US ethanol is modern-day farm policy; future profitable: Green Plains CEO

Miami (Platts)--24 Oct 2017 601 pm EDT/2201 GMT

The US ethanol industry represents a modern-day farm policy as the primary means of creating demand for ever-growing corn supplies, and the industry maintains a profitable outlook, Green Plains CEO Todd Becker said Tuesday.

"This is the modern-day farm program," Becker said in his opening comments at the Kingsman Miami Sugar Conference.

The US ethanol industry does not receive any direct subsidies or tax breaks, but is supported through the federal government's Renewable Fuel Standard. As corn production has increased sharply in recent years, the ethanol program in the US provides much-needed demand for farmers.

"Though ethanol no longer receives any explicit subsidies through a blending credit, it is implicitly supported by the Renewable Fuel Standard," Aakash Doshi, commodities director with Citi Research, said during a later presentation.

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"The US Farm Belt would be in big trouble without ethanol," Becker added. "There's no more demand for corn for export or feed or food; really any increase in corn production has to get cleared through ethanol."

Becker sees a bright future for the value ethanol brings to the table, both as a fuel and through its co-products.

"We're going to continue to see demand for cheap octane that's clean burning, and we're seeing widespread acceptance around the world of this molecule," Becker said.

Ethanol's high octane content makes it an attractive blending option while it is cost-competitive.

Though countries like China and Brazil have levied tariffs on ethanol imports, Becker said he is optimistic that exports will grow, with global ethanol demand climbing 2-3%/year.

US ethanol production has ramped up over the past several years, but Becker said debottlenecking, the process of expanding capacity at plants through efficiency improvements, is slowing.

Plants have finished the cheap debottlenecking projects. Becker said Green Plains now has projects that would cost $1/gal to continue expanding production through that means, but the return on investment wouldn't justify the price tag.

Becker said growing demand could eventually outpace production, especially with increased domestic blending.

"E15 is much like E10 was several years ago," he said. "We're seeing competitive responses from stations not offering E15."

Ethanol producers and lobby groups have pushed for increasing ethanol blending, including gasoline with 15% ethanol beyond the current norm of 10%.

An incremental increase in ethanol demand from higher ethanol blends being sold could continue to push the average ethanol blending rate beyond 10%. And with 1,043 US stations offering E15 so far this year, Becker said the 15.6 billion-15.8 billion gallons of annual US production capacity could all be consumed domestically.

"E15 adoption could happen faster than we think. It will not take 30 years to get E15 in the fuel supply like it did for E10."

The protein content from dried distillers grains with solubles, or DDGS, ethanol's co-product, is also filling a need in world markets that will support ethanol prices.

"The world is protein-short. We make almost 50 million tons of protein and the world continues to clear any new source of protein we make."

Becker added that the protein gap between DDGS and soybean meal could close in the coming years, with DDGS even surpassing the content of soybean meal. DDGS are an animal feed, competing with corn and soybean meal. As global meat demand rises, so does demand for high-protein feed.

With multiple profit streams available to ethanol producers, Becker feels confident in the future for the US industry. He added that US policy on biofuels looks stable, given comments from US Environmental Protection Agency Administrator Scott Pruitt last week that favored US ethanol interests.

--Josh Pedrick,
--Edited by Annie Siebert,

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