Corn Oil Makes The Grade

Revenue from corn oil has become an important part of the bottom line at the majority of U.S. ethanol plants.
By Holly Jessen | April 16, 2013

During the past two years, the U.S. ethanol industry has widely implemented corn oil extraction technology. At this point, producers who haven’t installed the technology are in the minority. 

Corn oil revenue has been key in times of tough margins and, in some cases, has meant the difference between continuing operations versus idling the plant. A March 11 report from the U.S. Energy Information Administration noted that although production costs are slightly higher for facilities with corn oil extraction, the extra revenue more than makes up for it. “Over the past few years, margins at plants with corn oil recovery have been 15 to 20 cents per gallon higher than at plants without it, meaning their margins have remained positive, while margins at plants without corn oil recovery were negative,” the report said. In addition, several of the plants that don’t produce corn oil, which the EIA referred to as less sophisticated or simple ethanol plants, have idled. 

Data from the Christianson and Associates PLLP benchmarking program, which provides detailed statistics on around 60 participating ethanol plants, illustrates the increasing importance of coproduct revenue to ethanol plants. The company’s third annual benchmarking report, which was released September 2012, showed that while coproduct revenue had remained relatively constant at an average of 15 to 16 percent of total revenue since 2008, that number has risen in the past few years thanks at least in part to the increasing contribution of corn oil. In 2011, coproducts contributed an average of 18 percent of total revenue and by the end of the first half of 2012, the most recent numbers available, it had gone up to 23 percent. 

Drilling Down to the Details
Increasing amounts of corn oil are being used as a biodiesel feedstock, according to EIA numbers. In 2012, corn oil was the No. 4  most common biodiesel feedstock, at a total of 571 million pounds of corn oil. Notably, beginning in August and continuing through the end of the year, the monthly totals for corn oil rose above the monthly totals for canola oil, the No. 2 feedstock.

Renewable Energy Group Inc., which operates seven U.S. biodiesel plants, has been using corn oil as a biodiesel feedstock since 2007. The company tracks the number of ethanol plants extracting inedible corn oil and estimates about 70 percent have now installed the technology, says Dave Elsenbast, vice president of supply chain for REG. As biodiesel production has grown, so has demand for all of the commonly available feedstocks, including corn oil. “[The biodiesel industry has] produced roughly a billion gallons in 2012 and we have the [required volume obligation] of 1.28 billion for 2013,” he says. 

REG’s consumption of corn oil is up, Elsenbast says. The company is using a lot of corn oil at its 60 MMgy biodiesel plant in Seneca, Ill., a multifeedstock- capable facility with the capability to process high and low free fatty acid feedstocks. That includes corn oil, animal fats, waste restaurant grease and used cooking oil. A $20 million upgrade in progress at its 30 MMgy Albert Lea, Minn., plant, making the facility multifeedstock capable, is expected to be completed by mid-2013. REG sees value in corn oil and anticipates it will remain a competitively priced feedstock into the future. “Our market is going to continue to grow,” he says. “The demand from the biodiesel industry is going to continue to send economic signals to the market for ethanol producers to have separation technology at all the plants and maximize the percent yield that they can pull out of the syrup.”

Nutriquest has seen a fourfold increase in distillers grains with 9 percent or less oil content in the last two years, says Rob Musser, director of technical sales and marketing. The Mason City, Iowa-based company tracks corn oil levels through Illuminate, a database of distillers grains nutrient loading, marketed to the poultry, swine and dairy industries. Based on numbers from their database, since 2011, the ethanol industry has extracted an estimated 873 million pounds of corn oil. Assuming a value of $900 a ton, that adds up to $392 million in revenue from corn oil—a significant number.  

The company doesn’t specifically track how many ethanol plants extract corn oil but builds its estimates based on the corn oil content of the samples in its database. Distillers grains with corn oil content of less than 10 percent are considered to be from a plant with corn oil extraction technology. It’s important to keep in mind that corn oil content can vary, however, depending on weather conditions and region, Musser clarifies. An ethanol plant that doesn’t extract corn oil could produce distillers grains containing 9.8 or 9.7 percent corn oil. 

With that cutoff point in mind, currently only 16 percent of the more than 130 ethanol plants tracked produced distillers grains containing more than 10 percent corn oil, and therefore aren’t extracting corn oil. That’s a big change from 2011, when 59 percent of the plants surveyed weren’t extracting any corn oil. The number of plants that extract the most corn oil has changed dramatically from 2011, when only 2 percent of ethanol plants produced distillers grains containing less than 7 percent corn oil, to today, with 28 percent of plants producing distillers grains containing less than 7 percent corn oil. Still, not all ethanol plants are going for maximum separation levels. “We still have a lot of plants that still have pretty high oil level even though they are extracting oil,” he says. 

Ethanol Producers
Green Plains Renewable Energy Inc. has corn oil extraction installed at all nine of its ethanol plants, with the total capacity to produce 145 million pounds of inedible corn oil annually. Although corn oil currently brings in about the same price in the animal feed additive and biodiesel markets, Green Plains is selling the majority of its corn oil to the biodiesel industry, says Todd Becker, president and CEO. Other possible markets for inedible corn oil listed in Green Plains documents filed with the U.S. Securities and Exchange Commission include rubber substitute, rust preventative, inks, textiles, soaps and insecticides. 

Unlike the average ethanol production company, Green Plains has diversified revenue streams beyond its ethanol business, which includes ethanol and distillers grains production, Becker says. Corn oil, just one of several sources of the company’s non-ethanol operating income, is separated out into its own business segment. The company considers corn oil an important business but just one of the many factors that helps get the company through times of depressed margins. Over a 20-year period, corn oil’s impact on the bottom line will fluctuate depending on the overall price structure of the agricultural markets. Corn oil, which generally trades at a percentage of the price of soybean oil, generates more revenue for ethanol producers right now, with soybean oil at multidecade highs. “You want to have it,” he says. “It absolutely adds a nice incremental income.”

Green Plains doesn’t aggressively go for maximum corn oil yield. The company carefully calculates how much corn oil to extract, depending on what markets its distillers grains are going into from the various plants. “We make sure that we don’t get any of our customers disappointed in the quality of our product,” he says. “We are very, very careful, where other companies will just extract all they can.” 

Still, with process improvements, the company has improved its corn oil yield numbers. On average, Green Plains yielded 0.61 pounds of corn oil per bushel of corn in the fourth quarter of 2012. That’s up from 0.5 pounds per bushel in the same time period of 2011 and 0.4 pounds per bushel when the company first began extracting corn oil. Some individual Green Plains plants have higher corn oil yield depending on technology, region and distillers grains markets served, Becker says, adding that the highest yield is 0.9 pounds per bushel. 

Like Green Plains, Illinois River Energy LLC in Rochelle, Ill., doesn’t go all out on corn oil extraction, a technology it has had online since Dec. 1. The company’s corn oil yield is about 0.48 pounds of oil per bushel of ground corn. Neal Jakel, general manager of IRE, said the company exports the majority of its distillers grains to the international market via containers and some of its key customers require a minimum of 8 percent fat content. “We are shooting to hit a residual oil target in our DDGS versus maximizing our net oil recovery,” he says, adding that plants that sell their distillers grains into local dairy or beef markets wouldn’t have the same need to produce a higher-oil distillers grains product. “The tradeoff for us is not worth it given the end markets we sell our DDGS into,” he adds.  

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine