U.S. ethanol makers eye pros and cons of corn alternatives

Thu Mar 7, 2013 3:44pm EST

By Carey Gillam and Michael Hirtzer
    KANSAS CITY/CHICAGO, March 7 (Reuters) - Short supplies of
U.S. corn are causing ethanol makers to look at alternatives to
the high-priced feedstock, with everything from wheat to sugar
under consideration as a possible substitute.
    "You'd be crazy not to," said Bob Dinneen, president and
chief executive of the Renewable Fuels Association (RFA).
"Everybody is always looking for other things that might make
them a little more competitive. They'll be looking at a variety
of things as we get into the spring and summer until we get a
new robust corn crop."
    POET Biorefining, the country's No. 2 ethanol maker behind
Archer Daniels Midland Co, this week was bidding for
soft red winter wheat (SRW) in Indiana, outbidding an area flour
mill for the grain, typically used for making biscuits, crackers
and other food products. 
    POET said many of its plants have the ability to process
wheat or sorghum along with corn, and using multiple feedstocks
can help manage costs.
    Other operators are eying sorghum, which fared better than
corn last year in what became the worst drought in five decades.
    Corn prices soared to record highs as 2012 production
dropped more than 12 percent from the prior year, and many
ethanol producers idled plants as profits sank.
    A good portion of the corn crop was afflicted with
aflatoxin, a problematic mold condition that can sicken animals.
Aflatoxin levels concentrate during the ethanol manufacturing
process, thus increasing the toxin in feed by-products.
    Improving demand for ethanol, which is blended into
gasoline, has spurred a recent uptick in production, but corn
remains scarce.
    "Wheat is more abundant than corn," said Bruce Babcock, an
Iowa State University economics professor and director of the
Biobased Industry Center at the university.
    SRW wheat has become particularly cheap in comparison to
corn. But there are other factors to consider, experts say.
While wheat contains starch, which can be fermented into alcohol
like corn, the alcohol yielded from it is not as robust as from
corn. If a large amount of wheat is used along with corn it
alters the nature of the dried distillers grains (DDGs) that
ethanol plants sell as a byproduct to the livestock feed
industry. 
     The use of large amounts of wheat mixed in with corn at a
plant designed just for corn in some cases can require
adjustments to equipment and operations as well as changes with 
ingredients such as enzymes and yeast. 
    And one of the biggest hurdles many producers cite is the
growing extraction of corn oil as a value-added co-product.
Shifting to something other than corn for a feedstock cuts into
that revenue source, industry experts say.
    Taking those factors into consideration, some industry
players say wheat needs to be 60 cents to $1 per bushel per
bushel than corn to make the economics attractive.
    POET on Thursday in Portland, Indiana, was bidding $7.42 per
bushel of corn and $6.90 per bushel of wheat - a difference of
52 cents, according to the company's website.
    Babcock said "isolated incidences" of ethanol makers using
wheat along with corn were to be expected, but he said such
substitutions would remain limited to specific locations where
the pricing and other market factors were favorable.
    "The corn plants really are configured and set up to receive
corn, grind it and ferment it," he said.
    Carl Benck, president of United Wisconsin Grain Producers,
which produces 58 million gallons of ethanol a year, also said
the high price of corn made mixing in other feedstocks an
attractive option for some.
    "Corn is extremely expensive and getting more so every day,"
he said.  
    Still, wheat is not quite cheap enough yet for many players.
    The ethanol group of The Andersons Inc, which
operates four Midwestern plants with 330 million gallons of
capacity explored a substitution of wheat for corn in past years
but was not pursuing a switch at this time.
    Likewise, Commonwealth Agr-Energy, a farmer-owned ethanol
producer, said wheat was a consideration every year but only
once in its years of operation did it actually become
financially feasible. 

 (Reporting by Carey Gillam in Kansas City and Michael Hirtzer
in Chicago; editing by Sofina Mirza-Reid)