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Corn gaining as source of fuel

Judging from current supply and demand numbers, corn is quickly becoming more of a fuel crop than a food and feed crop, says John McKissick of the University of Georgia Center for Agribusiness and Economic Development.

“Food, seed and industrial uses of corn continues to grow, and the big story there is ethanol,” says McKissick. “Corn is quickly becoming not a food and feed crop but a fuel crop.”

The portion of the corn crop going into ethanol is about 1.4 billion bushels out of a 12-billion bushel total supply, he says. “It has been increasing since 2000 at a rate of about 20 percent, and there are 16 new ethanol plants scheduled to come on line this year,” he says.

Those 16 new plants, he adds, will produce about 750 million gallons of ethanol, which is more than the 20 percent annual growth rate.

“That adds about 300 million bushels of corn to the demand side because of the scheduled increase in ethanol production. It is the part of the market that has been growing. That demand will continue to grow through 2005 and into the future,” says McKissick.

There are several reasons for the increasing demand for ethanol, he says, including crude oil prices of more than $40 per barrel. “By almost anyone's prediction, we'll be contending with energy prices over the next 10 years that'll be higher than those during the past 10 years,” he says.

In addition, the Clean Air Act of 1990 gave tax advantages to ethanol production and other forms of renewable energy resources.

But despite the growing demand for ethanol, Georgia hasn't benefited directly, says McKissick. “Why are we not a part of this growth in demand by producing ethanol from corn in Georgia? There is a big national demand, but how do we fit into that? What are our advantages and disadvantages?”

The 16 new ethanol plants coming on line this year are mostly located in the Midwest, and producer groups are behind most of them, he says.

Looking at Georgia's advantages, McKissick says Atlanta is a potential growth market for ethanol, and pending the outcome of current litigation, the Atlanta market is likely to be required to add ethanol to its gas mixture.

“That's a tremendous market, certainly more than we can supply with all of the corn we produce in Georgia.”

On the disadvantage side, however, Georgia corn prices are higher on average than those in the Midwest, he says. “On corn alone, we average about 25 to 40 cents per bushel more than the Midwest. In general, the areas seeing a growth in ethanol plants enjoy at least a 35 to 50-cent advantage in lower priced feed stock to make that ethanol. We definitely have higher feed stock prices.”

Another disadvantage of Georgia is that the main by-product of conventional ethanol production is distiller's grain, which is best used by beef cattle, feedlot cattle or dairy cattle, he says.

“While we have some on the dairy cow side, we don't have any of the feedlot side, and they do in the Midwest. They have a much higher demand and are able to get a much better price for the major by-product of their production process.”

Almost all of the states where the 16 new ethanol plants are located offer some type of special incentive program for building the plants, and Georgia does not have any such program, says McKissick.

“If you look at conventional ethanol production — and we've looked at and completed a number of studies on the subject — the disadvantages outweigh the advantages in Georgia. You can produce it in the Midwest and ship it to the Atlanta market cheaper than we can produce it in Georgia.”

It's important, says McKissick to recognize Georgia's disadvantages and look for ways to minimize those disadvantages. “We're talking about corn as the primary feedstock, but other grains could be used for ethanol production, and we produce a significant amount of some of those. Something like rye, for instance, could be used, and there are other feedstocks that we could use to supplement our corn supply.”

There also are other production processes that might be more efficient than conventional processes and that might produce a by-product of feed that could be used in Georgia, he says.

“We have a lot of chickens in Georgia. Unfortunately, the distiller's dried grain produced in a conventional process doesn't fit in chicken rations. If we could find a process whereby we could get into a higher-value market, utilizing the big animal numbers we have in Georgia, then we might have something that's competitive.”

McKissick and others with the University of Georgia Center for Agribusiness and Economic Development are currently conducting a study funded by Georgia corn growers to help find a non-conventional method of producing ethanol that might also take advantage of other feedstocks. The study is about three-fourths completed, he says.

“We're looking at not going through a dry milling process, but rather fractionilization, or breaking up that corn into higher-value products that aren't really needed to produce ethanol. For instance, we can take those products out of the corn kernel that we can't ferment, and find a way to use those inside the plant. Then, we can take the high-starch concentrate out of the corn and use it for making ethanol.”

Researchers are looking at a non-conventional method of making ethanol that would make economic sense for Georgia, says McKissick. This would be a more efficient conversion with a higher by-product value, he adds.

The 16 new ethanol plants opening this year will average producing 45 million gallons of ethanol per year, he says. “We're looking at a 30-million gallon plant utilizing about 12.5 million bushels of corn per year. This past year, we produced about 36 million bushels in Georgia, so we're talking about using one-third of the state's corn crop in this one plant.”

But an ethanol plant won't be cheap, says McKissick. A conventional plant producing about 30 million gallons of ethanol per year will cost about $50 million, he says.

“The plant we're talking about will cost about $15.5 million more than a conventional plant, and that's front-end costs. The question is, can we put more cost in the front end and get enough higher value out of the back end?

“We haven't finished the study, but the preliminary analysis suggest that the higher by-product values we can get from this type of plant more than offset the higher initial cost of the plant. It appears that we could just about double the rate of return over a conventional mill process.”


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