Before a farmer begins establishing a biomass crop, he or she is encouraged to research and identify biomass market purchasers who offer an economic return above production and transportation costs. Increasing federal and regional biomass demand does not always imply that those same market opportunities exist locally.

Two different markets for biomass are likely to develop in the future. One market will utilize chemical or enzymatic processes to convert biomass into liquid biofuels and other high-value renewable products. A second market will use thermal, pyrolysis or gasification processes to use biomass energy for the production of electricity, syngas, steam and other forms of energy.

In both markets, the two most important criteria buyers will utilize to determine the value of the biomass delivered to a plant site are the quantity of biomass supplied as measured by weight in tons and the moisture content. If the biomass buyer is using either an enzymatic or thermal process, they would prefer to purchase “bone-dry” biomass, which is biomass that contains no water.

In thermal processes, additional water reduces the net energy of the biomass supplied because a portion of the biomass must be utilized to remove the water prior to burning. However, why is water problematic for enzymatic biomass processes in which biofuel plants usually have to add water during hydrolysis? The problem is that biomass with moisture content above 20 per cent becomes mouldy when stored for even short periods of time. These moulds interfere with the plants’ sensitive enzymatic and chemical processes, which renders entire batches of product useless. Therefore, as a precaution, they only purchase biomass with less than 20 per cent moisture.

MOISTURE TOLERANCE

Drying and delivering bonedry biomass usually isn’t physically possible, so most biomass buyers place an upper limit on biomass moisture content they are willing to tolerate before quality discounts begin to be applied. Typically, this moisture percentage is 20 per cent. Several buyers increase the discount for biomass between 20 and 35 per cent moisture and 35 and 50 per cent moisture. Again, farmers are encouraged to consider their time and transportation costs because of steep discounts for more than 20 per cent moisture, which may render the biomass uneconomical for delivery.

While weight and moisture are uniformly measured by all biomass purchasers, additional quality discounts may be applied depending on whether the biomass will be used for enzymatic or thermal conversion. If thermal conversion, the buyer is interested the most in the amount of energy the farmer is providing in the biomass delivered. The industry measures energy content in British thermal units per ton (Btu/ton).

One of the most immediate markets for biomass is for electrical utilities to co-fire coal with biomass and produce renewable electricity. Since coal typically is sold on the basis of Btu/ton, biomass is priced accordingly on its ability to replace the heat content in coal. One biomass buyer, Show Me Energy Cooperative in Centerview, Mo., has developed a proprietary technology to instantly test and determine biomass Btu content upon delivery to its plant.

Additional quality criteria may be applied locally, but it depends on the specific conversion technology employed. Again, the type of commercial boiler used to co-fire biomass may impose additional criteria.

For example, alkali and various trace minerals may result in “slagging” within some older coal boilers. Additional tests and quality discounts may

ensue. Consequently, decision aides to help farmers determine the bottom line profitability of biomass contain information on alkali content, so discount information can be obtained from specific local buyers. This enables a producer to calculate true net returns.

LOCAL STOVES

In addition to commercial biomass markets, farmers with ample biomass resources should not overlook local consumer demand. Many rural residents and businesses have installed wood, corn or pellet stoves. Biomass can be made denser by pelleting, compaction or other techniques and then marketed locally. Big-box retailers typically sell biomass pellets for almost $200 per ton. This can provide farmers with an attractive return

on lower-quality biomass with minimal additional processing costs.

As biomass markets expand in volume and scope, trading disputes will occur. Eventually, market trading standards, such as those defining market criteria for commodity grains, will be established. In addition, resources, such as independent testing labs, will be created to mediate disputes. North Dakota State University has established a biomass testing lab to collect research data and facilitate the growth of biomass trading.

How profitable will future biomass markets become for producers? Given the wide variety of biomass farmers are capable of producing, the market likely will be quite competitive. A number of biomass firms purchasing biomass utilize a low-bid buying scheme whereby farmers submit the lowest price they are willing to take for their biomass. Buyers then select the lowest submitted prices until they reach the desired quantity of biomass delivered.

Nevertheless, emerging biomass markets represent a new opportunity for farmers. Producers need to carefully determine the total cost of production, transportation and storage expenses and possible quality discounts to ensure the local market opportunity is indeed profitable and viable for a long time.

Cole Gustafson, a biofuels economist with North Dakota State University’s extension service in

Fargo, can be reached at cole. gustafson@ndsu.edu.

———

Increasingfederalandregionalbiomass demanddoesnotalwaysimplythatthose samemarketopportunitiesexistlocally.

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Two studies released this month, one by Hosein Shapouri of the U. S. Department of Agriculture (USDA) and a second by Stephan Mueller at the University of Illinois in Chicago, confirm that ethanol’s energy balance now far exceeds one to one and is closer to 1.4 to one. Both studies relied on survey data obtained from operating ethanol plants.

The USDA’s study provides insight as to where the energy efficiencies have been realized. Of the total energy required to produce a gallon of ethanol (53,785 British thermal units), most of the energy is consumed in the plant during the conversion process at 40,019 Btu.

The amount of energy required to produce the corn is the second-largest component at 9,811 Btu. Remaining energy claims are for transporting the corn and distribution of the ethanol to retail consumers.

Here is where it gets interesting. While the farm’s share of energy use for ethanol production is substantially lower than the amount of energy used in ethanol plants for manufacturing, it’s the farm level that has led to the overall gain in ethanol’s energy balance. The USDA has monitored energy use in corn production since 1991. During that period, energy use at the farm level has declined almost 30 per cent.

The largest use of energy at the farm level is nitrogen fertilizer, which accounts for almost half of all the energy consumed. Energy for other fertilizers, drying and tractor operations are less than one-fourth of the nitrogen fertilizer energy used.

Several factors are responsible for the steep decline in fertilizer use in corn production. New corn hybrids utilize fertilizer more efficiently, application technology has improved and producers are more aware of an environmental run-off following excessive applications.

However, during the past few years, farmers have reduced fertilizer applications because of record high prices. Therefore, one has to question if the downward trend in fertilizer application, farm energy use and the resulting increase in the ethanol energy balance is a long-term trend or just a temporary situation.

If fertilizer prices moderate in the future, are farmers once again going to be applying more nitrogen fertilizer, which eventually will result in a lower ethanol energy balance?

To the extent that farmers have “mined” soil nutrients for the past couple of years, it may take several years of fertilizer applications to restore prior productivity.

While most scientists now concur that ethanol contains more energy than is required to produce it, the final energy balance statistic still is open for debate.

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Data provided by Iowa State University’s Agricultural Marketing Research Center shows ethanol production was unprofitable during the first half of 2009. However, since last summer, ethanol margins have improved due to rising prices in energy markets and only moderate increases in corn costs.

This analysis is a bit simplistic because few ethanol plants purchase all of their corn or sell ethanol entirely on a cash basis. Most plants forward contract, hedge or use the future’s markets to price both corn and ethanol. Depending on when prices of either corn or ethanol are locked in, plants may or may not be making money.

To illustrate this, several plants continued to make money during early 2009 because the plants had locked in higher ethanol prices in 2008 but purchased lower-cost corn in 2009. Alternatively, plants, such as the former Verasun organization, locked in higher-priced corn and then sold the ethanol in a declining market, which led to bankruptcy.

To gauge the overall health of an industry, economists often evaluate the number of firms entering and exiting at any given point of time – the theory being that if profits exist, firms will have incentive to enter and establish new plants. In the long term, great production will temper prices and overall profitability, which eventually reduces this incentive.

Likewise, if firms are exiting an industry, this is a signal that sufficient profitability does not exist to sustain plants long term. As firms cease operation, total industry production declines. As production declines, prices rise because shortages start to happen, so the remaining firms gravitate toward break-even once again.

In the past month, ethanol plants have both exited and entered the industry. Hawkeye Energy put two ethanol plants into bankruptcy during December. Alternatively, Velaro announced that it has purchased two new plants and is initiating production. Overall, it appears the industry itself is close to operating break-even.

– Cole Gustafson is a biofuels economist and bioproducts specialist with North Dakota State

University’s extension service at Fargo, N. D.

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Biofuel production from most of these alternative feedstocks has not been commercialized as yet. Moreover, numerous agronomic and environmental challenges also exist, given rotational restrictions, fertility needs and residue management.

One crop that has potential as a biofuel feedstock and is wel adapted to small-grain rotations in the northern Plains is field peas. Two NDSU graduate students, Abhishik Goel and Andrew Wilhelmi, recently completed research projects investigating the potential of field peas.

Agronomically, field peas fix nitrogen, which lowers production costs and reduces the crop’s carbon footprint. If you recall, greenhouse gas considerations are an important aspect in future biofuels. In addition, field peas can break disease cycles prevalent in traditional small-grain rotations.

Field peas must be fractionated before being used for ethanol production. Fractionation is a process where raw field peas are ground and then separated into component parts, which primarily are starch and protein. The protein portion is sold in traditional marketing channels as livestock feed. The starch portion is blended by up to 10 per cent with corn and fed directly into an ethanol plant.

There are two advantages of utilizing more field pea starch, which is more concentrated, when producing ethanol. First, because the feedstock is concentrated, less material has to be handled. This increases plant efficiency and leads to higher throughput and productivity. Second, our research found that the addition of pea starch to corn accelerates the fermentation process, which again increases plant capacity.

Field peas are price competitive when corn rises above $4.34 a bushel. The graduate researchers also found that local field pea availability reduces corn supply risk. While North Dakota has considerable corn acreage, a significant portion of the crop is fed to livestock and marketed out of state. Therefore, in a short crop year, ethanol plants periodically have to purchase corn elsewhere and incur high rail freight charges. An increase of field pea acres could diversify ethanol plant feedstock supplies.

At present, the investment cost of fractionation equipment is a significant financial impediment. Commercialscale equipment to support a 100-million-gallon-per-year ethanol plant is not available. In our study, three small systems were included, but their cost was much higher than one large machine would have been. If industry demand for larger fractionation equipment evolves, investment cost per dry weight of peas processed likely will fall, which in turn would increase field pea biofuel profitability.

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At a recent ethanol workshop, several companies, including Coskata, DuPont Danisco, Iogen, Lignol, Poet and PureVision, announced that they already have production from their demonstration plants or will within the year. Most are processing about a ton of material into ethanol daily. From that ton of biomass, they are producing between 70 and 85 gallons of biofuels. Commercial production is expected to follow in a year or two.

Coskata said it is so confident of the production system that the company has decided to start licensing its proprietary technology later this year. Coskata’s process is far more robust than it originally had estimated because the company can process feedstock from agricultural sources, urban land waste, forests and even a wide variety of manufacturing wastes. Once its process is perfected, the company said, ethanol from cellulosic sources would be price competitive with gasoline even without a federal tax credit.

Representatives of these and several enzyme companies on a panel were asked to identify the most important constraint holding back development of cellulosic ethanol. None said technology or the recession were slowing them down. Instead, several said, consistent federal policy was needed. In particular, they said, the U. S. does not have a national policy with respect to renewable energy. Typically, federal programs that support biofuels production have to be reauthorized frequently because they have sunset clauses. Provisions such as management of renewable identification numbers, grants and blend levels haven’t been defined or are highly variable.

Poet said the most important constraint is the “blend wall.” Unless consumer use of renewable energy is mandated to increase, they feel the cellulosic industry and the traditional corn ethanol industry will face a serious oversupply situation. They advocate more rapid installation of blender pumps and more progressive federal regulation to allow ethanol blend rates above the current 10 per cent level.

Coskata’s views seemed to run counter to the earlier constraints being voiced and took a more free-market approach. Other companies said the most important constraint facing commercialization of their processes was economics. For the industry to survive long term, they feel it cannot be dependent on variable federal subsidies, grants or other favourable policies that mandate increased use of renewable energy and so on. While providing important support to the industry during its development phase, these policies actually could be detrimental in the longer term. Coskata’s goal is to develop a system that is independently resilient in the long run.

During the past year, businesses across the country have complained that debt capital had dried up and was virtually unattainable. Surprisingly, cellulosic ethanol firms have been able to secure reasonable levels of financial capital for expansion. Most panel members talked about new investments and growth of their firms during the past year. DuPont Danisco actually was a new venture formed during the past year, with $140 million of new investment capital.

– Cole Gustafson is a biofuels economist and bioproducts

specialist with North Dakota State University’s extension

service in Fargo, N. D.

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EISA was landmark legislation for the biofuels industry because it set a national goal of producing 36 billion gallons per year of renewable energy. Following passage, a national debate ensued on whether our country had enough land available to produce this quantity of biofuels and its impact on food supplies – that is, food versus fuel.

The original EISA legislation defined three types of biofuels: conventional, advanced and cellulosic. Conventional biofuel is traditional ethanol produced from corn starch. Advanced and cellulosic biofuels were defined based on their ability to reduce greenhouse gas emissions. Advanced biofuels must reduce greenhouse gas emissions by up to 50 per cent, while cellulosic must reduce greenhouse gas emissions by up to 60 per cent.

EISA included a specific column for production of conventional biofuels and eventually increasing production to 15 billion gallons per year by 2022. Advanced and cellulosic biofuels only included ranges of five billion to 21 billion gallons per year and three billion to 16 billion gallons per year, respectively, because the federal government was uncertain how rapidly these new technologies could be commercialized.

The EPA now has provided more clarity. Conventional biofuels in the future must reduce greenhouse gas emissions by up to 20 per cent. In determining this calculation, the EPA now includes both “direct” and “indirect” causes during the life cycle of production. The latter component commonly is referred to as indirect land use change. However, the EPA finds that any new traditional corn grain ethanol plant would reduce greenhouse gas emissions by only up to 16 per cent, so it would not qualify as a conventional biofuel.

In its proposed regulations, though, the EPA is grandfathering in traditional corn grain ethanol plants built before Dec. 19, 2007. Therefore, existing ethanol plants will be able to continue to operate and produce ethanol that conforms to the federal guidelines for the time being. It is uncertain how long this grandfathering provision will last, especially as new technologies arise and production of conventional biofuels with a greater than 20 per cent greenhouse gas emissions reduction occurs.

IDENTIFICATION

Existing corn grain ethanol plants are investing in new technology, such as fractionation and changing plant energy sources, in an effort to reduce greenhouse gas emissions. In doing so, the plants increase their chances of being able to meet the tighter EPA regulations being proposed.

To ensure compliance with new EPA regulations, each gallon of biofuel produced will have a unique 34-digit renewable identification number. Blenders will have to document that they have purchased appropriate quantities of each type of biofuel when producing their final consumer products.

The greatest challenge the biofuels industry now faces is finding capital to construct new advanced and cellulosic plants. With unproven biofuels conversion technology, changing EPA regulations and weak financial markets, new investment capital is going to be difficult to procure.

– Cole Gustafson is an economist specializing in biofuels and bioproducts with North

Dakota State University’s Extension Service in Fargo.

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To illustrate how important this is becoming to Japanese consumers, new labels documenting a food product’s carbon footprint are appearing. The labels are very analogous to food nutrition labels that are required by most federal governments to more fully inform consumers of a product’s nutritional attributes. A can of Japanese Sapporro beer now contains a carbon label stating that 295 grams of carbon were released to produce the beer. It is interesting that the 123 grams of carbon needed to produce the aluminum container was not mentioned.

The question posed to me was: What are the carbon footprints of grains produced in North Dakota? In addition, how can grain with a low carbon footprint be segregated and documented through the entire elevator, marketing and transportation system so Japanese consumers can be assured that the product label is accurate?

As this was relayed to me over the phone, my mind quickly raced to develop a response. My first thought was to reply that there is no way. My reasoning was that many North Dakota farmers are not aware of their carbon footprint. Usually, producers haul their production in bulk to an elevator that commingles their grain with everyone else’s in the area. The grain then is shipped overseas in a large boat. Documentation of any carbon benefit would be nearly impossible.

I knew my initial thought wasn’t what the caller or the Japanese consumer wanted to hear, so I quickly came up with a second possible response: Pay for it!

North Dakota farmers have had many opportunities to raise specialty crops and products in the past. In most cases, they readily embrace new markets, but usually find that sufficent profit doesn’t exist to make the new venture viable. Therefore, if the Japanese consumers really desire low-carbon grains in their food, they should start paying a premium for their purchased grains and North Dakota farmers will do their best to change production practices, collect the necessary information and then provide the needed documentation.

Again, I didn’t think this is exactly what the Japanese wanted. They, like most consumers, don’t want to pay more. The Japanese just desire a higher-quality product at the existing market price.

So, my actual response was to indicate that North Dakota farmers have considerable experience selling grains with different quality attributes, such as protein, variety and colour. Through time, markets provide enough of an incentive to induce behaviour change. Classic examples are protein and other milling attributes in wheat. Moreover, the grain industry has a vast infrastructure that is capable of segregating, transporting and preserving these characteristics through the marketing chain.

I suspect that carbon likely will be one more quality characteristic that all of us in the industry will start to track.

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