Production and Revenue Trends in Corn Ethanol, DDGS, and Corn Distillers Oil
By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322
Supported by the 2007 Energy Act, ethanol production has increased. Production surged from 8.37 billion gallons in the 2007/08 September to August marketing year to 13.81 billion in 2010/11, reaching a record volume of 15.70 billion in 2016/17 (Figure 1). Data for the first four months of the 2017/18 marketing year indicates ethanol production climbed 2.8 percent to 5.37 billion gallons compared with the same period in the previous marketing year (5.23 billion gallons) (see Figure 1).
Figure 1. U.S. Ethanol Production
Distillers Grains Production Upward Trend
Corn grain is approximately two-thirds starch, which dry mill plants convert into ethanol and carbon dioxide. The other third of the corn grain contains protein, fat, minerals, and ash, which ends up as distillers grains and other co-products. Based on the moisture content, distillers grains can be sold as wet, modified, or dried, and are valuable co-products used as feed ingredients by the livestock and poultry industries. Wet distillers grains are more perishable co-products than dried distillers grains, therefore mainly are delivered to livestock operations located near ethanol plants. Due to the longer shelf life of distillers dried grains, these can be delivered to long-distance livestock operations, as well as to international markets as feed commodities. Condensed distillers solubles (CDS-syrup) result from evaporated co-products. Most CDS-syrup is added to distillers dried grains, but some is used as liquid feed supplement.
Among all co-products, distillers dried grains with solubles (DDGS) is the main co-product of corn ethanol production. In the 2016/17 marketing year, U.S. ethanol plants produced a new record of 41.01 million tons of DDGS, up 4 percent from the 2015/16 marketing year (39.35 million tons) (see Figure 2). DDGS production data for the first four months (September to December 2017) of the 2017/18 marketing year indicates a 7 percent increase to 7.78 million tons relative to the same period in 2016/17 (7.24 million tons). This increase in DDGS production reflects the 2.8 percent growth in ethanol production (5.37 billion gallons) during the same period (see Figures 1).
Based on data published by USDA-ERS on March 2018, U.S. ethanol plants are expected to produce 41.56 million tons of DDGS in the 2017/18 marketing year, up 1.3 percent from the previous marketing year (see Figure 2). Production of DDGS during the first four months of the 2017/18 marketing year was about 18.7 percent of the forecasted DDGS 2017/18 production. Over 80 percent of DDGS production is expected during the remaining eight months of the 2017/18 marketing year. This projection is achievable given that in previous years about 67 percent of ethanol production has been accomplished during the last eight months of the September to August marketing year (see Figure 3). The result is a considerable amount of distillers grains could be produced in that period.
The March 2018 DDGS production projection (41.56 million tons) for 2017/18 is based on estimates contained in the USDA’s World Agricultural Supply and Demand Estimates (WASDE) for the prior month, which in this case is the February 2018 WASDE publication. At that time, USDA’s forecast for 2017/18 corn use for ethanol and co-products was equal to 5.525 billion bushels. In the latest WASDE report (March 2018), USDA increased the volume expected to be used in ethanol production during the 2017/18 marketing year by 50 million bushels to 5.575. The increase in corn use for ethanol was based on the March 2018 data from the USDA-NASS’s Grain Crushings and Co-Products Production report and the pace of weekly ethanol production during February as reported by the U.S. Energy Information Administration (EIA). With this new corn usage forecast, distillers grains production is expected to increase slightly in 2017/18 from the previous forecast for the current marketing year.
Figure 2. U.S. Distillers Dried Grains with Solubles (DDGS) Production
Figure 3. U.S. Monthly Ethanol Production
Corn Distillers Oil Production is Growing
Another important co-product from dry mill plants is corn distillers oil (CDO). Corn oil extraction has grown due to technological advancements as additional investment is required to facilitate extraction. CDO is used as a feedstock for biodiesel/renewable diesel production, or as a feed ingredient. As ethanol production has expanded, so has the production of CDO. Data from the USDA-NASS indicates CDO production has increased consistently since the 2014/15 marketing year (see Figure 4). CDO production for the 2016/17 marketing year, 1.74 million tons, climbed 13 percent from the volume produced a year earlier (1.54 million tons). Monthly average production during 2016/17 rose to 0.27 million tons from the average production in 2015/16 of 0.24 million tons. CDO production during September to December 2017 was 0.67 million tons, up 18 percent from the production in September to December 2016 (0.57 million tons).
Based on data from the EIA, CDO is expanding its role as a feedstock in the production of biodiesel. In the 2015/16 marketing year (September 2015 to August 2016), 0.60 million tons of CDO were used in biodiesel production. The same year 2.76 million tons of soybean oil and 0.66 million tons of yellow grease were used for biodiesel production. In 2016/17 the volume of CDO (0.74 million tons) as biodiesel feedstock surpassed that of yellow grease (0.72 million tons). Soybean oil continued as the lead feedstock for biodiesel with 3.07 million tons. This trend continued during the first four months of the 2017/18 marketing year (September to December 2017). Biodiesel production during that period used 0.30 million tons of CDO, 1.8 million tons of soybean oil, and 0.26 million tons of yellow grease.
The volumes of CDO used for biodiesel production during these three periods (2015/16, 2016/17, and September to December 2017) were below the volume produced during the same period span. This seems to indicate that about 0.94 million tons, 1.00 million tons, and 0.37 million tons of CDO were used as a feedstock for renewable diesel, or as a feed ingredient. Biofuels based on feedstocks with low carbon intensity are becoming important. Programs such as California’s Low Carbon Fuel Standard (LCFS) allows higher credit values for biofuels based on feedstocks with low carbon intensity. This gives a clear advantage to CDO. Corn oil extracted from distillers grains prior to the drying process has a carbon intensity (CI) of 4 grams of CO2 equivalent per Megajoule of energy (gCO2e/MJ), whereas soybean oil and waste oil (used cooking oil, termed also as yellow grease) have a CI of 83.25 gCO2e/MJ and 18.72 gCO2e/MJ, respectively. When waste oil does not require cooking, the CI is equal to 13.83 gCO2e/MJ. More details about the LCFS program can be found in previous posts (June 2017, June 2016, and May 2016).
Figure 4. U.S. Monthly Corn Distillers Oil (CDO) Production (Million Tons)
Revenue Trends in Corn-Ethanol, Distillers Dried Grains with Solubles, and Corn Distillers Oil
Sales of dried distillers grains and, on a lower scale, sales of CDO boost total revenue received by ethanol plants, which contribute to the economic feasibility of corn-ethanol production. Based on the model developed by Hofstrand (Ethanol Profitability), revenue per gallon of ethanol was estimated for a typical dry mill Iowa corn ethanol plant. The original model included only the revenue from ethanol and DDGS, which assumes 2.8 gallons per bushel of corn and 17 pounds of DDGS per bushel of corn. In addition, based on this model, we estimated the revenue from CDO assuming 0.65 pounds of CDO per bushel of corn. This is a conservative value, as it has been reported (RFA, 2018) dry mill plants produce 0.75 pounds of corn oil per bushel of corn with distillers grains (10% moisture) at 16.4 pounds per bushel of corn.
In the 2015/16 marketing year, the average price of ethanol was $1.39 per gallon (see Table 1), with prices ranging from $1.23 per gallon in January 2016 to $1.56 per gallon in June 2016. The following marketing year the average price of ethanol increased to $1.48 per gallon and prices fluctuated between $1.65 per gallon in December 2016 and $1.38 per gallon in February and March 2017. Ethanol prices during the first four months of the 2017/18 marketing year averaged $1.39 per gallon (see Table 1).
The average DDGS price in the 2015/16 marketing year was $126.04 per ton, with a price range of $111 per ton in October 2015 to $161 per ton in June 2016. With higher production of DDGS in 2016/17, the average price fell to $100 per ton that marketing year, and prices ranged between $93 per ton in April and May 2017 to $112 per ton in September 2016. For the first four months of the 2017/18 marketing year, the average price of DDGS has varied between $104 per ton in September 2017 to $125 per ton in December 2017. DDGS prices averaged $113.58 per ton during this four-month period (see Table 1).
The 2015/16 average price of CDO on the Missouri River and sourced from The Jacobsen Database was $25.20 per hundred pounds. The price range was $20.50 per hundred pounds in September 2015 to $30.40 per hundred pounds in May 2016. The 2016/17 average was $27.41 per hundred pounds, with a price range of $25.98 per hundred pounds in December 2016 to $28.70 per hundred pounds in May 2017. Despite CDO production growth of 13 percent in 2016/17 relative to the previous marketing year, prices managed to stay ahead of the previous marketing year, supported by the expanded use of CDO in biodiesel production and other uses. CDO in biodiesel production rose 24 percent to 0.74 million tons in 2016/17 from a year earlier. The average price of CDO during September to December 2017 fell 11 percent compared with the same period in 2016. CDO use in biodiesel production jumped 20 percent to 0.30 million tons in the September to December 2017 period relative to the same period in 2016. CDO production also grew 18 percent to 0.67 million tons during the first four months of the 2017/18 marketing year compared to the same period the previous year. It seems CDO production was catching up with demand during the first four months of the current marketing year, which may have contributed to the lower average price.
Based on average prices and product yields for the September to August 2015/16 and 2016/17 marketing years and the first four months of the 2017/18 marketing year, Table 1 shows total revenue of ethanol production at a typical dry mill Iowa ethanol plant. Average revenue of ethanol was equal to $1.39 per gallon, $1.48 per gallon and $1.39 per gallon during 2015/16, 2016/17 and 2017/18 (September to December), respectively. When the average revenue per gallon of ethanol from DDGS and CDO were added, total revenue grew to $1.83 per gallon, $1.85 per gallon, and $1.79 per gallon. The increase in average price of ethanol and CDO in 2016/17 supported total revenue, despite lower DDGS prices that marketing year. Average total revenue fell to $1.79 on the first four months of the current marketing year (September to December 2017) compared with the same period in the previous marketing year ($1.92 per gallon). During the period of September to December 2016, the average prices of ethanol ($1.54 per gallon) and CDO ($27.34 per hundred pounds) were stronger than during the same period in 2017 ($1.38 per gallon and $24.61 per hundred pounds). The higher average price of DDGS during September to December 2017 ($113.58 per ton) compared with the same time in 2016 ($104.10 per ton), cushioned the September to December 2017 revenue from falling further. Overall, given the larger volume of DDGS production compared with that of CDO, the contribution of DDGS on a per gallon basis is much larger than the contribution of CDO. The contributions to revenues from DDGS were 20.8, 16.5, and 19.4 percent of average total revenue during the 2015/16, 2016/17, and 2017/18 (September to December). The contributions of CDO were 3.2, 3.4, and 3.2 percent, respectively. The monthly revenues per gallon of ethanol from ethanol and co-products are shown in Figure 5.
Table 1. Average Price of Outputs and Average Revenue of Outputs per Gallon of Ethanol
Figure 5. Monthly Total Revenue of Ethanol Production at a Typical Dry Mill Iowa Ethanol Plant
This analysis presented historical and current production of ethanol and two important co-products of the dry mill ethanol plants (DDGS and CDO). Per gallon revenue for ethanol, DDGS and CDO were estimated based on a model applied to a typical dry mill Iowa corn ethanol plant. This analysis highlights the importance of the production and marketing of corn ethanol co-products. The revenues of the co-products help to increase revenue and buffer fluctuations in ethanol revenue per gallon. Also, as the production of ethanol increases, so does the production of DDGS and CDO. This is of value not only to the ethanol industry, but also to other industries that benefit from these co-products, namely the livestock/poultry industry as feed and biofuel industries as feedstock.
Historical and current DDGS exports will be presented in a future post of this report.
Batres-Marquez, S. Patricia. 2018. “Production and Revenue Trends in Corn Ethanol, Distillers Dried Grains with Solubles, and Corn Distillers Oil." Renewable Energy Report, Agricultural Marketing Resource Center, Iowa State University. March 2018.