Does end of VEETC mean more corn oil extraction?

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, January 18, 2012 -The 2011 demise of the 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit for ethanol blenders is prompting a “rush” among ethanol producers to extract more corn oil to make up the loss in revenue, some feed industry sources say. But some ethanol interests say there's no link.

Rob Musser, director of technical sales and service at Nutriquest, an Iowa-based animal feed nutritional supplement and data company, wrote in a recent company newsletter that “the rush to oil extraction in the ethanol industry is driven by pure economics.” Musser claims that the value of corn oil runs about four times that for DDGS, and extrapolates that producers can get a 30-cent-per-pound increase in the value of oil over the same amount of DDGS.

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By example, Musser says a 100-million-gallon ethanol plant produces about 900 tons of DDGS per day typically containing 10.7% oil. By using centrifuge technology, the plant can extract oil that renders DDGS with 7.2% oil, a reduction of 3.5 percentage units and 70 pounds of oil per ton of DDGS. On an annual basis, he calculates, the plant will produce about 11,000 tons of corn oil and gain $6.6 million in additional value from the same amount of corn.

Moreover, says Musser, the oil extraction “equipment required to gain the value can easily be paid for within one year of operation, well within the investment hurdle rate for most companies. This is why the industry extracts oil, purely a simple business solution.” Musser, who's company sells a database with nutrient loadings for 140 different ethanol plants, says increased oil extraction also significantly impacts the feed value of DDGS, citing data that shows that extracting 1% of the corn oil increases the cost of finisher diets by $3 to $6 per ton, so a 3.2% reduction in oil hikes the cost of a finisher diet by nearly $13 per ton.

Steve Meyer, a consultant with Paragon Economics, picked up Musser's premise and went on to contend in the National Hog Farmer last week that “the implications are huge for a sector that is routinely feeding diets that contain 20-40% DDGS. “The key is to know what is in the DDGS you are buying,” Meyer said. “Is the plant removing corn oil? What is the oil level in the product being delivered and is it consistent? If not, how much variation exists? It might be time to check out other suppliers.”

Geoff Cooper, vice president for research and analysis with the Renewable Fuels Association, says the characterization of increased oil extraction as a response to the end of the blenders' tax credit is inaccurate.

“We estimate that at least half of the industry was already removing some corn oil before VEETC expired,” he said. “I seriously doubt that the trend has accelerated because VEETC is gone now. If a plant is going to extract corn oil, they are going to do it regardless of whether VEETC is in place or not.” Cooper also said the premise that extracting oil reduces the feeding value of DDGS is an unfair generalization. “Some feeders want lower-fat DDGS, and so in those cases removing some of the oil improves the value. This is particularly true in dairy,” he said.

“It's also unfair in the sense that ethanol producers are not removing all of the oil from their DDGS,” Cooper said. “Rather, they are removing some, but leaving in enough to meet their guaranteed pro-fat (protein/fat) levels. Research by nutritionists at the University of Minnesota and others has shown that removing some of the oil does not adversely affect feeding performance, so long as enough oil is left in the DDGS to meet basic feed energy needs,” he said.


Original story printed in January 18, 2012 Agri-Pulse Newsletter.

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