Coproducts Revenue Rising

New benchmarking information points strongly toward a growing percentage of overall plant income streaming from ethanol’s ancillary outputs. Data from 65 participating facilities show revenue from coproducts averaged 27% of total plant revenue in Q1.
By Holly Jessen | August 26, 2021

New data shows ethanol coproducts represent increasingly higher percentages of plant revenue. In 2020 coproduct profitability went up notably, keeping the industry moving forward in extremely difficult times, and that trend has continued in 2021.

“The ongoing theme is coproducts’ contribution to the bottom line,” says Connie Lindstrom, senior biofuels analyst for Christianson Benchmarking LLC, a subscription-based service which aggregates ethanol industry data. In the past 12 months, it included data from 65 facilities operating in the U.S. and Canada.

As revenue from ethanol fell in 2020, ethanol plants participating in the benchmarking program brought in an average of 26 percent revenue from coproducts, per gallon of ethanol sold. That was the highest percentage recorded since the company started collecting data in 2003, she says. Then in the first quarter of 2021, the number went up again to 27 percent, according to the data complied in July.

Now that she’s seen the numbers for Q1 2021, Lindstrom says there seems to be an ongoing trend in this direction. That wasn’t so certain at the end of 2020, however. “Because ethanol sales were so unusual last year, due to the pandemic, it was hard for me to kind of gauge what proportion of that result last year was simply due to relative low ethanol gallons,” she says.

While it’s too early to say definitively that ethanol producers should throw their focus onto coproduct diversification, it’s something to seriously consider. “I think certainly that is what people are talking about and wondering about,” she says. “Our numbers as of right now, for the last six, eight quarters are certainly pointing toward that.”

Kenneth Scott Zuckerberg, lead economist of grain and farm supply for CoBank, helps write the company’s yearly and quarterly Knowledge Exchange reports. He confirms that revenue from coproducts helped ethanol producers stay afloat in 2020 and has been an important contributor to profitability so far in 2021. “Ethanol coproducts, including distillers grains and corn oil, will continue to help ethanol producers diversify their business mix and improve margins,” he says. “This is a long-term story both from a feed and industrial alcohol use perspective.”

CoBank’s quarterly report released in early July says the ethanol industry “outperformed expectations” in the second quarter of this year. General economic growth, seasonal demand for ethanol in the summer months and more people driving were among  key demand drivers.

Average daily operating margins for a representative Iowa dry-mill ethanol plant hit 26 cents in Q2, more than double from the average in Q1, according to an Iowa State University Center for Agricultural and Rural Development chart referenced in the CoBank report. Operating margins averaged near 10 cents a gallon for the first quarter of 2021 but began rising sharply to more than 25 cents in March, when ethanol prices rose and natural gas prices dropped, according to CoBank’s Q1 report.

More Benchmarking Stats
When Lindstrom ran the recently compiled first quarter numbers for this story, the results surprised her enough that she delayed the interview to double check the numbers. She was concerned the data included outliers of very high or very low numbers, which could throw off the results. “That wasn’t the case,” she says. “It was a pretty normal distribution.”

Average coproduct revenue per sales gallon of ethanol was up to 58 cents for the first quarter of 2021. Compare that to an average of 40 cents in 2020. “58 cents per gallon is as high as I’ve seen it since 2012, 2013,” she says. 

Even more interesting was the spread between the top 25 percent of participating ethanol plants, the leaders, and the bottom 25 percent performers, the laggards. In 2020, there was a roughly 10 cent gap between the leaders and laggards on average coproduct revenue per sales gallon of ethanol. It was even more pronounced in the first three quarters, with a 12 cent gap between the two groups. In Q1 2021 it jumped up a bit more, with leaders, on average, earning about 15 cents more than laggards. “We thought that it would normalize and go back to about an 8 cents gap between that top 25 percent average to the bottom 25 percent, but it has not,” she says. “It has actually widened.”

The corn recapture percentage is another useful number to look at, especially considering increased corn prices. It’s the percentage of revenue ethanol producers are getting back in coproduct sales per every dollar spent on corn feedstock, she says. In 2020 the average corn recapture was 33 percent, while leaders were at 37 percent and laggards at 30 percent. In the first three months of 2021 the average and the laggards had about the same corn recapture percentage as the previous year. The number for leaders, on the other hand, went up about one percentage point to 38 percent. “Even though corn prices did rise so high, the plants are still getting that high corn recapture percentage,” Lindstrom says.

Ethanol netback per sales gallon of undenatured ethanol also went up. In 2020 the average was $1.19 for the full year. In Q1 2021 the number went up to an average of $1.63 per sales gallon of ethanol. Compare that with the average results for the first quarter of last year, which came in at $1.09 ethanol netback.

Increased revenue from coproducts, especially when looking at the gap between leaders and laggards, reminds Lindstrom of when there were a number of ethanol plants extracting corn oil but not all the industry had installed the technology yet. That seems to be what’s happening here, she says, as more plants produce new types of specialized coproducts, their revenue from coproducts is going up. It could also be ethanol plants with higher corn oil yield coming out front in coproduct revenue, because corn oil prices have been high. “At this point, one of the drivers could be simply the amount of corn oil, because there is quite a range there,” she says. “Do you produce about half a pound per bushel or do you extract a pound per bushel?”

Currently, the benchmarking program doesn’t collect specific data on different coproducts but that’s going to change in the future, she says. As more ethanol plants diversify their coproduct mix and others consider adding on new technologies, producers have been asking for more details on the profitability of specific coproducts. Another area of interest is information on revenue from pharmaceutical grade alcohol, ethanol produced for export markets and more.

Although there are plans to start collecting data for the benchmarking program soon, it will be a while before Christianson can release it to their clients. “If there’s only two plants in the whole country that are producing a particular type of product, whether that’s coproduct or a grade of ethanol, we don’t want to report identifiable data,” she says. “We want to make sure we are protecting our participants.”

It’s the same way the company handled it as distillers corn oil (DCO) extraction technology was installed at a few early-adopter plants. The data was collected but not included in the reports until more facilities were producing DCO. “There’s a bigger risk associated with being an early adopter, so the plants that are doing it want to maximize their reward for taking that risk, without blasting it out to everybody that, hey, this is going to make your bottom line better,” she says.

Diversification in Progress
Hunter Flodman, technical advisor for the Nebraska Ethanol Board, points to multiple plants in that state that have installed or are working to install new technologies to diversify their product and coproduct offerings. Several Nebraska ethanol plants began producing higher purity alcohol in 2020, due to the demand for cleaners and sanitizers, he says. He’s also visited ethanol plants in Nebraska where a technology to produce an ultra-high protein coproduct is being installed.

“Coproducts have always been an extremely valuable part of the ethanol production process,” he says. “I think it will only become more important as we continue to advance technology to further specialize and separate very valuable components that are in the coproducts.”

Green Plains Inc. is one of the companies Flodman mentioned as an example of an ethanol production company charging ahead to diversify its product streams. In January, Ospraie Management and Green Plains announced they had acquired majority interest in Fluid Quip Technologies and would deploy a number of the company’s technologies, including ultra-high protein, renewable corn oil and Clean Sugar Technology (CST), beginning this year.

Progress toward the company’s goal to install ultra-high protein extraction technology at all its ethanol plants has marched forward quickly, with multiple projects in Nebraska. In early July, Green Plains announced it broke ground on its third ultra-high protein instillation, Fluid Quip’s MSC system, at its Central City, Neb., facility. In addition, construction is ongoing at Green Plain’s Wood River, Neb., ethanol plant, with startup expected in the third quarter of 2021.

Green Plain’s first instillation of the technology was at its Shenandoah, Iowa, plant. Production of ultra-high protein started there in April 2020 and by February of this year the company announced it had achieved a sustainable protein concentration of 58 percent.

Green Plains has also made progress in diversification projects at its York facility, another of its ethanol plants in Nebraska. Two announcements were made in January. First, the company said it had completed an upgrade, adding a new distillation production unit to produce United States Pharmacopeia (USP) grade alcohol, with plans to upgrade again to Grain Neutral Spirits by adding additional distillation and processing capabilities so it can serve more high-value markets, including beverage alcohol. Next, the company said Fluid Quip would engineer and construct fully scalable commercial CST production at the York Innovation Center, co-located with the York ethanol biorefinery.

Another announcement relevant to the topic of diversification came in early June when ICM Inc. signed an agreement with Texas-based Visionary Fiber Technologies Inc. (VFT). ICM will serve as the exclusive distributor, engineering, procurement and construction contractor for VFT’s fiber reactor separation technology, for deployment within the ethanol industry.

The proprietary technology can be used to refine corn oil produced at ethanol plants, removing significantly more impurities so it can be sold to renewable diesel refineries for use as a feedstock without the need for pretreatment and without risk of catalyst damage. VFT’s technology is installed as bolt-on skids, which can be scaled up or down to various sizes and causes minimal or no interruption to operation, says Scott Kohl, chief technology officer for VFT. It’s one of several applications in development by VFT for the ethanol industry. “We look forward to continuing to enhance the ethanol industry’s profitability and sustainability based on new product creation over the coming years,” he says, adding that the company is working in multiple other industries as well, at commercial scale as well as testing and scale-up trials.

The agreement with ICM is focused on corn oil pretreatment for renewable diesel production, Kohl says. The renewable diesel industry is rapidly expanding, with strong demand for feedstocks like corn oil, with a low carbon intensity score. “Distillers corn oil extracted from ethanol plants is strongly positioned to meet both the immediate and forecasted growing demand,” he says. “The ability for ethanol plants to pretreat distillers corn oil within their own facility to increase the value for their current coproducts, thus further diversifying producers’ sources of revenue and cash flow, while meeting an immediate and high-growth industrial need in the market has a clear parallel to the business model that started the ethanol industry.”
 

Author: Holly Jessen
Questions: editor@bbiinternational.com