said its net sales of $572.2 million were down from $666 million in 2013.

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MARGINS

communities—and the third is to provide good returns to our investors,” he tells EPM. “Of course, our subgoals are that we are people of our word—you can take it to the bank if we tell you something—and, secondly, we treat people like we’d like to be treated, so fairness is an important concept.”

Looking at the fi rst and second goals, Big River continued to pay good salaries for the people who helped the company reach success and, on top of that, paid out extra bonuses during the time of profi t-ability. Big River also paid local farmers generously for their crops. “Our goal nev-er was for cheap grain, we were put into existence to build up the price of grain, to build up the local farmer,” he says. In reference to the third and fi nal goal, the company paid good dividends to its share-holders. In 2014, return on investment was 126.8 percent and return on equity was 45 percent.

The strategy is working for Big River. “We’ve been in existence over 10 years and we’ve never had a loss year and we’ve never failed to pay a dividend,” Defenbaugh says, adding that the company has no debt and more than adequate cash reserves on hand to weather any unexpected downturns or capital requirements.

The period of profi tability also al-lowed Big River to put money back into its facilities, with several capital investment projects. One example is improvements being made into the company’s grain pro-curement infrastructure, which includes six elevators. “We’ve upgraded them with large capacity dryers and bin storage and

so forth,” he says. Then there’s the zein production plant currently under con-struction at Big River’s Galva facility. “It will be fi nalized and we will have product for sale this early summer, late spring,” he says.

Last but not least, Big River contrib-utes heavily to organizations and causes that support the growth of the ethanol industry, as well as local groups, such as clubs for children and local parks. “When we have a good year like last year, we put even more into those areas,” he says.

On Big River’s list is Prime the Pump, a nonprofi t group formed to expand the availability of E15 and higher blends, American Ethanol, the group that partners with NASCAR and others to put ethanol on the racetrack, and more. The company is also a member of the Renewable Fuels Association, Growth Energy, the Ameri-can Coalition for Ethanol and the U.S. Grains Council, to support U.S. and global markets for ethanol and distillers grains. “We think that whatever benefi ts the in-dustry, will lift everybody up,” he says.

Alternative Viewpoint Eric McAfee, chairman and CEO of

Aemetis Inc., which operates a 60 MMgy corn-ethanol plant in Keyes, California, and a 50 MMgy distilled biodiesel plant in India, sees things a bit differently. Aemetis’ goal has long been to convert corn etha-nol plants to advanced biofuels. In 2013, the EPA approved the company’s pathway to produce D5 advanced biofuel RINs us-ing sorghum in combination with biogas and the plant’s existing combined heat

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and power sys-tem. However, the plans for are on hold due to the high price of sorghum.

Policy cer-tainty is needed in order for the industry to in-vest in next gen-eration biofuels. The profi ts brought in during 2014 didn’t signifi cantly change lenders’ willingness to increase their exposure to the ethanol industry, McAfee says, at least not at lev-els that support $20 million to $40 million projects to upgrade or build plants for advanced biofuels production. “Are bio-fuel producers making a crazy amount of money, rolling in cash and just can’t wait to throw money at the next advanced bio-fuels technology, or are biofuels producers mostly saying to the EPA and others seek-ing advanced biofuels, ‘Oh my gosh, stop beating me up, I’m dying here',’” he asks. “I hate to tell you, but the industry is closer to the latter.”

For example, there’s the incremental step that corn-ethanol producers could take to convert corn fi ber to cellulosic ethanol. It would allow for production of an extra two to three million gallons of ethanol yearly, bringing in $6 million to $7 million in revenue and cost about $10 million to implement. The industry isn’t doing it, he says, because it doesn’t have bank fi nancing or access to equity. “They are struggling to survive,” he says.

What looks like big numbers in the 2014 profi t column, actually aren’t sus-tained enough to provide access to growth funding, McAfee says. For example, Aeme-tis brought in $30 million in positive cash fl ow last year. While that’s a good number, he points to the fact that the company ap-plied 100 percent of its cash fl ow to debt reduction, adding that it’s more the rule than the exception in the biofuels industry.

He believes the biofuels industry has a curable illness. The cause, he says, is the

U.S. EPA’s failure to enforce the renew-able volume requirements as required by the renewable fuel standard (RFS). It’s making the industry anemic. “There is no lender in their right mind that would ex-pose itself to additional funding of etha-nol businesses when you don’t have the faintest idea whether federal law is going to be enforced,” he says, adding that be-cause lenders and investors can’t depend on the law being enforced, it’s preventing investment, job creation and strengthening dependence on foreign oil.

He called it a “complete screw up” by the EPA and Offi ce of Management and Budget and compared the situation since November 2013 to the repeated robbery of a federal bank, after which law enforce-ment doesn’t even bother to investigate. The oil industry is stealing about 50 cents a gallon from Aemetis every day, he says, due to surplus inventories caused by lower biofuels demand than the RFS requires. The EPA’s failure to enforce the RFS has cost the company at least $30 million in cash in the last year.

McAfee believes a lawsuit for declara-tory relief should have been fi led against the EPA 18 months ago by biofuels and corn industry associations. “How can you ever run an industry when federal law is not being enforced?” he asks. “I personally think there should be riots in the streets in Iowa.”

The question then becomes, is the ethanol industry well-positioned to pro-duce the next 16 billion gallons of cellu-losic ethanol and up to 5 billion gallons of advanced biofuels? “Is this industry ready for that?” he asks. “The answer is, yes, if you just enforce federal law.”

Author: Holly JessenManaging Editor, Ethanol Producer Magazine

[email protected]

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Sustainability drives growing interest in renewable chemicals from ethanol. By Susanne Retka Schill

MARKETS

Biobased chemicals are two steps closer to the tip-ping point when the growing demand for sustainable products opens huge global markets for renewables. Last fall, DuPont announced a deal to sell its cellulosic ethanol to Proctor and Gamble to be used in laundry detergent. This spring, Croda Inc. broke ground on a $170 million upgrade to its Delaware manufacturing campus, preparing to bring in corn ethanol to manufacture the ethylene oxide it uses to make surfactants.

DuPont’s Jan Koninckx, global business director of biofuels, is enthusi-astically bullish about the future of ethanol for renewable chemicals. “This is a beginning of the reinvention of the manufacturing industry. It’s like the in-dustrial revolution. In the past, we started out with coal-derived chemicals and then it was petroleum-derived chemicals. And now biomass-derived chemi-cals. Ethanol is going to be a currency molecule—a molecule that’s going to be a starting point for a lot of production.”

DuPont has long collaborated with Proctor and Gamble. Last year, P&G introduced Tide Coldwater, “designed to enable a powerful clean in cold wa-ter.” About 85 percent of the energy used in washing clothes is for heating up water, Koninckx explains. “The Tide Coldwater uses an enzyme we developed to allow the temperature of laundry wash water to be lower.” On the heels of that introduction, the companies announced an agreement for DuPont to supply P&G with cellulosic ethanol from its soon-to-be-completed plant in Nevada, Iowa, to be used in making the laundry detergent. Ethanol has long been used as a solvent in consumer products, he explains, carrying other ingredients into a formulation. “It’s basically a harmless molecule that, after it’s used, is easy to break down biologically, with low toxicity.”

Ethanol can be used for many things other than a solvent, with its po-tential use in plastics perhaps the most lucrative. The Coca-Cola Co. made headlines in 2009 when it announced it would make its trademarked Plant-Bottle using biobased, monoethylene glycol (MEG) manufactured from Brazilian sugarcane ethanol. A 2014 USDA report “Why Biobased” reports Coca-Cola has distributed more than 15 billion PlantBottles in 25 countries. About 30 percent of the PlantBottle, by weight, is made from green MEG and

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MARKETS


GROUNDBREAKER: Construction has begun in a corner of Croda’s manufacturing site at Atlas Point, Delaware, for a new plant that will convert ethanol into ethylene oxide to use in manufacturing surfactants. PHOTO: CRODA

the company is working on developing green chemistries to make PTA (purifi ed terephthalic acid), the other 70 percent, from plants as well. “Our ultimate goal is a carbon-neutral, 100 percent renewable, responsibly sourced bottle that is fully recyclable—a bottle we can all feel good about,” the company says. In 2013, Coca-Cola partnered with Ford Motor Co. to use PlantBottle Technology as part of the in-terior fabric of a Ford Fusion energy plug-in hybrid research vehicle.

Coca-Cola is one example of many companies wanting to green their products. Croda’s customers are increasingly asking for sustain-able, renewable materials, says Richard Hanson, managing director of performance technologies and industrial chemicals for the U.K.-headquartered specialty chemical company. The Delaware facility is Croda’s largest in North America, manufacturing surfactants, emulsi-fi ers and demulsifi ers, with about half its production bound for con-sumer products and the other half for industrial uses. Consumer end products include shampoos, lotions and cleaning products. There is a wide variety of industrial applications, Hanson adds, including the Tween 80 and Polysorbate 80 widely used by suppliers of corn oil extraction aids for the ethanol industry.

When construction is completed in about two years, Croda will begin converting between 10 million and 14 million gallons of etha-nol each year into ethylene oxide, Hanson reports. “This will be the fi rst facility of its kind in North America,” he says, and one of two or three worldwide. Currently, Croda rails in ethylene oxide manufac-tured on the Gulf Coast from petrochemical-based ethane or nap-

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tha. Being in the same hazard classifi cation as chlorine and ammonia, Hanson says, “the issues of shipping ethylene oxide by rail may not make that feasible in the future.” Rather than move its manufactur-ing facility to the Gulf Coast, the company chose to invest in the ethanol-to-ethylene oxide capability instead. “There’s a lot that goes into the economics of going the ethanol route versus petrochemi-cals,” he explains. “You have to factor in all of the freight costs, all of the market economic drivers.” How ethanol is positioned in the market versus petroleum will vary, he says. “If corn were to spike, it might cause a temporary blip in the economics. Over the long haul, we think, based on where we are located, it will provide comparable economics. Otherwise, we wouldn’t be doing it.”

Hanson adds that chemical production will introduce new busi-ness models to the ethanol industry. “When we speak to ethanol producers and start asking about pricing models and pricing trends, they’re not quite sure how to deal with us yet. We’re not really spot buyers. We normally contract for three years on ethylene oxide.”

The new facility fi ts with the company’s sustainability goals, Hanson continues. Croda’s 2015 goal at its 18 manufacturing facili-ties worldwide is to get 24.4 percent of its energy from renewable sources, source 100 percent of its palm oil raw materials from sus-tainable operations and 65.2 percent of all raw materials from renew-ables. When the company begins manufacturing ethylene oxide from ethanol in Delaware, Hanson says, the portion of renewable raw ma-terials used will top 90 percent. “This will be unique,” Hanson said.

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“This is enough volume that it will be a game changer. We assume others will go this route, but we will be the fi rst in the market.” In the big scheme of things, Hanson adds, Croda’s demand for ethylene oxide is a relatively small part of the overall demand for ethylene-de-rived chemicals.

Global ProspectsEthylene is the most widely used chemi-

cal in the world. Originally made from ethanol when fi rst discovered, petrochemical refi ner-

ies are the dominant supplier of the ethyl-ene demand used primarily for polyethylene, although there is a host of other chemicals and plastics made from ethylene. USDA’s July 2014 paper reports the global market for polyethylene, the largest volume derivative of ethylene, exceeds 100 million metric tons per year, and is used extensively in packaging and construction. Over 3.2 million metric tons of ethylene oxide were produced in the U.S. in 1997. Other sources report global ethylene production in 2011 at 141 million metric tons.

(As a point of reference: If that were 141 mil-lion metric tons of ethanol, it would amount to about 47 billion gallons.) In 2013, ethylene was produced by 117 companies in 32 coun-tries. Prices for ethylene have been around $800 per ton in recent years, although new ca-pacity for shale gas-to-ethylene being brought online on the Gulf Coast is expected to keep downward pressure on ethylene prices.

Several companies are making biobased ethylene and derivative chemicals. In 2010, Brazil’s Baskem A.S. inaugurated a commer-cial-scale plant to produce ethylene from eth-anol, at an investment of $278 million. The company’s announcement said it would con-sume about 120 million gallons of ethanol per year at the new facility with the capability of producing 200,000 tons per year of polyethyl-ene. At the time, the company was reporting demand three times greater than the plant’s capacity for green polyethylene.

India Glycols Ltd. has been producing ethylene glycol and MEG since the 1980s and claims the distinction of being the fi rst to commercialize sugarcane-based ethylene, its derivatives and glycols. It was the initial source for the MEG used in Coca-Cola’s PlantBottle,

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made from Brazil-sourced cane ethanol. In late 2012, Coca-Cola announced it was partnering with India-based JBF Industries Ltd. to build a facility in Sao Paulo, Brazil, with a capacity of 500,000 metric tons of biobased MEG. At least one other facility is under construction as well. In 2012, Plastics Engineering Blog reported bio-MEG capacity be-ing built in Taiwan.

This spring, yet another company, Freudenberg-NOK Sealing Technologies announced it has developed an ethylene propylene diene monomer (EPDM) rubber compound from sugarcane-based feedstock. Freudenberg-NOK Sealing Technologies is the Americas joint venture between Freuden-berg and Co. in Germany and NOK Corp. in Japan. The announcement says development began in 2012 on converting sugarcane etha-nol to ethylene, to form a substantial portion of the base polymer used to manufacture the biorenewable rubber. The sugarcane base al-lows the material to be 45 percent biorenew-able, which ultimately reduces the manufac-turing carbon footprint.

DuPont’s Koninckx reports that interest is high in Europe as well. Last fall, the com-pany announced a collaboration with Etha-nol Europe to develop a cellulosic ethanol project in the south central European coun-try of Macedonia. After the announcement, Koninckx says, “several companies came to us and expressed interested in our produc-tion, and not all were fuel companies. Some are consumer companies that want more sus-tainable packaging material and some make furniture components, to give a couple of ex-amples.” A major attraction is that DuPont’s life-cycle analysis shows its cellulosic ethanol is carbon neutral.

When asked what will unlock ethanol’s potential in green chemistry, Koninckx re-plies, “Availability, scale and cost.” He points to the example of renewable electricity, which began “very niche, very small. The cost has come down to the point where, in many plac-es in the world, it has reached grid parity from photovoltaics or from wind.”

Corn ethanol has been the fi rst step, and

the next is being taken with bio-mass, he says. “We are unlocking that. We’ve unlocked the tech-nology. We’ve unlocked the sup-ply chain and we’re now going to unlock scale.” Cellulosic ethanol supplies, with their low-carbon appeal, are about to grow and fi rst-generation ethanol is lower-ing its footprint as supplies con-tinue to expand. “There is a cer-tain tipping point that must be

reached. I am absolutely convinced that when we reach that tipping point, the switch from petrochemicals to renewable chemicals will be fast.” It is far easier to predict how it will happen, however, than when, but Koninckx is confi dent it will. “We’re not waiting for it. We’re going to make it happen. We’re going to tip it.”

Author: Susanne Retka SchillSenior Editor, Ethanol Producer Magazine

[email protected]

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Koninckx


Attempts to bring crowdfunding to industry fall short, but new mechanisms are available.By Todd Taylor

Companies are pressing harder and harder to raise capital to grow or just to survive. As a general rule, raising money is challenging because federal and state securities laws prohibit the sale of securities without registration with the U.S. Securities and Exchange Commission or an exemption from such requirements. Like an initial public offering, registration is expensive and complex. Three recently passed laws and rules, however, may

help companies raise the capital they need: crowdfunding, Rule 506(c) and Regulation A+.

Crowdfunding You have likely heard about crowdfunding sites like Kickstarter

and Indigogo. Unfortunately, the promise of bringing the “crowd” to regular businesses has so far fallen short. To facilitate broader use of crowdfunding, the JOBS Act added a crowdfunding exemption

INVESTING

New Laws, Rules Offer Options for Raising Capital

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


INVESTING

that will allow companies to sell equity or other securities to the crowd. In practice, however, the requirements to use the crowdfunding exemption may be too onerous for most. While an overview of the general requirements for crowdfunding is possible, specifi cs will not be available for companies until the SEC adopts fi nal rules.

The aggregate amount of securities sold under the crowdfunding exemption during any 12-month period may not

exceed $1 million. In addition, if either the annual income or the net worth of the investor is less than $100,000, the aggregate amount that can be sold to such investor may not exceed the greater of $2,000 or 5 percent of the annual income or net worth of the investor. If either the annual income or net worth of the investor is equal to or more than $100,000, the aggregate amount sold to the investor may not exceed 10 percent of the annual income or net worth of the investor; and, in any case, the aggregate amount sold to any investor may not exceed $100,000.

Additionally, the transaction must be conducted either through a registered broker-dealer or a funding portal registered with the SEC. If a registered funding portal is used for crowdfunding, the portal will not be allowed to offer investment advice or recommendations, solicit purchases, sales or offers to purchase the securities displayed on its website, pay employees, agents or other people based on the sale of securities displayed on its website, or handle investor funds or securities. In other words, companies will not be able to use their own website as a “funding portal.”

The company must also disclose information to investors, including:

• General information about its business such as location, directors and offi cers, description of business. • A business plan.• A description of fi nancial condition, including tax returns

and fi nancial statements for offerings of $100,000 or less, independent accountant reviewed fi nancial statements for offerings between $100,000 but not more than $500,000 or audited fi nancial statements for target offerings more than $500,000.• The purpose of the offering and proposed use of proceeds.• The target offering amount and deadline to reach such amount. • The price of the securities. • A description of company ownership and capital structure, along with specifi c information regarding the company’s securities. In addition, the company must provide investors fi nancial statements and reports on the results of operations on an annual basis following the sale.

The relatively low transaction and investor limits permissible under the federal crowdfunding exemption, coupled with the funding portal limitations and the upfront and ongoing disclosure obligations, could prove to be too much of a burden for many companies. There are several state legislatures that have adopted or are considering their own crowdfunding exemptions that may provide a more effi cient means to raise capital from several investors.

Got all that? Now for something a bit easier…

Rule 506(c)Prior to the JOBS Act, Rule 506 was and remains the most

used exemption. However, Rule 506 did not permit general solicitation or advertisement, so companies raising capital under Rule 506 could not legally use social media, printed fl yers or other channels to solicit investors they did not know. Now, Rule 506(c) allows companies to advertise to fi nd investors.

Rule 506(c) does not have a dollar limitation, does not limit the number of investors or their investment amount and does not require specifi c information be disclosed to investors (but most companies make disclosures to avoid misrepresentation or fraud claims).

Rule 506(c) does have certain restrictions, however. A primary restriction is that all investors must be accredited, which generally equates to the investor being relatively wealthy (e.g., annual income in excess of $200,000 for an individual and $300,000 for married couples, or net worth of at least $1 million, excluding the investor’s principal residence).

In addition, the company must take reasonable steps to verify the accredited status of such investors. Whether steps taken are

Taylor

JOBS Act Crowdfunding at a Glance

• $1 million maximum off ering in a 12-month period.• $100,000 maximum investment (or less depending on annual income/net worth).• Must use a registered broker-dealer or registered funding portal.• Funding portal may not be used to off er investment advice, solicit sales or handle investor funds or securities.• Several upfront disclosure requirements apply.• Ongoing annual fi nancial reporting required after the sale.

Not currently available—awaiting fi nal SEC rules.


INVESTING

Rule 506(c) At A Glance• No off ering maximum.• General solicitation and advertisement permitted.• No SEC mandated information disclosures to investors.• Sales permitted to an unlimited number of accredited investors.• Company must take “reasonable” steps to verify accredited status of investors.

Rule in eff ect and exemption is available.

“reasonable” depends on particular facts and circumstances of each purchaser and transaction. The SEC has provided some guidance as to what constitutes reasonable steps, but this is still relatively unclear and untested. Overall, companies seeking to solicit sales from a large group of wealthy investors may fi nd Rule 506(c) as a viable exemption, but will need to be careful to conduct proper diligence on the investors.

Regulation A+Regulation A+ is a complex exemption,

and in many ways, refl ects a scaled back version of registration requirements and the ongoing requirements of reporting companies. The following summary only scratches the surface of the various requirements and limitations of Regulation A+ and many companies may fi nd this exemption too burdensome and expensive, but for some, it may be the perfect fi t.

The SEC adopted the Regulation A+ amendments March 25, but they will not likely become effective until sometime in June.

Regulation A+ will permit two tiers of offerings. Tier 1 offerings have aggregate sales of up to $20 million during the preceding 12 months. Tier 2 offerings have aggregate sales of up to $50 million during the preceding 12 months. In addition to a larger offering size, the primary advantage of Tier 2 is companies will not be required to also navigate state law registration and exemption requirements.

Companies will be able to sell securities under Regulation A+ to accredited and nonaccredited investors. Sales to nonaccredited investors under Tier 2 offerings will be subject to a maximum amount equal to 10 percent of the nonaccredited investor’s annual income or net worth, whichever is greater.

To conduct a Regulation A+ offering, companies will need to fi le Form 1-A with the SEC, which will then complete a process to qualify the offering prior to the company selling the securities. Form 1-A will provide investors with basic information about the company, offering, securities and other general information. Form 1-A will also provide an offering

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circular that contains extensive narrative discussion similar to that of registration statements, such as a description of the business, risk factors, use of proceeds, capitalization, description of securities, director and offi cer information, related party transaction disclosures and other disclosures. Form 1-A will also include fi nancial statements for the two most recent fi scal years (that must be audited for Tier 2 offerings).

Subject to certain requirements, companies are allowed to test the waters to

gauge investor interest prior to fi ling Form 1-A and during the qualifi cation process, but securities cannot be sold prior to qualifi cation. After the sale, companies that engaged in Tier 2 offerings will be subject to ongoing reporting requirements, such as fi ling annual reports, semiannual reports and current event reports.

Whatever your company needs to do to raise money, be aware that the rules and regulations are complex and vary from state

to state, so please check with a competent securities lawyer before you start. This article isn’t intended to give anyone legal advice, so don’t try to do an offering based on it.

Author: Todd TaylorAttorney, Fredrikson & Byron P.A.

[email protected]

Contributing author: Joseph Schauer Attorney, Fredrikson & Byron P.A.

INVESTING

Regulation A+ at a Glance

• Tier 1 Off ering—$20 million maximum in a 12-month period.• Tier 2 Off ering—$50 million maximum in a 12-month period.• General solicitation and advertisement permitted.• Sales to accredited and nonaccredited investors permitted, with certain limits on nonaccredited investment amounts in Tier 2 off erings.• Extensive off ering materials required.• Off ering materials must be fi led with SEC and must be “qualifi ed” prior to sale of securities. • “Testing the waters” permitted before fi ling and before qualifi cation.• Ongoing reporting obligations following Tier 2 off erings, including annual reports, semiannual reports and current reports.• State securities laws preempted only in the case of Tier 2 off erings.

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Volatility, a function of fl uctuating prices for corn and natural gas inputs, is changing revenue values for ethanol, DDGS and corn oil. By Chip Whalen

HEDGING

Market Tools Help Identify, Manage Margins


HEDGING

SOURCE: COMMODITY & INGREDIENT HEDGING

Managing ethanol plant margins is a challenging endeavor as the factors affecting input costs and revenues are constantly changing and often pulling in different directions to the detriment of the plant’s profi tability. Ethanol margin management is the process of analyzing fi nancial risk and considering costs and revenues as a single unit of risk. This differs from a more traditional approach which focuses on minimizing plant expenses and maximizing revenue from ethanol and co-product sales independently of one another. Fortunately, there are tools available in the market to help identify and manage these margins.

A margin management process involves modeling forward curve projected costs and revenues using the futures market as a price discovery mechanism. The daily interaction of a large pool of buyers and sellers in the futures market determines a forward curve of value for a host of commodities, including those impacting ethanol margins. Holding certain fi xed cost assumptions static and using futures market prices to represent both input costs and revenue values together, forward profi t margin opportunities can be identifi ed in deferred time periods to indicate how that profi tability is projected to change from one period to the next.

This gives greater visibility to an ethanol producer on how the market, as an unbiased estimate of price, is valuing both input costs and revenue. It may be the case, for example, that current costs and revenues to the plant are generating a loss, while at the same time, forward values for those same costs and revenues are projecting a profi t in a deferred time period. And, what was once projected to be a profi table marketing period for the plant

may eventually be turned into a loss as the fundamental dynamics of the market shifts over time to the detriment of margins. The accompanying February margin graph displays such an occurrence for a model ethanol plant earlier this year. Profi t margins in January and February were breakeven at best and negative for many plants as a function of slumping ethanol prices while corn costs held relatively steady. While the chart shows this negative profi tability during that period, you will notice that the market was projecting a positive margin as high as 35 cents per gallon for the month of February during the fall of 2014. In fact, the market was projecting margins above the 90th percentile of the previous fi ve years through November before profi tability started to slip.

Risk can be managed through the futures market when an ethanol plant

contracts both input costs and revenue values simultaneously using exchange-traded derivatives to lock-in or protect a profi t margin level in a forward time period. For example, an ethanol company projecting a positive margin last fall of around 25 cents per gallon for the winter time period of January and February could have locked that margin in by buying a corn futures contract and simultaneously selling an ethanol Platts swap. Alternatively, it may have used an option to protect a minimum margin while allowing the opportunity for improvement.

Choosing a strategy will depend on how relatively strong or weak the opportunity is perceived to be. If, for example, the profi t margin being projected is very strong historically and represents a good return, the company may be inclined to simply lock it in. If instead the profi t margin is projected


HEDGING

to be weaker or more average from a historical perspective, the ethanol producer might want to preserve the opportunity for improvement and incorporate more fl exibility. The accompanying table of June 2015 statistics shows the ethanol margin and the underlying input costs of corn and natural gas against the revenue value of ethanol.

The red box in the table outlines each of the components of the June 2015 margin, along with the open market margin itself. Holding other fi xed cost assumptions constant and factoring for local cash basis and ethanol index to the plant, the model is essentially looking at the variable costs of corn and natural gas against the value of ethanol to project a margin during the month of June. The ethanol price index and corn basis represent the difference between the local cash price and the swap or futures price that is being used to manage the risk of that price changing over time. Because cash prices and futures prices do not move in lockstep with one another, there is also a risk of a fl uctuating basis or index over time.

The projected margin of 22 cents per gallon currently exists at about the 38th percentile of historical profi tability when looking back over the previous fi ve years of June margins. The strongest the margin has ever been over the past fi ve years in the month of June was 71 cents per gallon, and the weakest value observed was breakeven. Scanning to the left of the margin column, you can see the individual components starting with the ethanol price at $1.57 per gallon. This value is at the 5th percentile of the previous fi ve years, meaning that 5 percent of the time the June ethanol price has been lower than $1.57, and 95 percent of the time the price has been higher than this level. Moving further to the left, you will notice the input costs for natural gas at $2.74 per million Btu and corn at $3.86 per bushel. These currently exist at about the 6th percentile of historical prices over the past fi ve years for their respective contracts.

SOURCE: COMMODITY & INGREDIENT HEDGING


In thinking about contracting alternatives, let’s assume that this particular ethanol plant is concerned about summer margins and believes that the 22 cents per gallon projected margin is worth protecting. Because it is only at the 38th percentile however, the plant would like to incorporate fl exibility for this margin opportunity to hopefully improve over time. Considering the price levels for each component of the margin, the plant’s risk managers may deem corn and natural gas prices to be historically cheap and therefore wish to simply lock in these values. They may even choose to do this through the cash market with a local intermediary, whereby these costs are fi xed and secured, including basis. Moving on to the ethanol piece, because that is also historically cheap, they may want to include fl exibility here. Perhaps one contracting possibility might be to place a fl oor under the value of the ethanol to establish a minimum margin with their input costs now fi xed. Another alternative might be to establish this fl oor under the current ethanol price while also incorporating a ceiling or maximum price above the market.

This form of contracting involves two types of futures options. A call option provides the right to purchase a commodity at a fi xed price level while a put option provides the right to sell. In exchange for this right, the buyer of the option pays a premium which fl uctuates on a daily basis as a function of where the underlying futures price is trading relative to the fi xed price at which the right to buy or sell that contract exists. The seller of the option who receives the premium from the buyer takes on the corresponding obligation should the buyer exercise the right to buy or sell at the fi xed price level, which is referred to as the strike price.

As an example, the plant’s risk managers could purchase a June 155 put option for a cost of around 7 cents, which effectively would establish a minimum price for their ethanol at $1.48 per gallon (the right to sell at $1.55 minus the 7-cent

cost). Alternatively, for a cost of around 5 cents, they could purchase the same 155 put in June while also selling a 175 call option. This combination would give the plant a minimum ethanol price of $1.50 per gallon along with a maximum price of $1.70 per gallon (the right to sell at $1.55 and the obligation to sell at $1.75 minus the 5 cent cost). If we also assume that the input costs have been locked in at the values indicated, with no further fl uctuations to the plant’s fi xed costs and no changes to the index, this likewise would imply a minimum margin of 15 cents per gallon and a maximum margin of 35 cents per gallon. The latter maximum value would translate to a profi t margin at the 80th percentile of historical opportunity, which the ethanol producer might consider attractive.

Obviously, a different matrix of prices and margins would suggest a different approach to contracting. In any case, modeling and managing risk from a margin perspective can provide valuable insight on forward opportunities and help direct contracting decisions.

Author: Chip WhalenVice President, Education and ResearchCommodity & Ingredient Hedging LLC

[email protected]

HEDGING

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By Edward “EJ” Juers

EMISSIONS

Particulate matter (PM) emissions are one of the six major criteria pollutants regulated by the U.S. EPA that are controlled and quantifi ed from point sources at industrial facilities to meet air quality standards. While particulate testing is a routine sampling procedure performed during air emission compliance testing, it is important to stay abreast of changes that may affect test planning, pollution control operations and compliance status. As regulations have evolved, new methods used to measure PM have been introduced and modifi ed in an effort to more accurately quantify emissions. Some of these changes may affect facility permit limits and compliance tests. It is important to understand the various types and classifi cations of particulate matter and the methodologies commonly utilized for PM measurements, as well as changes that may cause issues leading to costly compliance mistakes.

Regulation of particulate matter through the EPA, along with state and local governments, is directed by the federal Clean Air Act, with the goal of preserving and improving the ambient air quality that can affect human health as well as the public welfare through such things as PM’s impact on visibility, buildings, crops, vegetation. Over the course of time, as information on particulate matter and its effects has expanded, regulatory mechanisms have evolved to effectively target and control the more harmful forms of particulate matter (primarily very small particles) as well as total particulate matter measurements used as a surrogate to quantify and control hazardous air pollutants (HAPS).

Various terms and acronyms are used to describe particulate emissions and emission limits, which can vary across different regulatory agencies, so it is imperative that the exact intent of the language is defi ned and the methodology is clearly determined in the permitting process. PM, PM state, PM federal, PM fi lterable, condensable PM, TSP, PM10 and PM2.5 are all acronyms that are commonly used in

Small Changes Affect Sampling Methods



EMISSIONS

the permitting process, and may imply that one or more test methods needs to be used to measure emissions. Careful navigation through the language and terminology within a facility’s air permit often requires a team effort consisting of facility personnel, test consultants and regulatory authorities, to determine the most accurate, effi cient and cost effective means to completing emission tests and assuring compliance.

Dry mill emissions are vented from multiple sources and controlled using a variety of pollution control technologies. Dictated by the type of source, characteristics of the gas streams, required level of control, as well as cost. The table above shows common emission sources and various particulate control devices. Bear in mind that emission control requirements can vary widely between facilities depending upon regional air quality conditions and facility emission limits.

Testing MethodsIn the most simplistic form, emission testing to measure particulate

matter consists of extracting a known volume of gas through a fi lter

from vents exiting an industrial process through a stack. The particulates collected on the fi lter are rinsed, dried, weighed and quantifi ed to report the source’s emission rate, which is used to demonstrate compliance with allowable levels set forth in the facility’s air permits. In more complex methodology, additional components are introduced to the sample assembly, such as cyclones or glassware, which may allow for particle size fractionation or measurement of condensable (vapor form) particulate matter. Standard methodologies have been developed to sample specifi c source types, particulate sizes, and/or conditions present within a given gas stream.

Common test methods used to sample total particulate matter (PM or TSP) are EPA Methods 5 and 17. In addition, state agencies may require total or partial condensable particulate matter to be measured to quantify total PM using methods equal or similar to EPA Method 202. Fine particulate matter test methods targeting PM10 and PM2.5 (particulate with an aerodynamic diameter matter smaller than 10 and 2.5 microns, respectively) are typically measured using EPA Method

Dry Mill Ethanol Processes and Typical Particulate Control DevicesSource type Gas Stream

CharacteristicsPM Characteristics

Typical PM Control Devices

Grain Receiving/Handling/Storage

Dry, near ambient temperature and moisture content

Primarily dust Fabric fi lter bag houses

Grain Milling Slightly elevated temperature and moisture due to milling activity and moisture release from seeds

Dust and low amounts of condensable PM

Fabric fi lter bag houses

Fermentation/Distillation Cool and wet Condensable organic vapors

Wet scrubber/RTO

DDGS Drying Extremely high moisture (>50%), moderate temperatures (150-500F) dependent upon control device

Primarily condensable organic vapors and oils with some dust/ash carryover from drying process and oxidizer combustion

Regenerative thermal oxidizer/Thermal oxidizer

DDGS Cooling Slightly elevated temperature and moisture due to cooling of DDGS after drying process

DDGS particulate as well as condensable organic vapors

Fabric fi lter bag house and occasionally RTO

DDGS Handling/Storage/Load out

Dry, near ambient temperature and moisture content

Primarily dust with small amount of organic vapors

Fabric fi lter bag houses

PM Testing Pitfalls1. Failing to identify best test methods to fi t the source emissions.2. Facility test sites not meeting method requirements.3. Failing to execute test methods properly.4. Underestimating time needed for emission tests.5. Collecting inadequate sample volumes to ensure detection limits are below emission limits.6. Facility failing to operate at the proper level during compliance tests, resulting in reduced facility operating limits.7. Insuffi cient control device maintenance, resulting in test failures.


201A, when possible, coupled with EPA Method 202. When sampling limitations or test site constraints do not allow for sampling using EPA Method 201A, other arrangements need to be made, such as reverting to a total particulate method (such as EPA Method 5 or 17) and quantifying all particulate as PM10 or 2.5.

The primary points to consider when determining the proper PM sampling methods include the following:

• What needs to be quantifi ed? (PM, PM10, PM2.5, condensable PM, etc.)

• Does the facility air permit or associated rule(s) require specifi c methods?

• Can new methods yield different results than those that were used to develop permit emission limits? If so, what if results are higher?

• Will the chosen method accurately quantify emissions, or are there conditions that may bias the results, prevent the method from being performed properly or meet required quality assurance standards? Examples include high moisture content, uneven fl ow distribution, high temperatures, improperly sized test ports or inadequate test site design.

• There may be allowable method modifi cations, but if implemented, how can the results and compliance status be affected?

• Can one single test be performed to meet all needs of a plant’s PM sampling requirements? If so, are there long term considerations and how could it potentially effect reporting and compliance status now and in the future?

All of these questions and points, among others, need to be carefully considered and navigated when determining a sampling strategy for particulate matter. Seemingly subtle changes in methodology or facility operations can have a major impact on test results. The ultimate goal is to complete the sampling in an effi cient, accurate manner, in order to prove compliance with the regulatory requirements. This can all be accomplished by thoughtful planning and working with a competent test consultant who can help determine the proper testing methods and bridge communication between regulatory agencies and facility personnel.

Author: Edward “EJ” JuersStack Department Manager, Interpoll Laboratories Inc.

763-786-6020 [email protected]

EMISSIONS


Reason 1 – Ethanol and the RFS save us money In 2013, consumers saved between $700 billion and $2.6 trillion*

Reason 2 – RFS means less imported oil Last year, ethanol displaced $49 billion worth of imported oil**

Reason 3 – RFS cuts greenhouse gas emissions Today’s conventional ethanol reduces GHG emissions 34-48%***

Reason 4 – RFS creates jobs The ethanol industry supports nearly 380,000 direct and indirect jobs**

Reason 5 – RFS means investment and innovation

The RFS works for everybody

* Energy economist Philip K. Verleger, Commentary, Renewable Fuels Legislation Cuts Crude Prices, pkverlegerllc.com **ABF Economics, “Contribution of the Ethanol Industry to the Economy of the United States,” February 2015.***Wang et al. (2012) using the Department of Energy’s GREET model

5 REASONS to Love the RFS


Advisors provide guidance and tools to achieve more sound fi nancial footing.By Frank Baumgardt

FINANCE

Ethanol plants are exposed to market forces over which they have little control, such as the price of commodities (ethanol, the cost of corn and natural gas), transportation rates for feedstock, and government support policies (e.g., potential changes to the RFS). Any commodity-based business is subject to sudden and prolonged market disruption, as recently experienced when the drop in oil prices put pressure on ethanol prices. In this economic environment, how can a plant stay profi table?

When best laid plans fail and plants encounter fi nancial diffi culties, an experienced fi nancial advisor who has worked with ethanol companies and other stakeholders and interested parties, such as lenders and investors, can prove to be indispensable. There are several strategies to mitigate the risks being faced in the current environment and lessons learned on ways to improve the fi nancial position of ethanol plants and ensure the long-term viability of their operations.

The ethanol industry had a record-setting year in 2014, with generous crush margins leading to high profi tability for many plants. These high margins evaporated, however, toward the end of

Long-Term Planning MitigatesRisks from Prolonged Downturns



FINANCE

2014 as falling crude oil prices resulted in lower gasoline prices that in turn pressured ethanol prices, as illustrated in the accompanying chart. With little economic incentive to increase ethanol blending beyond the regulatory minimum and limited demand from the export market, ethanol producers continue to face industry overcapacity and challenging market conditions into 2015.

FTI Consulting has signifi cant experience working with ethanol plants that faced fi nancial distress in recent years and would like to share some lessons learned to help the industry weather the current unfavorable conditions and avoid the fate of companies such as Bionol Clearfi eld LLC, a 110 MMgy ethanol plant completed in 2010 at a cost of $270 million, which was idled in 2011 as the ethanol buyer breached its contract. The plant was sold in bankruptcy in 2012 for only $9 million.

External factors largely determine the profi tability of an ethanol plant. When crush margins come under pressure, as they are now, plant managers have the option to reduce production, including idling facilities, to mitigate operating losses. However, depending upon the length of time a plant faces unfavorable conditions, fi nancial reserves may be depleted before markets improve. For a plant with debt in its capital structure, idling production does not alter the debt amortization or interest schedule, which can lead to liquidity issues, covenant breaches or missed debt payments. If not addressed through a planned response to these challenges, the timetable and options available diminish and the company potentially loses control.

Avoiding Financial DistressLeverage (fi nancing a plant with debt) can increase the profi tability

of a plant by providing a relatively cheap source of money, but it also increases the risk to a plant’s viability when operating results deteriorate. Reducing the amount of debt will reduce the risk of fi nancial distress, as a plant is relieved from the cash constraints of a strict debt payment schedule. Having access to suffi cient reserves to meet debt obligations during prolonged periods of negative margins is another option to mitigate the default risk. These options require long-term planning which is not a luxury that many possess if already under fi nancial distress. There are other measures that can be taken in advance that may be effective short-term solutions.

Conducting a fi nancial analysis of the operating costs relative to sales prices will provide management with meaningful guidance for the business operations. The goal of this exercise is to determine the breakeven point of the plant’s profi tability, which is driven by various factors, many of which are unique to each plant. In cases where operating economics have deteriorated beyond the breakeven point, a plant can reduce output or idle the plant entirely in order to reduce cash burn and stabilize the overall fi nancial health of the operation. The break-even analysis is similar to a crush margin

analysis but should include the cost of raw materials and the sale prices for all products, not just ethanol. A review of existing contracts and opportunities to hedge certain price risks also should be included in the analysis. Given the continued fl uctuation of commodity prices driving an ethanol business’ profi tability, companies should review and refresh their breakeven analysis on a periodic basis.

If an ethanol plant faces diffi culties meeting its debt obligations, prompt intervention can signifi cantly improve the outlook for the facility. Interested parties benefi t if there is a way to keep a plant in business rather than face the cost and uncertainty of bankruptcy. Dealing with fi nancial distress is a new situation for most ethanol producers who, while experts at converting corn into ethanol and DDGS, are not typically as experienced in navigating day-to-day interactions with lenders that may be required in times of fi nancial adversity. An outside advisor who focuses on fi nancial restructuring will analyze the maturity profi le of the existing debt and its alignment with forecast cash fl ows and asset mix to develop alternative capital structures and refi nancing options that meet the needs of the business and lenders for the particular operating environment. Involving an outside party that specializes in distressed situations and has the experience to navigate this process can provide signifi cant value, such as assisting with forecasting cash fl ows; implementing cash preservation strategies; and identifying, planning and executing

MARGINS AND CRUDE: The Center for Agricultural and Rural Development calculates ethanol return over operating costs as ethanol price minus corn cost plus DDGS revenue minus other operating costs (e.g., natural gas) for a representative Iowa dry mill. Capital costs are estimated at 25 cents per gallon of ethanol and must be covered by the ethanol return over operating costs. SOURCE: FTI CONSULTING USING DATA FROM CARD, BLOOMBERG


FINANCE

on strategic options that preserve the business while demonstrating to lenders that collateral value is being maximized through solutions that avoid bankruptcy. The core of the fi nancial advisor’s work should include analyzing all business aspects of the ethanol plant, recommending change where needed based on biofuels industry knowledge and situation-specifi c considerations, and presenting that information to lenders in a manner that will foster cooperation.

While an ethanol producer may be reluctant to share information in periods of distressed fi nancial conditions, navigating lender debt work out processes requires carefully orchestrated communication of facts, as well as information supporting the preferred way forward for the company. There is a balance between communicating the situation and providing suffi cient visibility to allow creditors and investors to make informed decisions. For example, if inventory management can be improved and the corresponding value is demonstrated in refi ned economic models, lenders may realize that their exposure is mitigated by amending existing loan covenants. One aspect of the role of a third-party advisor is similar to that of a translator: The advisor speaks the same language as the lenders, which allows the advisor to present the information from the ethanol plant in a format that is easily understood by the lenders, ultimately facilitating resolution of the situation in as positive and constructive a manner as is available.

When to Seek HelpFinancial diffi culties become harder to

resolve the longer they linger. Once debt covenants have been breached, many options are off the table. An analogy that rings true comes from experience skiing in my home state of Colorado: If I’m wondering whether I’m going too fast, then I’m probably going too fast. Accordingly, if you think your operation might be headed for fi nancial distress, it is likely a good time to have an initial conversation with experts in that fi eld to see what can be done. While it may be counterintuitive to spend money on advisors when confronting a cash crunch, the ultimate payoff can be signifi cant.

Author: Frank BaumgardtSenior Director, Corporate Finance, Clean Technology

FTI Consulting Inc.303-956-9981

[email protected]

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Blue Flint Ethanol stimulates corn expansion in McLean County, North Dakota.By Lyndon Anderson

LOCAL IMPACT

When Blue Flint Ethanol came online in February 2007, corn production in North Dakota’s McLean County was about 32,500 acres. In order to purchase the corn needed to operate the biorefi nery, employees had to look far beyond the local market. At that time, the primary corn-producing area in North Dakota was the southeast part of the state, hundreds of miles from Blue Flint Ethanol’s home in Underwood. More than 90 percent of the corn arrived via the Dakota Missouri Valley Western Railroad. Only about 10 percent of corn was purchased locally.

That ratio of local to regional corn has changed, and in a signifi cant way, in recent years. Today, over 90 percent of the corn used at the ethanol biorefi nery is delivered via trucks within a 100 mile radius of Blue Flint Ethanol.

Location, Location, LocationBlue Flint Ethanol is located adjacent

to Great River Energy’s Coal Creek Station, North Dakota’s largest power plant. Instead

of burning fuel to make ethanol, Blue Flint Ethanol uses excess steam from Coal Creek Station to provide process energy and dry distillers grains. That proximity to a power plant is essential to Blue Flint Ethanol becoming one of the most cost-effective, energy-effi cient and environmentally friendly biorefi neries in the country.

Blue Flint Ethanol is a part of Midwest AgEnergy Group, an upper Midwest biofuels enterprise owned by Great River Energy and other accredited investors including banks and international, agricultural and industrial businesses. MAG also includes Dakota Spirit AgEnergy, an ethanol biorefi nery under construction near Jamestown, North Dakota

According to David Spickler, vice president of marketing and risk management for Midwest AgEnergy Group, the increase in local corn production is due to a number of reasons, including:

• The presence of the Blue Flint Ethanol ethanol biorefi nery.

• The improvement of genetics that has resulted in corn varieties better suited for the climate in western and central North Dakota.

• An increase in corn prices (although prices are lower now).

• Abundant rainfall contributing to higher than average yields in western and central North Dakota.

The numbers speak for themselves. In 2012, about 64,000 acres of corn were planted in McLean County. That number jumped to 85,800 acres in 2013, according to information from USDA’s National Agriculture Statistics Service.

Local GrowersSteven and Katie Heger operate a third-

generation family farm near Underwood. They started raising corn in 2004. Although corn had always been an easy crop to grow, a lack of local outlets to market corn limited any expansion of corn acres on their farm. An increase in corn production for the Heger operation coincided with the start of operations for Blue Flint Ethanol in 2007. “It gave us a readily available and local market, and also a real freight advantage with our farm located just fi ve miles north of the plant,” Heger says. He adds it took a lot of work to get

Ethanol Biorefi nery Boosts Local Corn Production


COLOCATION SYNERGIES: Blue Flint Ethanol, left, gets steam from Great River Energy’s Coal Creek Station on the right. In 2010, Coal Creek Drying and Storage was added to the site. PHOTO: GREAT RIVER ENERGY


LOCAL IMPACT

corn production levels to where they wanted them. He benefi ted from improvements in corn genetics for growing conditions in central North Dakota, along with a better understanding of those genetics. “As a result, we have really seen yields increase in the last 5 to 10 years.”

Rob Tweeten, who farms on the west side of the Missouri River near Hensler, North Dakota, has been raising corn since the early 1980s, primarily for livestock feed. He increased corn acreage in 2005 with the addition of more irrigation pivots. After Blue Flint Ethanol came online, Tweeten gained a new market for corn, and the advantage of a local outlet boosting basis, a discount to nearby futures markets that mostly refl ects transportation cost as well as local demand. Tweeten’s dryland rotation is now corn, followed by pinto beans or soybeans and then wheat. His irrigated rotation is corn, followed by soybeans. “We needed another crop in our rotation, in addition to wheat and beans. Corn has been a great addition and has taken over a lot of acres in this area,” he says.

Tweeten also utilizes another product produced by Blue Flint Ethanol: modifi ed distillers grain. His farm has been purchasing the high-quality feed product since expanding the feedlot in 2008. Tweeten has an abundance of mixed grass forage for his livestock. By adding the modifi ed distillers grains, he is able to provide his cattle a palatable and nutritious ration, and at a reasonable price. “It’s a good cold-weather feed,” says Tweeten. He credits Blue Flint Ethanol with providing a consistent product. “They do a good job with quality control.”

Added Drying, StorageAnother major factor that has helped

contribute to an increase in corn acreage in the region is the development of Coal Creek Drying and Storage, located adjacent to Blue Flint Ethanol. This 2010 infrastructure enhancement, developed by Knorr Farms and Great River Energy, resulted in the addition of a dryer and 600,000 bushels of crop storage. “This provides local growers with an option to have their corn dried and then marketed at a local facility. Prior to this, there was not an option to have corn dried locally,” Spickler explains.

Since 2010, expansions at Coal Creek Drying and Storage have brought the total

bin space to 2.36 million bushels of storage, in addition to the 1.5 million bushels storage at Blue Flint Ethanol. A second truck scale was also added to accommodate increased truck traffi c. “We have provided growers with a place to market and dry their corn, and to get in and out of Blue Flint Ethanol in an effi cient manner,” Spickler says. “This has reduced wait times substantially for local growers.”

The increase in local corn acreage has led to a dramatic rise in the number of suppliers for Blue Flint Ethanol. Prior to the opening

of Coal Creek Drying and Storage, Blue Flint Ethanol worked with fewer than 100 suppliers. As a result of the surge in local corn production, the biorefi nery now has more than 900 suppliers.

Author: Lyndon AndersonLeader, Communications

Great River Energy701-442-7036

[email protected]

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About 12 months ago, I shared the importance of following good margin management practices, even in profi table times. Based on past trends, I encouraged you to anticipate and prepare for the next economic shift.

Well, that shift is here. You know that ethanol margins have declined. Today's environment is basically the opposite of last year. Instead of high gas prices and low corn costs, we face falling crude-oil prices and fl uctuating corn costs.

Hopefully, you took my advice last year and implemented best practices. For example, some of the ways ethanol producers I work with leveraged the strong economy included:

• Increasing capital purchases.• Improving cash reserves.• Restructuring debt.• Reducing debt above the scheduled amount.• Making distributions to investors.

These producers took advantage of record profi ts to create a fi nancial cushion. If you didn't, or the padding isn't quite where you'd like it to be, there's still hope. But you have to be diligent.

Now that margins are tighter, it's even more important to run your business effi ciently. Financial data is essential to making good business decisions. Based on years working with ethanol producers, here are fi ve tips to improve profi t margins through fi nancial management:

1. Employ the capital equipment invested during the last year to introduce new revenue streams or more effi cient processes.

2. Use cash reserves to pay interest and principal on debt or pay off loans entirely.

3. Focus on production effi ciencies. Take time to review allthe steps within your production cycle. Concentrate on small, incremental savings. Encourage employees across your entire organization to look for savings and share effi ciency ideas. Then, commit to evaluate all suggestions, executing on those that make sense. This also fosters a continuous improvement mindset.

4. Master margin management. Take steps to control expenses and maximize sales. Pre-buy when costs are lower. Purchase comparable resources at reduced costs, provided they meet your quality standards. Make sure you understand your cost structures and break-even, not only direct costs, but fi xed andoverhead costs, too. Compare actual costs against your budget and calculate your break-even. How much do you have to sell to get a return on your investment? Different prices, input purchasing programs and even varying philosophies can greatly impact expenses.

5. Maximize operational effi ciency. By evaluating both production and cost effi ciencies, and implementing small changes in each, you will realize a higher overall return.

This isn't the fi rst time you've experienced this kind of economic cycle. The drivers are different, but the things that worked during previous periods of low margins still apply. You can be fi nancially successful if you implement the tips above.

For help weathering today's tight margins, consult with your fi nancial services partner.

Author: Donna Funk, CPAPrincipal, K-Coe Isom

[email protected]

Weathering Tight Margins

BUSINESS MATTERS

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June 2015 Ethanol Producer Magazine