Ethanol production from corn represents “potentially the biggest market I've ever seen in agriculture,” says Rodney Frazier.
“The size of the market is staggering,” he said at a Clarksdale, Miss., meeting to discuss a feasibility study for locating an ethanol plant in the northwest Delta area of the state. “It's a product that's good for farmers, good for the nation, and good for the environment.”
The $45,000 study is funded by the Delta Regional Authority, a development organization that serves 240 counties in eight states.
Frazier, a professional engineer and president of Frazier Barnes Associates, a Memphis consulting firm, notes that the United States uses 160 billion gallons of gasoline yearly.
“If we used the entire U.S. corn crop of 11 billion bushels, that would produce only 30 billion gallons of ethanol — less than 20 percent of total gas consumption.” In current use, ethanol is blended with gasoline in a 10/90 ratio, although larger percentages of ethanol can be used if auto engines are modified. In Brazil, late model autos have engines that can run on pure ethanol, a gasoline/ethanol mix, or natural gas.
“Until we reach the point of 10 percent ethanol for total U.S. gasoline usage, there's a market for everything that can be produced,” Frazier told the farmers, businessmen, state and local officials, and Extension representatives attending the meeting.
Major questions, he said, are how fast the market will grow, how much governments will continue to subsidize ethanol, and what direction federal energy policy will take.
Currently, says Kenneth “Pete” Moss, vice president of marketing services for Frazier Barnes, ethanol plants are concentrated in Midwest Corn Belt states that for several years have had subsidies to help move the industry forward.
Now, he notes, the Mississippi legislature has enacted a 20 cents-per-gallon (54 cents per bushel of corn) subsidy for ethanol produced in the state, based on 185 million gallons annually.
“There is a federal subsidy of 53 cents per gallon ($1.43 per bushel), and a 10 cents-per-gallon (27 cents per bushel) small producer credit, for a total 83 cents per gallon ($2.24 per bushel). Additionally, the 2004 farm bill has a provision that pays a per gallon bonus based on year-to-year production increases.”
As of late August, 81 ethanol plants were operational in the United States, Moss says, with another 14 to 16 under construction, and several existing plants undergoing significant expansions. “It's a rapidly-growing business.”
In 2003, he says, U.S. plants produced 2.81 billion gallons; in 2004, projections are for 3.3 billion gallons; and by 2012 production is estimated at 5 billion to 8 billion gallons.
The plant being researched would use 11 million to 12 million bushels of corn annually and produce some 30 million gallons of ethanol, along with byproducts such as carbon dioxide and distiller's dried grains and solubles (DDGS), the latter usable for livestock feed.
The plant would cost $44 million to $60 million, requiring a $2 to $2.73 per bushel capital investment by producers/investors, Moss says. Example: A producer wanting to grow 1,000 bushels of corn for ethanol would be asked to invest $2,000 to $2,730.
Frazier and Moss declined to discuss profit projections for such a project, but Frazier says “if it's not in the 15 percent to 25 percent profit range, it won't work.”
They emphasize that profitability is tied to an expected continuation of subsidy programs. “Without them, there likely would be a negative cash flow situation,” Frazier says.
“But with $600 million to $700 million investment in new plants this year alone, that would seem to indicate there's confidence in the future of ethanol. We're not saying you should do it — but a lot of people are.
“The ethanol industry nationwide can mean as much as 30 cents to 40 cents per bushel to U.S. corn growers. Why would they not want to invest in something that can return three to four times as much as the crop alone?
“If we have governments telling us that energy production is important and that they're willing to provide $2.42 per bushel in incentives, that seems a pretty strong signal to producers.”
The plant being researched by Frazier Barnes would be an “innovative design.” No such plants have been built, but Moss says “we believe in a year to a year and a half, they'll be going up.”
Unlike the predominant “dry grind” plants that simply process ground-up raw corn into ethanol, the proposed facility would fractionate the corn and use only the endosperm starch portion of the kernel for ethanol production. The outer bran portion and the inner germ, which contains the oil, would be processed for other uses, contributing to plant profitability.
“It just doesn't seem the most efficient use to run material through the plant that isn't going to produce ethanol,” Moss says.
Pete Johnson, federal chairman of the Delta Regional Authority, says “this could be a landmark step, in an unusual state/federal partnership.”
He notes that the authority worked with a Hopkinsville, Ky., group to plan and secure funding for an ethanol plant. Tobacco farmers in the area were concerned about changes in their industry and were seeking alternatives. “In a year's time, they went from groundbreaking to operational.”
In the process, Johnson says, “We learned that cooperation is needed from a lot of people in a lot of disciplines, and that it takes money from a lot of sources.”
A local grain elevator put up $3.5 million, various state and federal organizations added more millions, and a Houston, Texas, bank financed $15 million, for a total $32.8 million.
“To make this kind of project happen in Mississippi will take a coordinated effort by producers and community leaders,” says Ann Ruscoe, Extension agent for Coahoma County, Miss.
“Times are changing for agriculture, and we've got to think outside the box to find new ways of generating revenue from the land. The time may be right for this kind of enterprise.”
QUESTIONS WERE asked at a Clarksdale, Miss., meeting regarding a proposed production plant for the area. Answers were provided by consultants Rodney Frazier and Pete Moss of Frazier Barnes Associates, a Memphis, Tenn., consulting firm.
Q. Is corn in Mississippi too expensive compared to the Midwest?
A. It's about 30 cents per bushel higher, but some of that will be offset by lower transportation cost, higher distiller's dried grains and solubles (DDGS). Proximity of markets here is another advantage.
Q. How much corn would be needed?
A. Approximately 80,000 acres of corn to support a 30 million-gallon plant.
Q. Can other crops be used?
A. Any cereal grain with starch or sugar content, but for this type plant, feedstock would be primarily corn, with possibly some wheat and grain sorghum. High starch rice can also be used. It all boils down to the economics of a particular crop at a particular time.
Q. Is there an environmental impact?
A. Permits are required for the emissions, but all new plants are built to meet EPA regulations. Almost all have zero discharge, so there are no water issues.
Q. What kind of employment?
A. The plant would be automated, and would need 30 to 45 reasonably highly skilled employees. It would operate 24 hours the year 'round.
Q. How much land is needed?
A. Most require 20 acres to 60 acres. It's best to have enough to allow for expansion room.
Q. What about corn storage?
A. This is a critical issue. We're looking very closely to determine if enough storage is available in the area. This is another reason farmer involvement is important — will they be willing to store corn on-farm if it's economically feasible?
Q. What about aflatoxin?
A. Ethanol can be produced from aflatoxin-contaminated corn and all the oil can be extracted and used. But usefulness of the DDGS is questionable. But since 75 percent to 80 percent of the corn becomes ethanol, and the proposed innovative plant would produce 40 percent less DDGS, aflatoxin probably would not represent a major impact. The positive side is that the ethanol plant can use the corn, whereas it might otherwise be rejected at elevators.
Q. Why not a biodiesel plant, using soybeans?
A. There currently are no subsidies for biodiesel. The soybean industry has never received the same treatment by Congress as the corn industry. Several bills have been proposed for biodiesel, but nothing has been enacted.
Q. Have any plants been built in corn-deficient areas such as Mississippi?
A. Yes, and they are still in operation. If enough corn is not available in the local area, it would have to be brought in.