Dry-Grind Ethanol
Production: Economic
Sensitivity
Douglas G. Tiffany
Research Fellow
University of Minnesota
Today’s Discussion



Work arose from “Factors Associated
with Success of Fuel Ethanol
Producers” written w/ Vernon Eidman
Funding: USDA Rural Development
MN Ag. Experiment Station
1) Briefly establish key factors in drygrind ethanol production
2) Demonstrate economic sensitivity
of this technology in this market
Dry-Grind Technology


Dry-Grind Plants-- now 67% of U.S.
production--simpler process, lower
capital costs, but refinements are
occurring.
Ethanol from corn has a positive energy
balance. (1.34 – 1.51)
– USDA, Argonne Lab,
– Michigan State University, Ag. Canada
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Millions of Gallons
U.S. Annual Fuel Ethanol Production
Source: U.S. E.I.A. and Renewable Fuels Association
3500
3000
2500
2000
1500
1000
500
0
Ethanol Dry-Grind




Grind bushel of corn (56 lb.), add water, make
mash, cook to kill bacteria, expose starch
Add enzymes for flow & to convert starch to sugar
Introduce Yeasts in Batch Fermenters---- produce
beer---- distill the ethanol
Products:
– ethanol– (2.75 gal.) requires heat to distill
– DDGS- (18 lbs.) generally requires drying
– CO2-- ( 18 lbs. ) food grade

150 bushel corn yields 413 gallons of ethanol per
acre, 2700 pounds of DDGS
Corn
Corn Dry-Milling Process Overview
Corn Cleaning
Alpha-amylase enzyme
Hammermill
Mix Slurry
Liquefaction
CO2
Cooker
Dist
illat
ion
Yeast and
Gluco-amylase enzyme
Fermentation
Whole Stillage
Ethyl
Alcohol
Centrifuge
Evaporator
Thin Stillage
Coarse
Solids
Rotary Dryer
Distillers
Wet Grains
Distillers
Dried
Grains with
Solubles
Conditioned
Distillers
Solubles
Feed Industry Co-products
(Source: Kelly Davis, Chippewa Valley Ethanol Company)
Project Goals & Methods


Goal: Describe and Quantify Factors of
Success in Dry-Grind Ethanol Production
Steps in Research
– Conduct Interviews of Plant Personnel &
Bankers—to Learn Factor Inputs, etc.
– Develop Spreadsheets to Measure Plant
Profits
– Interpret Results
– Advise Farmers/Investors, Bankers
Policymakers
2
Ethanol Dry Mill Spreadsheet
3 7/23/03 20:30
4 Nameplate Ethanol Prod. (Denat. Gal.)
5 Investment per Nameplate Gallon
6 Factor of Nameplate Capacity
7 Debt-Equity Assumptions
8 Factor of Equity
9 Factor of Debt
10 Interest Rate Charged on Debt
11 Rate of Return Reqd. by Investors on Equity
12
13 Conversion Efficiency Assumptions
14 Anhydrous Ethanol Extracted (Gal. per Bu.)
15 DDGS per Bushel
(lb. per Bu.)
16 CO2 extracted per Bushel (lb. per Bu.)
17
18 Establishment of Gross Margin
19 Ethanol Price (denatured price) $/gal.
20 DDGS Price $/T
21 CO2 Price ($ per Ton liq. CO2)
22 MN Prod. Subsidy/gal.Denat. Ethanol
23 Federal Small Producer Subsidy
24 CCC Bioenergy Credit
25 Revenue per Unit
26 Corn Price Paid by Processor ($ per bu.)
27 Gross Margin
28
by Douglas G. Tiffany, University of Minnesota
Cost/Denat. Ranges for
Gal. Ethanol Column C
40,000,000
$1.5000 $1.00- $2.00
1.2000 (80%- 150%)
Plant Totals
Plant Cost
0.40
0.60
0.07
0.12
2.750 2.5-2.85 gal/bu
18 15-22 lb./bu
18 15-22 lb./bu
Price per
Unit
$1.15 $.80 to $1.60
$80.00 $60-$120
$6.00 $2- $12 / liq.Ton
$0.00
$2.20 $1.70---$3.25
$
60,000,000
Initial Debt $
36,000,000
Annual Production
Bushels Ground
Denat. Gallons
16,581,843
48,000,000
Revenue/Bu.
Ground
$3.3289
$0.7200
$0.0540
$0.0000
$4.1029
$2.2000
$1.9029
Revenue/Gal.
Denatured Sold
1.1500
0.2487
0.0187
0.0000
Plant Totals
$ 55,200,000
$ 11,938,927
$
895,420
$
$
$
$1.4174 $ 68,034,347
$0.7600 $ 36,480,055
$0.6574 $ 31,554,292
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
Operating Expenses Per Bushel
Natural Gas Price ($ 1,000,000 Btu)
LP (Propane) Price
($ per gallon)
Factor of Time Operating on Propane
BTU's of Heat fr Fuel Req./ Denat. Gal.
Combined Heating Cost
Electricity Price ($ per kWh)
Kilowatt Hours Required per Denat.Gal.
Electrical Cost
Total BTU's of Fuel and Electricity
Total Energy Cost
Enzymes
Yeasts
Other Proc.Chemicals & Antibiotics
Boiler & Cooling Tower Chemicals
Water
Denaturant Price per Gal.
Total Chemical Cost
Price per
Unit
$4.50
$0.70
0.02
35,000
Cost /Bushel
Ground
Cost /Gal.
Denatured Sold
Plant Totals
($1.50-$9.00/Dtherm)
$.55-$.72 / gal.
0-.12
28,500-55,000
$0.4623
$0.1597 $
7,665,569
$0.1578
$0.0545 $
2,616,000
$0.6200
$0.2142 $
10,281,569
$0.05 $.025-$.090/kwh
1.090 (.85-1.2 kWh/denat. gal.)
45,900
Cost/Denat.
Gal. Ethanol
$0.0480
$0.0220
$0.0200
$0.0050
$0.0060 $.005-.010
$0.7000
Depreciation based on C49 asset life
15 Years
Maintenance & Repairs
$0.0125
Interest Expense
Labor
$0.0450 $.04--$.06
Management & Quality Control
$0.0136 $.010-$.022
Real Estate Taxes
$0.0020
Licenses, Fees& Insurance
$0.0040 .0030-.0050
Miscellaneous Expenses
$0.0135 $.01-$.03
Total of Other Processing Costs
Total Processing Costs
Net Margin Achieved Per Unit
Farmer-Investor Reqd. Return on Equity
12.00%
Increment of Success/Failure to Meet Required Return
Ethanol Plant Profits for Shareholders and Principal Reduction
$0.1389
$0.0637
$0.0579
$0.0145
$0.0174
$0.1013
$0.3937
$0.0480
$0.0220
$0.0200
$0.0050
$0.0060
$0.0350
$0.1360
$
$
$
$
$
$
$
2,304,000
1,056,000
960,000
240,000
288,000
1,679,952
6,527,952
$0.2412
$0.0362
$0.1520
$0.1303
$0.0394
$0.0058
$0.0116
$0.0391
$0.6555
$1.6692
$0.2337
$0.1737
$0.0601
$0.0833
$0.0125
$0.0525
$0.0450
$0.0136
$0.0020
$0.0040
$0.0135
$0.2264
$0.5766
$0.0807
$0.0600
$0.0207
$
$
$
$
$
$
$
$
$
$
$
$
$
4,000,000
600,000
2,520,000
2,160,000
652,800
96,000
192,000
648,000
10,868,800
27,678,321
3,875,971
2,880,000
995,971
$3,875,971 $
3,875,971
$3,875,971
Dry Grind Revenue Categories (5
yr.)*
Ethanol Sales
 DDGS Sales
 CO2
 MN Subsidy
 Total

80%
19%
1%
-0100%
Revenues and Expenses for 40MM Dry Mill Plant at Baseline Conditions
Miscellaneous
Taxes, Lic. Fees & Insur.
Managem ent & Q.A.
Labor
Interest
Maint. & Repair
Depreciation
Denaturant
Water
Other Chem . & Antibiotics
Yeasts
Enzym es
Electricity
Natural Gas & Propane
Cost of Corn
Expense Total
CO2 Sales
DDGS Sales
Ethanol Sales
Revenue Total
0
10
20
30
40
50
Millions of Dollars per Year
60
70
80
Five Key Factors & Baseline Levels





Corn Price---- $2.20 per
bushel
Ethanol Price---- $1.15
per gallon
Nat. Gas Price----$4.50
per dekatherm
Ethanol Yield---- 2.75
gal.(anhyd)/bushel
Capacity Factor of
Nameplate----1.20
Sep-02
May-02
Jan-02
Sep-01
May-01
Jan-01
Sep-00
May-00
Jan-00
Sep-99
May-99
Jan-99
Sep-98
May-98
Jan-98
Sep-97
May-97
Jan-97
Sep-96
May-96
Jan-96
Sep-95
May-95
Jan-95
Sep-94
May-94
Jan-94
Sep-93
May-93
Jan-93
Dollars per Bushel
Corn Prices: Minnesota Farm-Level (1993-2002)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
40 MM Gal. Dry-Grind Profits Sensitivity to Corn Price
$15,000,000
$10,000,000
Plant Profits
$5,000,000
$0
$1.50
$1.70
$1.90
$2.10
$2.30
$2.50
$2.70
($5,000,000)
($10,000,000)
($15,000,000)
Corn Price (Dollars per Bushel)
$2.90
$3.10
P rice T ren d of F uel Ethano l in Min nesota (1987-2002)
$/Ga .
198 7-200 2 Average = $1.27
1 .9 0
P e rsia n G u lf W a r
H ig h g a s p rice
o f 2 0 0 0 /0 1
$ 5 .0 0 -b u sh e l
co rn
1 .8 0
1 .7 0
1 .6 0
1 .5 0
1 .4 0
1 .3 0
1 .2 0
1 .1 0
1 .0 0
0 .9 0
0 .8 0
0 .7 0
0 .6 0
2
D
ec
-0
1
-0
ec
D
De
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00
9
-9
ec
D
De
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98
7
-9
ec
D
De
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96
5
-9
ec
D
De
c-
94
3
-9
ec
D
De
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92
1
-9
ec
D
De
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90
9
D
ec
-8
8
-8
ec
D
D
ec
-8
7
0 .5 0
40 MM Gal. Dry-Grind Profits Sensitivity to
Ethanol Price
$20,000,000
$15,000,000
Plant Profits
$10,000,000
$5,000,000
$0
$0.80
-$5,000,000
$0.90
$1.00
$1.10
$1.20
-$10,000,000
-$15,000,000
Ethanol Price per Gallon
$1.30
$1.40
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Ju 3
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Ju 4
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Ja 4
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Ju 5
l-9
Ja 5
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Ju 6
l-9
Ja 6
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Ju 7
l-9
Ja 7
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Ju 8
l-9
Ja 8
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Ju 9
lJa 99
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Ju 0
lJa 00
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Ju 1
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Dollars per DekaTherm
Natural Gas Prices for Industrial Users in Minnesota 1993-2002
14.00
12.00
10.00
8.00
6.00
4.00
2.00
-
40MM Gal. Dry-Grind Profits Sensitivity to
Natural Gas Prices
$8,000,000
$6,000,000
Plant Profits
$4,000,000
$2,000,000
$0
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
($2,000,000)
($4,000,000)
($6,000,000)
Natural Gas Price per DekaTherm
$9.00
$10.00
40MM Dry-Grind Plant Profits Sensitivity to
Ethanol Yield Per Bushel
6,000,000
5,000,000
Plant Profits
4,000,000
3,000,000
2,000,000
1,000,000
0
-1,000,0002.20
2.30
2.40
2.50
2.60
2.70
-2,000,000
-3,000,000
Gallons of Ethanol per Bushel
2.80
2.90
3.00
Model Predicts Addl. Value of
Higher Total Fermentables in Corn

Increase Total Fermentables by 4%
– Equals $909,450 for typical dry-grind plant;
or $.067 per bushel ground.

Increase Total Fermentables by 6%
– Equals $1,338,436 for typical dry-grind plant;
or $.086 per bushel ground.
40MM Gal. Dry-Grind Profits Sensitivity to Capacity Factor of
Nameplate
6,000,000
Plant Profits
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
0.60
0.70
0.80
0.90
1.00
1.10
1.20
Capacity Factor of Nameplate
1.30
1.40
1.50
Factors of Lesser Importance &
Their Baseline Conditions






Capital Costs ----------$1.50/gallon
denatured
Percentage of Debt----60% of Cap.
Cost
Interest Rate------------7.0%
DDGS Price------------$80.00 per Ton
Electrical Price---------$.06 per kWh
Fed., State, or Local Subs/Incent.----0-
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for
Corn Price-Ethanol Price Combinations
$25,000,000
$20,000,000
ETOH@1.00
ETOH@1.15
ETOH@1.30
$15,000,000
Plant Profits
$10,000,000
$5,000,000
$-
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
$(5,000,000)
$(10,000,000)
$(15,000,000)
$(20,000,000)
Corn Price (Dollars per Bushel)
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for
Corn Price-Ethanol Price Combinations
$25,000,000
$20,000,000
ETOH@1.00
ETOH@1.15
ETOH@1.30
$15,000,000
Plant Profits
$10,000,000
$5,000,000
$-
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
$(5,000,000)
$(10,000,000)
$(15,000,000)
$(20,000,000)
Corn Price (Dollars per Bushel)
Net Margins of 40 MM Gal./Yr. Dry-Grind Plant for
Corn Price-Ethanol Price Combinations
$25,000,000
$20,000,000
ETOH@1.00
ETOH@1.15
ETOH@1.30
$15,000,000
Plant Profits
$10,000,000
$5,000,000
$-
$1.35 $1.55 $1.75 $1.95 $2.15 $2.35 $2.55 $2.75 $2.95 $3.15
$(5,000,000)
$(10,000,000)
$(15,000,000)
$(20,000,000)
Corn Price (Dollars per Bushel)
Dry-Grind Net Margins for Various Corn Prices Shift as Natural Gas
Rises to $5.50 , $6.50 from $4.50 per Dekatherm; Ethanol @ $1.15/Gal.
$20,000,000
NG Shift to $6.50
$15,000,000
NG Shift to $5.50
ETOH at $1.15, NG at $4.50
Plant Profits
$10,000,000
$5,000,000
Schedule Shift
to Higher NG
Prices
$0
$1.40
$1.65
$1.90
$2.15
$2.40
$2.65
($5,000,000)
($10,000,000)
($15,000,000)
Corn Price (Dollars per Bushel)
$2.90
$3.15
Effect of Interest Rates on 40MM Gal./Yr. Dry Mill Profits for Plants of
Various Debt Percentages under Baseline Conditons
$7,000,000
$6,000,000
Plant Profits
$5,000,000
$4,000,000
$3,000,000
0% Debt
20% Debt
40% Debt
60% Debt
$2,000,000
$1,000,000
$0
5%
6%
7%
8%
9%
10%
Interest Rate
11%
12%
13%
14%
Conclusions: Sensitivities





Favorable economics with low corn prices, high
gasoline prices, low natural gas prices, low
interest rates.
Corn Price--- Zero profits above $2.43 per bu.
Ethanol Price--- @$1.15--- profits of $.15/ bu.,
@$1.35--- profits of $.56/ bu.
Natural Gas Price rise to ($6.85) from baseline
levels of $4.50/ dekatherm wipes-out profits.
Ethanol Yield per Bushel —very important
2.75 gal./bu (typical today)
 2.36 gal./bu--- wipes out profits

Retrospective Ethanol Gross Margins, Operating Expenses, and
12% ROE of 40MM Dry-Grind Plant from 1/93-12/02
Dry Mill Gross Margin
Dry Mill Total Exp.
$4.00
Dry Mill Total Exp.+ 12%ROE
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
Jan-02
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
$Jan-93
Dollars Per Bushel Processed
$4.50
Plant Manager Observations--Technical




Improved Enzymes and Yeast in last two years
– Tolerance to Alcohol % (13.5%-now 19.7%),
– Tolerance to Higher Temps (can tolerate 100 degrees F.
for 2-3 hours and still recover)
Faster fermentation times - 45-50 hours possible
60%-40% split in Yeast Propagation Strategies
- 60% “continuous yeast propagators”
- many batches in same tank; antibiotics used
- 40% batch yeast, make fresh batches from
purchased yeast
Expect to process most of fiber in corn kernel
with improved cellulases in the future
Research Topics: Derive More
Revenue or Cut Costs of Stillage

DDGS
– Improvement in DDGS Attributes
– Efforts to “Brand” and Standardize DDGS
– Educate Users, Develop Markets
– Development of Yeast Extract Products to Reduce
Antibiotic Use in Livestock



Utilization of Liquid Stillage or Syrup
Utilization of DDGS as Biomass Fuel
Better Storage, Utilization of Wet DDGS
Technology Changes Pending




Quick-Germ Technology– uses more enzymes,
depends on favorable sale of corn oil (Univ. of
Illinois)
Quick-Fiber Technology—offers opportunity for
greater through-put, but altered DDGS product
characteristics ( Univ. of Illinois)
Continuous vs. Batch Fermentation with
stripping of ethanol--- USDA, ARS
Pervaporation—use of membranes to filter
ethanol from broth (USDA, ARS)
Conclusions: Dry-Mill Production





Found Sensitivity of Dry Mill Ethanol Production to
Various Factors; Historical Volatility of Returns
High Volume, often low margin business; however,
some times of excellent returns have been
modeled and also reported
Processing business demanding superior
management of sensitive microbes, quality control
Major efforts to conserve energy in operations
Expect this technology to evolve and improve
further until major improvements in ligno-cellulosic
processes are able to make that technology more
competitive.
Contact Information



dtiffany@dept.agecon.umn.edu
(612) 625-6715
Spreadsheet:
http://www.agmrc.org/energy/info/
ethanolsuccess.xls
Original paper:
www.apec.umn.edu/staff/dtiffany/
staffpaperp03-7.pdf