Domestic Fuel

*Updated with clarification comments from UNICA*

The president of the Renewable Fuels Association (RFA) this week wrote a letter to the U.S. Trade Ambassador asking for an investigation into news that the Brazilian state of Sao Paulo was imposing a 25% tax on all imported ethanol.

“Because ethanol produced in Sao Paulo is tax exempt, ethanol imported into Sao Paulo from the United States and other areas is at a substantial economic disadvantage,” wrote RFA President and CEO Bob Dinneen to Ambassador Ron Kirk. “We believe this action is discriminatory and may severely—and immediately—restrict the exportation of U.S. ethanol to Brazil.”

Dinneen is pictured here sharing a lighter moment with Marcos Jank, president and CEO of Brazil’s UNICA during a session at the 2011 National Ethanol Conference.

In early December, the nation of Brazil extended a temporary suspension of a 20% federal tariff on imported ethanol.
“This action not only effectively reinstates the tariff on U.S. exports, but increases it by 5%,” wrote Dinneen. “Moreover, we believe the action taken by the state of Sao Paulo is in violation of Article III:4 of the Generalized Agreement on Tariffs and Trade (GATT) and possibly Article 2.1 of the World Trade Organization’s (WTO) Technical Barriers to Trade Agreement.

Port Santos in Sao Paulo is the main port of entry for U.S. ethanol exports to Brazil, which accounted for an estimated 400 million gallons in 2011.

*In response to the RFA’s letter and resulting media reports, UNICA released a statement from president Marcos Jank noting that the Sao Paulo tax is a pre-existing value-added tax (VAT), known as ICMS (Goods and Services Tax), which is not equivalent to the return of Brazil’s tariff on imported ethanol.

According to UNICA, the deferment period started on October 1, 2011 and is now scheduled to end on March 1, 2011.

The latest numbers show that November ethanol exports set another record and that means total exports for 2011 could well exceed a billion gallons.

“Exports have become an important part of the business model for American ethanol producers,” said Geoff Cooper, Vice President of Research and Analysis at the Renewable Fuels Association. “American ethanol producers are the lowest cost provider of motor fuel today and have ample supplies available to help meet ethanol demand around the globe. While the preference for American producers would be to use more ethanol domestically through use of higher ethanol blends like E15, E30 and E85, overseas markets will remain a viable and important part of America’s ethanol industry.”

The U.S. Grains Council recently held workshops in Guangzhou and Qingdao to promote the ethanol co-product distillers grains (DDGS) in China.

“The day-long sessions were designed to provide an exchange of comprehensive DDGS market information, including discussions and analysis of the value of U.S. DDGS,” said Alvaro Cordero, USGC manager of DDGS.

Cordero says they had 200 to 250 people, including buyers and USGC member companies. “This created a good opportunity for buyers and sellers to make connections,” he said.

The conferences, organized in cooperation with FoodChina Company, included presentations on DDGS use in swine, poultry and dairy rations, in addition to quality control, DDGS supply and demand, and pricing.

The United States continues to export a good volume of DDGS to China, despite an anti-dumping case initiated by the Chinese government last winter. U.S. shipments in the January-to-September period were down 49 percent from the previous year but still totaled almost one million metric tons, making China the number two export market for distillers grains.

There’s a hot new craze called the “Ethanol Shuffle” that’s sweeping seaports from Sao Paulo to Los Angeles. No, it’s not a new dance, this shuffle is all about the “confounded realignment of the global ethanol trade.”

Renewable Fuels Association (RFA) Vice President of Research and Analysis Geoff Cooper wrote about the “Ethanol Shuffle” this week on the RFA E-xchange Blog. Basically, it’s about the shuffling of sugarcane ethanol from Brazil to California to meet that state’s Low Carbon Fuels Standard (LCFS) – at the same time, Brazil is importing lower priced corn ethanol from the United States to make up for not only the ethanol it is exporting to California, but the shortfall that country has experienced in ethanol production recently.

So, that’s how the “Ethanol Shuffle” works. California imports sugarcane ethanol from Brazil rather than corn ethanol from Nebraska or Kansas; and in turn, corn ethanol from the Midwest travels to Houston or Galveston via rail, then is shipped to Brazil via tanker to “backfill” the volumes they sent to the U.S. Picture the irony of a tanker full of U.S. corn ethanol bound for Brazil passing a tanker full of cane ethanol bound for Los Angeles or Miami along a Caribbean shipping route.

Cooper explains the sweet irony of it all in this edition of “The Ethanol Report.” Geoff Cooper on the Ethanol Shuffle

The latest government data on exports for October shows continued strong demand overseas for U.S. ethanol.

According to the data, exports of denatured and undenatured ethanol which are not eligible for VEETC totaled 121.4 million gallons. That is just short of the record 127.4 million gallons of exports set in July 2011.

On the Renewable Fuels Association E-xchange Blog, RFA’s Vice President for Research and Analysis Geoff Cooper notes that Brazil continues to be the leading destination for U.S. exports, receiving a total of 50 million gallons in October. Canada and the EU continued to be other top export markets. Through the first 10 months of 2011, U.S. exports stood at 867.9 mg, more than double the 2010 export total. The U.S. is on pace to export more than 1 billion gallons in the calendar year.

Meanwhile, the U.S. imported 13.1 mg of ethanol for fuel use from Brazil in October, presumably for compliance with the Renewable Fuel Standard’s (RFS) advanced biofuel requirement and California’s Low Carbon Fuel Standard (LCFS). Imports of sugarcane ethanol from Brazil have picked up significantly in recent months at the same time U.S. exports of corn ethanol to Brazil have grown.

Cooper says that this “shuffling effect” will be the subject of an extensive analysis and blog post he is preparing for this week.

Read more from the E-xchange Blog here.

The European Union (EU) has initiated anti-dumping and countervailing duty investigations regarding U.S. exports of ethanol to Europe and current U.S. policies surrounding ethanol production and use. Allegations by EU ethanol producers, represented by the organization ePure, suggest that U.S. ethanol exports to Europe are taking advantage of the expiring volumetric ethanol excise tax credit, or VEETC, prior to export resulting in a lower price and harming EU ethanol producers.

The Renewable Fuels Association (RFA) responded to these allegations when the first complaint was filed. “In fact, the tax incentive is going away,” said RFA president Bob Dinneen. “That’s not going to be an issue any longer (after Dec. 31).”

Listen to Dinneen’s comments here: RFA CEO Bob Dinneen

The RFA is working with other industry groups to encourage all U.S. ethanol producers to cooperate with the EU investigations and will continue to monitor the status of these investigations to ensure the U.S. ethanol industry is not unjustly penalized.

RFA notes that domestic ethanol producers are not eligible for VEETC which is specifically for gasoline blenders, marketers, and other end users.

Get out your 2012 calendars and mark the date for just under a year from now to attend the next global event to help increase exports of ethanol co-products for livestock feed.

Once again, the U.S. Grains Council (USGC) and the Renewable Fuels Association (RFA) are teaming up for the Export Exchange 2012, an international trade conference focused on the export of U.S. coarse grains and co-products, including distiller’s dried grains with solubles (DDGS) and corn gluten. The last such event was held last year about this time in Chicago.

“Export Exchange 2010 was a huge success,” said Wendell Shauman, USGC chairman. “People from all around the world gathered in one central location to make deals and get information regarding these vital commodities. Business contacts made during the conference are still being used today.”

Export Exchange 2012 will be held Oct. 22-24 at the Minneapolis Marriott City Center. Additional information will be posted at www.exportexchange.org as it develops.

Ethanol exports took a dive in August, but exports of the ethanol co-product distillers grains (DDGS) set a new record, according to a post on the Renewable Fuels Association E-xchange Blog.

RFA’s Geoff Cooper quotes new government figures that show exports of denatured and undenatured (non-beverage) ethanol totaled 52.1 million gallons (mg) in August, down from 127.4 mg in July and the lowest monthly total of the year. Still, year-to-date (Jan.-Aug.) ethanol exports stand at 640.7 mg, nearly triple the amount exported during the same period last year. The United States remains on pace to export more than 900 mg in 2011.

Exports of denatured ethanol totaled 43.3 million gallons in August, with Canada receiving 26.4 million gallons. The United Kingdom (10.5 mg) and the Netherlands (5.1 mg) were other top destinations. Notably, Brazil and the United Arab Emirates, which have been leading markets for ethanol exports in 2011, did not import any U.S. product in August.

While ethanol shipments swooned in August, distillers grains (DDGS) exports hit their highest level of the year. DDGS exports for the month totaled 829,489 metric tons (mt), up 29% from July. Mexico was the leading destination for U.S. DDGS exports, receiving 196,685 mt (24% of total shipments). China was second with 151,204 mt. This marks the highest level of exports to China since December 2010. Canada, Japan, ad Ireland rounded out the top five DDGS export customers in August. Year-to-date DDGS exports stand at 5.25 million mt, and the industry is on pace to ship nearly 8 million mt in 2011.

Read more from the E-xchange Blog.

Despite flooding of farm land and delayed planting in many areas, USDA is forecasting a record corn crop for this year.

The World Agricultural Supply and Demand Estimate for May represents USDA’s initial assessment of U.S. and world crop supply and demand prospects. The report projects corn production for 2011/12 “at a record 13.5 billion bushels, up 1.1 billion from 2010/11 as a 4.0-million-acre increase in intended plantings and a recovery from last year’s weather-reduced yields boost expected output. The 2011/12 corn yield is projected at 158.7 bushels per acre, 3.0 bushels below the 1990-2010 trend reflecting the slow pace of planting progress through early May.”

The report increases projected corn use for ethanol by 50 million bushels “reflecting slow expected growth in gasoline consumption and continued export demand for ethanol in the coming year.” Ethanol exports set another record in March, as 84 million gallons of product (denatured and undenatured, non-beverage) were shipped to destinations around the world, according to the latest data from the USDA Foreign Agricultural Service. Through the first three months of the year, the U.S. has exported 201 million gallons of ethanol, equivalent to half of the amount exported in all of 2010 and almost twice the amount exported in 2009. Year-to-date exports have been equivalent to about 6% of total U.S. production.

Renewable Fuels Association Vice President of Research and Analysis Geoff Cooper says that export markets present real demand opportunities that the ethanol industry will continue to explore. “Artificially constrained markets in the U.S. and fears of instability in the policies that impact domestic ethanol production and use are forcing ethanol producers to seek other markets,” he said.

March was also a strong month for exports of the ethanol by-product distillers grains. Shipments totaled 686,098 metric tons, up 11% from February, but down 2% from March 2010 levels.

Ethanol production for April remains fairly steady with the Energy Information Administration (EIA) reporting daily ethanol production falling slightly to 898,000 barrels per day (b/d) or 37.7 million gallons per day for the week ending April 8, 2011. The four-week average for ethanol production at the time of the report was 904,000 b/d, with the annualized rate equating to 13.85 billion gallons. Stocks of ethanol have also remained virtually steady ending at 20.5 million barrels.

As part of the ethanol production process, several co-products are produced including distillers grains. For the week ending April 8, ethanol producers consumed 13.62 million bushels of corn daily to produce ethanol and 101,346 metric tons of livestock feed of which 89,484 metric tons were distillers grains (DDGs). Ethanol producers were also supplying 3.88 million pounds of corn oil which can be utilized in the feed or biodiesel markets.

The U.S. ethanol exports and DDG market report was also released and Renewable Fuel Association (RFA) VP of Research and Analysis, Geoff Cooper analyzed the information.

U.S. ethanol exports totaled 59.7 million gallons in February, up 4 percent from January. Exports of undenatured (non-beverage) ethanol increased to 21.8 million gallons in February, nearly double the amount shipped in January. Meanwhile denatured ethanol exports were 37.9 million gallons, down from 45.4 million in January. Because this ethanol is not blended with gasoline prior to exportation, it does not qualify for the Volumetric Ethanol Excise Tax Credit (VEETC), also known as the blender’s credit. Through the first two months of the year, ethanol exports stand at 116.9 million gallons. If the current pace is maintained all year, exports for 2011 could total more than 700 million gallons (compared to 400 million in 2010).

The number one exporter of U.S. denatured ethanol was Canada at nearly 15 million gallons followed by the United Arab Emirates (UAE), United Kingdom, and Brazil. In regards to undenatured ethanol, more than 11 million gallons went to the Netherlands in February. The second- and third-leading destinations for undenatured ethanol were the OPEC nations of UAE and Nigeria.

Distillers grains exports for February totaled 619,744 metric tons, down 13 percent compared to January, but slightly above February 2010 totals. China was the leading importer of U.S. DDGs with 110,976 metric tons. Exports to China were down 14 percent from January and less than half of the amount shipped as recently as October 2010. According to Cooper, erosion of exports to China is likely the result of the nation’s ongoing anti-dumping investigation against U.S. DDGs. Mexico was the second-leading destination, receiving 102,450 metric tons in February. This was less than half of the 223,000 metric tons shipped to Mexico in January. Canada, Spain and Vietnam rounded out the top five.

Swine and poultry producers are using the ethanol co-product distillers dried grains with solubles (DDGS) as feed for good reasons.

Dr. Phillip Smith, a nutritionist with Tyson Foods, spoke at the recent Export Exchange event sponsored by the Renewable Fuels Association (RFA) and the U.S. Grains Council about the value of DDGS in the poultry sector.

“It’s a very good ingredient for us,” said Dr. Smith. “We’ve used it successfully and the reason we would use a co-product like that is to save money in the diet. It gives us a good cost value, nutrient value, it flows and handles and the birds perform well on it.” He says it can be use as much as 15 percent of the diet for birds, or even more in breeder diets.

He recommended to international buyers who were at the Export Exchange that they try DDGS and work with it. “If it saves money, there’s that incentive, that risk is worth taking,” he said.

Listen to or download an interview with Dr. Phillip Smith here: Phillip Smith Interview

South Dakota State University Extension swine specialist Dr. Robert Thaler talked about the use of DDGS in hogs and how it helps supply phosphorus in the diet. “Phosphorus supplementation to the diet is very expensive,” he said. “The cool thing is that the phosphorus in DDGS is highly available. So, if you’re replacing dical or monocal with phosphorus coming from DDGS, you’re going to have less phosphorus in the manure, it will probably be cheaper and plus, you’re going to have less environmental problems.”

Dr. Thaler says exporters want quality assurances when it comes to DDGS and they are also wondering how high they can go including DDGS in the diet. “A lot of them are at 5-10 percent inclusion rate in swine diets. Here in the United States, on the growth/finish side, we’re probably 20-30,” he explained. “We just have to get them to realize that there’s nothing magical we’re doing to make that 20-30 percent work.”

Listen to Dr. Thaler’s interview here: Robert Thaler Interview

Ethanol producers who attended the recent Export Exchange event sponsored by the Renewable Fuels Association (RFA) and the U.S. Grains Council know how important it is to promote increased exports of the ethanol co-product distillers dried grains with solubles (DDGS).

“For every three bushels of corn that comes in, you get a bushel of DDG out, and what we sell that DDG for helps us to create a revenue stream so we can buy more corn,” said Walt Wendland with Golden Grain Energy of Mason, Iowa who serves as secretary on the RFA board.

2010 exports of DDGs are expected to exceed last year’s record 5.65 million tons. “One of the surprising things is that the amount of distillers grains that we’re going to be exporting for the first time is going to exceed the amount of soybean meal,” Wendland says. “We’re recognized now as being a very reliable supplier of DDG around the world.”

Listen to or download an interview with Walt Wendland here: Walt Wendland Interview

The Export Exchange included nearly 500 attendees from 33 countries and the proceedings were translated into 7 languages. Ray Defenbaugh of Big River Resources West Burlington ethanol plant in Iowa says he has been coming to the event since it was started by USGC a few years ago. “It’s just an opportunity for networking and there’s a huge demand in other countries for DDGs,” said Defenbaugh. “If you come here and go away without having met somebody that could help you in transportation or sales from another country, than you’ve not really tried very hard.”

Defenbaugh is chairman of the DDG committee for RFA and is very pleased with the efforts they are making to increase exports of the ethanol co-product.

Listen to or download an interview with Defenbaugh here: Ray Defenbaugh Interview

Export Exchange 2010 Photo Album

Our keynote speaker at the Export Exchange 2010 is Dr. Robert L. Thompson, Professor Emeritus from the University of Illinois at Urbana-Champaign where he held the Gardner Endowed Chair in Agricultural Policy. He is a Senior Fellow of the Chicago Council on Global Affairs and serves on the USDA-USTR Agricultural Policy Advisory Committee for Trade and the International Food and Agricultural Trade Policy Council.

Dr. Thompson started off his presentation talking about demand dynamics looking to the future. He presented some amazing numbers when it comes to population growth. Between now and 2050 there will be 2.6 billion more people. That’s twice the population of China and most of that growth will come in low income countries. There are a lot of statistics in his presentation that you will find very interesting.

You can listen to Dr. Thompson’s presentation here: Dr. Robert Thompson Presentation

Export Exchange 2010 Photo Album

Export Exchange 2010 is 10 days away but it’s not too late to register. You have two days to take advantage of pre-registration for the event which will connect DDGs (dried distillers grains) and course grain buyers with domestic sellers. Export Exchange is being held in Chicago and will be the place to get answers, make contacts and build your business. Conference attendees will learn from international leaders about current opportunity and constraints surrounding the export of U.S. DDGs and course grains, both of which are growing each month.

In addition, breakout sessions will cover contracting and risk management. coarse grain production, supply and demand, DDGs shipping, handling and contracting, and the use of DDGs in livestock industries.

Export Exchange is co-sponsored by the U.S. Grains Council and the Renewable Fuels Association. The event will bring together more than 170 international buyers of U.S. DDGS and coarse grains with hundreds of U.S. producers and agribusinesses. Click here to register before it’s too late.

This edition of “The Ethanol Report” features comments from Renewable Fuels Association (RA) President and CEO Bob Dinneen and U.S. Grains Council (USGC) CEO and president Tom Dorr about promoting exports of the ethanol co-product distillers dried grains with solubles (DDGS).

The two organizations are working together on the upcoming “Export Exchange” conference that will focus on increasing U.S. exports of DDGS. “This is going to be an opportunity for two and a half days in which people can get together, meet with buyers, meet with producers, listen to nutritionists, analysts and others explain the value of how to use and how to access these products,” says Dorr.

Dinneen says exports are critical because the industry has already hit “a feed wall” when it comes to use of DDGS in the domestic livestock industry. “While domestic markets for DDGS continue to expand, quite frankly we’ve grown that market pretty rapidly over the last several years and the opportunity for continued expansion domestically are fewer and farther between.” That’s why RFA believes the conference is a must-attend event for ethanol producers. “Because DDG marketing is so important to the bottom line of an ethanol producer. About 40 percent of your feedstock costs can be recovered in the marketing of DDG,” Dinneen said.

The Export Exchange is being held October 6-8 at the Hyatt Regency McCormick Place Hotel in Chicago, Ill. More information and registration is available on-line here.

Listen to or download the Ethanol Report here: Export Exchange Ethanol Report