We smiled at the gee-whiz tone about feeding the by-products of alcohol production to animals in Hannah Yang's otherwise excellent Food comes full circle in Sleepy Eye, where even the bison eat local, since a similiar by-product from Minnesota's ethanol industry has long been fed to livestock.
Mash for the hogs, I was told as a wee girl.
The market for such by-products may be even more important for the ethanol industry in the near future. At Agweb, the online presence of Farm Journal, Tyne Morgan reported on Friday in Ethanol Plants Could Soon Start Producing for DDGs, Not Ethanol (DDGs is the acronym for Dried Distillers Grains with Solubles):
Fewer Americans are on the road, and with less gasoline demand overall, it’s having a severe effect on the U.S. ethanol market. As ethanol prices fall to a record-low level, the ethanol industry is grappling with a major crisis.
“The ethanol industry is facing its worst crisis of its existence compressed into a three to five day period,” says Arlan Suderman of INTL FCStone. “Ethanol margins just absolutely collapsed, basis collapsed and ethanol plants pulled their bids or even resold some corn that they had.”
Suderman says the corn market is facing a worst-case scenario right now, forcing some plants to halt production. Now, farmers are feeling the pain of a collapsing futures market, combined with a collapsing basis market.
POET announced this week it was suspending corn buying at a number of locations. The company said the decision was based on weak biofuel demand.
According to the March 24 story in World Grain, POET suspends corn buying at seven plants:
. . . POET said it has temporarily stopped purchasing corn at three plants in Minnesota and two each in Iowa and South Dakota.
“POET has not idled any biorefineries; however, we have temporarily ceased corn purchases at a number of locations and are actively evaluating biofuel production levels to reflect falling gasoline demand,” Jessica Sexe, a spokeswoman for POET, told Reuters.
Adding to the problem is an ongoing oil price war initiated by Saudi Arabia and Russia that has driven down ethanol prices. . . .
According to the Minnesota Biofuels Association's Production in Minnesota webpage, POET operates four ethanol refineries in Minnesota.
Agweb's Morgan continues:
Joe Valavik of Standard Grain says the ethanol situation is a major weight on farmers as they head into planting.
“We have this situation where the Saudis decided that they would increase production to record levels, and we saw all of the energy markets just fall out of bed and ethanol was no exception,” says Vaclavik. “We're left with a situation where ethanol producers across the country are not buying corn from the U.S., or they've reduced corn purchases basis bids have backed off.”
Vaclavik says ethanol demand accounts for a large amount of the demand base in the U.S. As that demand declines, it could create even bigger problems for ethanol plants and producers.
“Essentially 40% of your demand base is the ethanol industry,” says Vaclavik. “So, we have some real problems there, and I think that that's going to continue to be the biggest issue here for the corn market for a little while.”
Suderman also thinks the ethanol situation will linger much of the year and have a lasting impact on prices this year. Suderman says it’s not just COVID-19 cutting into ethanol, but the price war between Saudi Arabia and Russia. He says those two factors are injecting a great deal of uncertainty into the market.
“We've shut down about 2 billion gallons of annual capacity,” says Suderman. “That's about 690 bushels million bushels of corn on an annualized basis, offset a little bit of that with increased corn consumption, that's about 550, and that's about 250 million for the current marketing year. I think the cuts [to production] will probably get deeper than that.”
As more ethanol plants shutter ethanol production and basis wanes, Suderman says China could come to the market to buy; however, it won’t be ethanol, but DDGs.
“We've seen China buy 30 million bushels of corn already, and we [INTL FCStone] think there's another 50 million bushels in demand,” says Suderman. “There may be more depending on what continues to happen in the northern part of China
Suderman says the greatest opportunity could be with distillers grains, and INTL FCStone forecasts 4 MMT of demand could come to fruition from China. In turn, domestic ethanol plants may have a better opportunity to produce- and sell- DDGs.
“We're seeing a lot of interest in that, particularly with some of those plants that are converted to the high protein DDGs,” explains Suderman. “We could get to the point where we're grinding for the DDGs rather than the ethanol, and where ethanol is the byproduct.”
For an explainer on DDGS, we suggest AgWeb's 2011 article, Understanding the Relationship Between Ethanol and DDGS.
A market analyst notes in AgWeb's Jerry Gulke: Is there Light at the End of the Tunnel?:
For corn, ethanol plant profitability is a key factor, Gulke says. Several ethanol plants have shut down or are calling farmers and asking them not to deliver corn.
With less demand for gasoline from people staying home due to the coronavirus (COVID-19), Gulke says ethanol usage could be cut 25% to 30% in the “need” for ethanol, outside of exports.
“A 20% reduction in the demand of corn for ethanol is about 1.1 billion to 1.2 billion bushels,” Gulke says. “If you don't make ethanol, you don’t make DDGs. So, maybe 20% of that will go into corn feed, and we’ve heard of hog producers switching to 100% meal because they can't get the DDGs. We’re seeing meal demand go up, which is helping beans.”
It's difficult for farmers to turn their plans from one crop to another on a dime, given seed orders and crop rotations. But for those planting beans, that's a gain.
Other products: hand sanitizer
We'd noted in our March 19 post,Will ethanol industry go the way of oil? It's going to be ugly, Al-Corn Clean Fuel CEO Doyal says that Benson's Chippewa Valley Ethanol plant was "shift our focus and supply as much on the hand sanitizer markets as we can," according to its manager's remarks on an industry media call.
On March 24, the Strib's Mike Hughlett reported in Minnesota ethanol producer ramping up production of industrial alcohol used in sanitizers:
Chippewa Valley Ethanol at least has some consolation during grim times for the biofuel industry. The west-central Minnesota company also churns out industrial alcohol, a key ingredient in hand sanitizer.
“It’s nice to have a little product diversity,” said Chad Friese, Chippewa Valley’s CEO. “In a market like this, it makes a difference.
Much of the ethanol industry has been floundering in red ink for the last year, hurt by a glut of supply and declining demand due to trade restrictions and a flood of federal exemptions on ethanol use by smaller oil refineries.
Now, with much of the country’s economy shut down, demand for transportation fuel has nose-dived and so have ethanol prices. However, during the COVID-19 outbreak, the need for sanitizers — and the industrial alcohol that goes in it — has spiked, helping some U.S. ethanol producers, including one in Minnesota.
“I haven’t seen ethanol prices this low since the mid-1990s,” said Brian Kletscher, CEO of Highwater Ethanol and current board president of the Minnesota Bio-Fuels Association, a trade group. . . .
Making industrial alcohol from ethanol requires a further step in distillation. It also requires permits from the U.S. Food and Drug Administration and the federal Alcohol and Tobacco Tax and Trade Bureau. Chippewa Valley, a longtime producer, has both.
If the ethanol demand slump is prolonged, other ethanol makers may also seek such licenses and rejigger their production setup to produce industrial alcohol, Kletscher said.
Since liquor stores are an essential service, we are sad that they can't just produce corn hooch like our neighbors did when we were a child in rural Le Sueur County, but we gather that's probably out of the question given the scale of the ethanol industry in the state. The modest proposal that farmers grow vegetables also requires a nimbleness negated by industrial agriculture.
The Star Tribune also reported on March 26 in Ethanol plants seek rule changes to resupply hand sanitizer:
As hospitals and nursing homes desperately search for hand sanitizer amid the coronavirus outbreak, federal regulators are preventing ethanol producers from providing millions of gallons of alcohol that could be transformed into the germ-killing mixture.
The U.S. Food and Drug Administration's roadblock has been frustrating the health care and ethanol industries, which have been calling for a relaxed regulation to deal with the public health care emergency.
"Hand sanitizer is a big part of our lives," said Eric Barber, CEO of Mary Lanning Healthcare, a hospital in Hastings, Nebraska. "We can't get any. We order it and it's just not available."
The problem for the ethanol industry is that most plants make food-grade ethanol, one step below the highest pharmaceutical grade. But since the plants aren't certified to comply with stringent production standards designed to protect quality of medicines, food ingredients and dietary supplements, the FDA doesn't want the alcohol used for a product to be applied to the skin.
In addition, the alcohol is not denatured or mixed with a bitter additive to make it undrinkable. The FDA insists this step is "critical" because of cases of poisoning, sometimes fatal, among young children who have accidentally ingested hand sanitizers.
An FDA spokesman said Thursday that regulators have already seen a rise in poisonings linked to hand sanitizers in recent weeks, "heightening this public concern."
The FDA is also skeptical of industry claims that undenatured sanitizers could be distributed in a way that would keep them away from children. . .
Also related from the Strib: Minnesota ethanol producers laud EPA decision not to appeal waiver ruling.
Photo: A classic 1920s Minnesota still, via Studer History.
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