Arkansas Ethanol
Presentation to
Arkansas County
Farm Bureau
September 26, 2006
Ethanol Production:
Corn and Sorghum
Pretreatment
Corn/Sorghum:
Starches
Sugars
Fermentation
Amylase
Product
Recovery
Yeast
Glucose
Ethanol
Products of Ethanol Production
from Corn or Sorghum

Ethanol 2.5-2.8 Gallons/bushel depending on
efficiency; 100 mgpy plant uses ~36 million bushels

DDGS Distillers Grains Solubles (“mash”) usually
dried (DDGS) for transport to feed mills, but can be
pumped wet to adjacent feeding operations.

CO2 usually captured and marketed directly by
carbon dioxide marketers.
Products from ethanol plant
Source: Kansas Geological Survey
Wet mill process
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Wet mill processing plants produce more valuable by-products
than the dry mill process. In addition to the ethanol, wet mill
plants produce:
Corn gluten meal (which can be used as a natural herbicide or
as a high protein supplement in animal feeds)
Corn gluten feed (also used as animal feed)
Corn germ meal
Corn oil
Carbon dioxide (CO2 for soft drinks or dried ice) and
High fructose corn syrups.
Wet mill plants also cost substantially more to build and have
higher operating costs than dry mill processing plants, and
hence are usually much bigger than dry mill plants in order to
achieve economies of scale.
Largely Abandoned Dry Fractionation/Biomass Ethanol Process
Feedstock
Process
Products
DDG
Germ
Ethanol
DDG*
Bran
Alternate Feedstocks
(Wood Waste)
Hi-Pro DDGS
Electrical
Biogas
Ethanol
Plant
Thermal
“Green” Energy
Whole Corn,
Sorghum,
Barley
Grain Dry
Fractionation
Germ
Biomass
Energy
Conversion
* Degermed, Debranned Grain
Wet DGS and DDGS
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
Ethanol plants produce one key product
other than ethanol: an ingredient for animal
feed known as distillers grains solubles
(“mash” or DGS). Cargill in Memphis, Tyson
in Pine Bluff, and other poultry, catfish, dairy,
and other feed plants prefer DGS to whole
grains.
Dried DGS (DDGS) is usually preferred for
ease of transportation.
Energy use in ethanol production
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Two major costs in ethanol production:
natural gas and feedstock (usually corn).
Ethanol production requires energy to heat
fermentation process.
Drying DGS requires most heat
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–
Dry DGS are in high demand for export.
Wet DGS hard to transport, need feedlot next
door
Energy sources for ethanol plants
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Natural gas
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Coal
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Cheaper to install
Volatile prices
Adds ~$35 M to cost of plant
Gives cogeneration capacity
Wood waste and other cellulose sources
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Can use fluid bed process
Readily available and inexpensive at some sites (e.g. Pine
Bluff).
Local and State Revenue
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University of Texas, Mississippi State, and University
of Missouri studies of ethanol plants of 80-100 mgpy
capacity
Directly create 50-60 jobs paying more than $37,000
per year (total payroll >$2 million)
Additional 120 jobs throughout the regional
economy.
Impact on regional household income would be at
least $79 million during construction and $41 million
annually from operations.
Contribution to local and state tax revenues will be
about $2.4 million during construction and $1.3
million annually.
Missouri 2003-2004 campaign resulted in:
• State income tax credit
• $200,000 grant for seed money
• Producer credit up to $3.125 M/year for 5 years
2005 Missouri legislative session:
• By January 1, 2008, all gasoline sold in Missouri must
contain at least 10% agriculturally derived ethanol.
RESULT: These incentives have resulted in $1.5
billion in investment in proposed ethanol
developments, four plants are up and running.
State consumption and incentives
States with incentives
but little production
-Tax exemptions
- Producer payments
No current state incentives
but large mandated oxyfuel and RFG markets
encourage ethanol
production
States with significant
ethanol production but
no major state incentives
80 to 260 mill gals
10 to 28 mill gals
29 to 79 mill gals
0.25 to 9 mill gals
no data reported
Source: U.S. Department of Transportation, Federal Highway Administration
Federal Regulations and Ethanol

Ethanol first started being used as a fuel additive in the late 1970s
when EPA began phasing out lead in gasoline. Removing lead from
gasoline lowered the octane level of gasoline. Because of its high
octane content, ethanol soon established a role as an octane enhancer.

The Clean Air Act Amendments of 1990 established the Oxygenated
Fuels Program and the Reformulated Gasoline (RFG) to control carbon
monoxide and ground-level ozone problems. Both programs require
that certain urban areas in “non-attainment” add oxygen to their
gasoline: 2.7 percent by weight for oxygenated fuel and 2.0 percent by
weight for RFG. Blending ethanol with gasoline is one way to meet the
oxygenation requirements. Methyl tertiary butyl ether (MTBE) was also
used to meet the requirements but is now being discontinued.
Largely due to Government policies, ethanol
production grew from about 62 million gallons
in 1976 to over 2 billion gallons in 2002
Million gallons
RFG begins
in 1995
In 1999 California
Governor banned MTBE
by 12/03
Source: U.S. Energy Information Administration and USDA, ERS
2002
1988
1986
1984
1982
1980
1978
1976
0
2000
500
Energy policy
Act of 1992
applied ethanol
tax credits to
lower blends
1998
Tax Reform Act of 1984
increased ethanol tax
exemption to $0.60/gal
and the blender’s income
tax credit to $0.60/gal
1996
1000
MTBE discovered in
California drinking water
in 1998
1994
1500
1992
2000
1990
2500
Surface Transportation
Assistance Act of 1983
increased ethanol tax
Energy Tax Act
exemption to $0.50/gal
of 1978 gave
and the blender’s
ethanol a $0.40/gal
income tax credit to
credit on the Federal $0.50/gal
Regulations under the
motor fuels tax
Clean Air Act
Amendments of 1990
Blender’s
started in 1992
Income tax
credit of
$0.40/gal
Federal Tax Credit 52 cents/gallon
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Blenders credit
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Ethanol plants obtain blenders license readily
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E10 .52 X 10% = 5.2 cents/gallon E10
E85 .52 X 85% = 44.2 cents/gallon E85
Malta Bend, Missouri, plant
Use of blenders license depends on market
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MFA objected to Malta Bend use of blenders credit
Arkansas plants exporting to Texas would not conflict with
local distributors’ blending credit.
Energy Policy Act of 2005 Has Major
Effect on Bioenergy Development
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Renewable fuel standard – renewable fuel
blended with motor fuel must increase from
<4 billion gallons in 2005 to 7.5 billion gallons
in 2012
Federal fleets required to increase their use
of alternative fuels
MTBE banned in the United States within 4
years and immunity to liability disallowed
Estimated Effect of the renewable fuels
standard (RFS) on future ethanol production
7000
RFS
6000
5000
4000
USDA baseline
Historical estimates
3000
2000
1000
0
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Effect of MTBE ban
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California alone is expected to consume 1
billion gallons of ethanol by 2010 to replace
MTBE.
Texas (easily accessible by an Arkansas
plant) is expected to require the second
highest amount of ethanol to replace MTBE.
At least 2 billion gallons more are needed to
replace MTBE
–
Wall Street Journal, 5/5/2006
Both Supply and Demand Policies 
Increase Ethanol Production
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Supply Side Incentives
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CCC Bioenergy Program
Energy Tax Incentives Act of 2003
Energy Policy Act of 2005
Demand Side Incentive
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Renewable Fuels Standard
State Mandates
Source: RFA, 2006.
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Total Current Capacity at 101 ethanol
biorefineries
4797.9
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Total Under Construction (32)
/Expansions (6)
2047.5
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Total Capacity
6845.4
Updated: June 1, 2006
Northeast Missouri
Ethanol Plant
40 mgpy
Macon
Missouri
Built by Broin
www.broin.com
50 mgpy ethanol plant in Logan Co, Illinois built by Fagan
NREL Projections of Future
Ethanol Production
30
25
20
15
10
5
0
2003
2007
2012
2020
2030
Future of ethanol use
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75% of all new Brazilian cars are flex-fuel
cars which can run on E85 (85% ethanol)
GM, Ford and Chrysler will produce 900,000
flex-fuel cars in 2007
Toyota plans to sell E85 cars in U.S. in 2008
Ethanol is still less than 3% of 140 billion
gallons of gasoline sold in the U.S. every
year.
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Source: Financial Times, 4/19/06
ENERGIZING AMERICA: Farmers
Fueling Our Energy Independence
May 11, 2006 New House Bill
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Increase Production of American-made Biofuels
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Expand the Market for and Distribution of Biofuels
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Doubles the percentage of renewable fuels sold in America in six
years.
Extends tax credit for ethanol and biodiesel through 2015 and
increases tax benefits to small biofuel producers.
Increases the percentage of “flex-fuel” vehicles that run on
ethanol, or gasoline.
In seven years, 75 percent of all cars made in America would be
flex-fuel cars.
Increases the number of gas stations offering ethanol (E-85) and
biodiesel through new incentives and requirements.
Encourage Local Domestic Ownership
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Provides federal incentives to smaller ethanol and biofuel plants,
so that independent, locally-owned facilities that produce biofuels
can grow and thrive, improving our rural communities.
Feedstock is drawback in Delta
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Ethanol production in Arkansas faces a current lack
of feedstock (corn or sorghum), higher price of grain,
and aflatoxin fears.
A feasibility analysis by BBI (www.bbibiofuels.com),
shows 36 million bushels of corn can be obtained
locally and by rail at Stuttgart for $2.61 per bushel
and locally, by rail and barge at Helena for
$2.60/bushel.
To maximize benefits to Arkansas, feedstock
availability must increase.
Corn in the Delta
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Corn is excellent rotation crop for cotton
If the 250,000 acres decrease in rice acres
projected early this year in Arkansas had all
gone into corn production, the 36 million
bushels needed for a 100 mgpy plant could
be achieved.
Besides price increase, what will help
farmers decide to grow corn? Ownership.
Farmers pledge delivery of corn
bushels to gain equity in plant.
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Benefits
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Plant has more secure and local supply.
Arkansas’ economic benefits increase.
Farmers gain ownership in plant.
Local commitment to plant increases.
Drawbacks
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Expected yields may not materialize and thus
farmers may not deliver as promised.
Historic Return
on Investment
•Even small (20 mgpy) plants and a replay of
the lowest historical prices of ethanol, DDGS,
and CO2 would result in at least a 12% return
on investment 83.3% of the time.
•A study of five ethanol facilities in Iowa found
an average return on investment of 35% for
the period 1998-2003
Bootheel Agri-Energy LLC
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SIKESTON, MO, April 5, 2006 (AP) - An ethanol plant that's
planned for southeast Missouri will provide up to 65
jobs. Construction of the $205 million plant in Sikeston is
expected to start in November.
Bootheel Agri-Energy says it will buy 160 acres in an industrial
park for a plant that will produce 100 million gallons a
year. Once completed, it will be the largest ethanol plant in the
state and one of the largest in the country.
The plant will use about 35 million bushels of corn a
year. Company officials announced the plant in November
officials when they had narrowed the list to three sites in
Sikeston and Scott City.
Return on investment today
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Bootheel Agri-Energy LLC in Sikeston,
Missouri expects 100% return on investment
at current prices.
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Not on river, will bring in corn by rail & truck
Coal-fired, not natural gas
At $1.46/gal, 30-40% ROI is projected
depending on plant size and fuel source.
Gross margins
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At $1.86/gallon value of ethanol and 24
cents/gallon for DDGS, value of ethanol is
$2.10.
Subtracting corn at 70 cents/gallon and
natural gas at 33 cents record gross
margin of $1.07.
100 mgpy plant has gross margin of
$107,000,000.
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Source: FAPRI, University of Missouri
Current prices
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Most ethanol is sold on flat price 6 month
contracts which are currently over $2.50 per
gallon.
Ethanol sold on spot market has reached
above $3/gallon.
State Average Fuel Ethanol Rack Prices
provided by Axxis Petroleum, www.axxispetro.com
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Date: Thursday, May 11, 2006
Iowa: 2.9519
Illinois: 2.9005
Kansas: 3.0019
Michigan: 2.8500
Minnesota: 2.9032
Missouri: 2.9739
North Dakota: 2.9652
Nebraska: 2.9492
South Dakota: 2.9809
Wisconsin: 2.7906
ENERGY OVERVIEW
 U.S.
currently uses approximately
 138 billion gallons of gas
 35 billion gallons of diesel
 8 billion gallons of ethanol will be
needed just to replace MTBE.
Investing in Ethanol
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Share prices of ethanol producing companies are rapidly
increasing. The largest U.S. ethanol producer ADM has
seen its share price climb 85% so far this year.
May 10, 2006, ADM announced plans to increase annual
production 50% in next 2 years to 1.575 billion gallons.
Pacific Ethanol, plant under construction, Bill Gates
invested $85 million for next 4 plants.
Sikeston plant raised $70 million in 5 months.
Ethanol IPOs
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Most ethanol plants privately held by farmers.
2nd largest ethanol producer, Verasun, raised
$419.8m in an IPO. Shares closed >30%
above the offer price. Financial Times, 6/15/06.
Hawkeye Holdings and US Bioenergy will have
IPOs this week and in October (respectively).
Private placement is quicker due to less SEC
regulation, but must limit number of investors.
Arkansas has advantages over Midwest
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Whether return on investment will be higher or lower
at a Delta plant than at plants in the Upper Midwest
will be influenced by demand from Texas for ethanol
to replace MTBE. Some analysts contend Texas will
require the second highest amount of ethanol to
replace MTBE of any state.
Demand for co-products of ethanol production
(DDGS) by feedmills in Memphis (Cargill),
Mississippi (poultry and catfish feed plants), and
Arkansas (poultry and catfish) could also make
return on investment higher from a Delta plant than
from Midwestern plants.
Available following receipt of signed
non-disclosure/confidentiality
agreement
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Feasibility analysis on best sites for ethanol
in Arkansas.
All financials for business plan
5 year pro forma income statements
Expected return on investment
Estimated equity needed
Plant employment structure
Next steps
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$51,000 grant awarded by USDA/VAPG will:
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Establish foundation for equity drive
Finalize ownership team
Incorporate business structure
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LLC or hybrid New Generation Cooperative/LLC
Grant must be matched by local
contributions before funds will be released by
USDA.
Ownership group will be
established this fall
Two phase equity drive
– Accredited investors only, private placement
 Recruit ~100 investors at $30,000 each$3 million
– Purchase discounted shares at 50 cents on dollar
 Perform engineering studies, construction plans, hire
management, develop final prospectus
–
2nd phase: two classes of stock
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raise at least $60-70 million
committed delivery of 15 million bushels
www.deltanetwork.org
Results of Sikeston Equity Drive
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We plan to pattern our efforts on the recent
equity drive for an ethanol plant in Sikeston,
Missouri.
Raised more than $70 million in less than 6
months.
The Sikeston group chose a private
placement over a public offering to save legal
costs and time (to take advantage of high
investor interest and increasing ethanol
prices).
Is the future even
brighter for ethanol?

1908 original Model T Ford ran solely on
ethanol
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Ethanol is still less than 3 percent of
the nation's 140 billion-gallon annual
demand for gasoline.
Commodity Credit Corporation
Section 9010: Continuation of the Bioenergy Program
Lead Agency: Farm Service Agency
Key Staff Contact: Jim Goff, BioenergyProgram@wdc.usda.gov
Established by USDA in FY 2001 to encourage ethanol and biodiesel
production. Cash payments available from the CCC to bioenergy producers
compensating them for a portion of their increased commodity purchases:
Under 65 million gallons, payment on 1 bushel for every 2.5 bushels of corn or
soybeans used for production
65 million gallons or more, payment will be 1 bushel for every 3.5 bushels of
corn or soybeans used for production