THE ECONOMIC FEASIBILITY OF ETHANOL PRODUCTION FROM SUGAR IN THE UNITED STATES

USDA report released July 2006

Study Outline

• The U.S. Ethanol Industry • Price Outlook for Ethanol• Feedstock Available for Production of Ethanol• Byproducts of Ethanol and Sugar Industries• Starch and Sugar Content of Grains and Sugar Crops• Feedstock Production Costs, Net Feedstock Costs &

Processing Costs• Costs in Other Countries• Capital Costs• Other Issues: Plant Location; New Technologies;

Market Outlook for Sugar

Feedstocks Available for Ethanol

Production • Sugarcane

• Sugar beets

• Sugarcane or sugar beet molasses

• Raw sugar (domestic and imports)

• Refined sugar

Byproducts of Ethanol Production

• Corn:– DDGs, CGF, CGM, corn oil, CO2

• Sugarcane:– Electricity, CO2, bagasse, vinasse

• Sugar beets:– Beet pulp, CO2, vinasse

• Molasses:– CO2, vinasse

• Raw and refined sugar:– CO2, vinasse

Corn (dry mill) SugarcaneGrind & add H2O

to create mash

Grind to extract

sugar juice

Add enzymes & heat to create sugar juice

Add yeast &

ferment

Add yeast &

ferment

Distill out

ethanol

Distill out

ethanol

Bagasse

CO2

Vinasse

CO2

DDGs

Production Process Overview

Ethanol per ton of Feedstock

98.2

19.5 24.8

69.4

135.4 141

0

40

80

120

160

Corn Sugarcane Sugarbeets

Molasses Rawsugar

Refinedsugar

Gallons

Feedstock Costs$/gal

– Corn (dry mill) 1/ 0.53

– Corn (wet mill) 1/ 0.40

– Sugarcane 1.48

– Sugar beets 1.58

– Molasses 0.91

– Raw sugar 3.12

– Refined sugar 3.61

– Brazil sugarcane 0.30

1/ Net of byproduct credits

Data are 2003-05 except sugarcane and sugar beets, 2003-04, and Brazil is for 2004 from F.O. Licht

Processing Costs

• Sugarcane:– Adjusted processing cost of sugarcane to raw sugar

(2003-05 average)

• Sugar beets:– Adjusted processing cost of sugar beets to beet sugar

(2003-05 average)

• Molasses, raw and refined sugar:– Adjusted processing cost of corn to ethanol (2003-05

average)

Processing Cost Adjustments

• Sugarcane & sugar beets compared with corn:– Reductions due to energy, enzymes;

increases due to transportation, maintenance, labor

• Molasses, raw and refined sugar compared with corn: – Reductions due to energy, enzymes

Estimated Ethanol Production Costs ($/gal)

Net feedstk Processing Total

Corn (dry mill) 0.53 1/ 0.52 1.03

Corn (wet mill) 0.40 1/ 0.63 1.05

Sugarcane 1.48 0.92 2.40

Sugar beets 1.58 0.77 2.35

Molasses 0.91 0.36 1.27

Raw sugar 3.12 0.36 3.48

Refined sugar 3.61 0.36 3.97

Brazil sugarcane 0.30 0.51 0.811/ Net of byproduct credits Processing costs are 2003-05, except Brazil, 2004 based on F.O. Licht

Ethanol and Gasoline Prices

0

0.5

1

1.5

2

2.5

3

3.5

1999

2000

2001

2002

2003

2004

2005

2006

Gasoline, NY reg. Spot Ethanol, US rack

1/99-5/06: ethanol averaged $0.50 premium

5/06: ethanol is $0.94 premium

May Spot and Futures Prices during the week of July 3

NYMEX gasoline, CBOT ethanol

2.04

2.98

2.20

3.22

1.94

2.50

1.00

1.50

2.00

2.50

3.00

3.50

Gasoline Ethanol

May spot

Jul 2006delivery

Jan 2007delivery

$/gal

Sugarcane & Sugar Beet Ethanol Economic Advantages Not

Considered in Cost Estimates• Sugarcane ethanol is a green renewable fuel and

could be eligible for 2.5 credits per gallon under the renewable fuels standard (RFS)

• Byproducts may offset costs more than assumed • Electricity produced by burning bagasse is green

renewable electricity and could be eligible for 1.9 cents per kwh credit (closed loop) or half that under (open loop)

Sugar Yield per Acre, 2002-2004

0

1

2

3

4

5

6

7

Florida Hawaii Louisiana Texas U.S.average

Brazil 1/

Tons/ac

Conclusions• Molasses competitive with corn—but supply issues exist• While production costs for other sugar feedstocks are more

than twice that for corn, production is feasible if ethanol price are high enough– Current ethanol futures price (MERC) for 1/2007 deliver is

$2.50/gal. (buyer pays freight from Chicago)– Suggests sugarcane and sugar beet ethanol return would drop to

breakeven or less by then, excluding capital costs

• Report addresses efficient plant location, capital costs and new technologies

• Results of the study are uncertain, given volatile and uncertain global oil markets, no sugar-to-ethanol plants in the U.S., and uncertain relationship between ethanol and gasoline prices in the longer run