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Factors Associated With Success Of Fuel Ethanol Producers

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  • Tiffany, Douglas G.
  • Eidman, Vernon R.

Abstract

Economic factors associated with success or failure of dry-mill ethanol plants utilizing corn as a feedstock are analyzed and discussed. A spreadsheet model is used to conduct the analysis based on the assumptions and interactions of various factors. Plant managers and bankers were interviewed in the process of establishing baseline conditions of operation including capital cost per gallon of capacity, ethanol yield per bushel of corn ground, percentage of debt capital, operating expenses of natural gas, electricity, enzymes, chemicals, repairs, labor, and management. Sensitivities were determined and graphed to demonstrate the respective influence of corn price, ethanol price, natural gas price, ethanol yield, capacity factor, and interest rate-debt percent interactions. The model was used to predict the financial performance of a modern, well-sized dry-mill plants if the prices that occurred over the past decade with respect to corn prices, ethanol prices, prices of DDGS and CO2, natural gas prices, and interest rates were to re-play. Rates of returns on equity of dry-mill ethanol plants were compared to rates compiled in the last decade for a group of 200 farmers in southwestern Minnesota. Patterns of loan repayment, influence of technological changes, and the role of government subsidies are discussed.

Suggested Citation

  • Tiffany, Douglas G. & Eidman, Vernon R., 2003. "Factors Associated With Success Of Fuel Ethanol Producers," Staff Papers 14155, University of Minnesota, Department of Applied Economics.
    • Handle: RePEc:ags:umaesp:14155
    DOI: 10.22004/ag.econ.14155
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    3. Gallagher, Paul W. & Otto, Daniel & Dikeman, Mike, 2000. "Effects of an Oxygen Requirement for Fuel in Midwest Ethanol Markets and Local Economies," Staff General Research Papers Archive 5244, Iowa State University, Department of Economics.
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    Cited by:

    1. Farzad Taheripour & Wallace E. Tyner, 2010. "Biofuels, Policy Options, and Their Implications: Analyses Using Partial and General Equilibrium Approaches," Natural Resource Management and Policy, in: Madhu Khanna & Jürgen Scheffran & David Zilberman (ed.), Handbook of Bioenergy Economics and Policy, chapter 0, pages 365-383, Springer.
    2. Eidman, Vernon R., 2007. "Economic Parameters for Corn Ethanol and Biodiesel Production," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 39(2), pages 1-12, August.
    3. Amigun, Bamikole & Petrie, Daniel & Görgens, Johann, 2011. "Economic risk assessment of advanced process technologies for bioethanol production in South Africa: Monte Carlo analysis," Renewable Energy, Elsevier, vol. 36(11), pages 3178-3186.
    4. Winchester, Niven & Reilly, John M., 2015. "The feasibility, costs, and environmental implications of large-scale biomass energy," Energy Economics, Elsevier, vol. 51(C), pages 188-203.
    5. Amigun, B. & von Blottnitz, H., 2009. "Cost analyses and predictions for a fuel ethanol plant in a rural and landlocked African country: Lang factor approach," International Journal of Production Economics, Elsevier, vol. 119(1), pages 207-216, May.
    6. Dale, Rhys T. & Tyner, Wallace E., 2006. "Economic And Technical Analysis Of Ethanol Dry Milling: Model User'S Manual," Staff Papers 28658, Purdue University, Department of Agricultural Economics.
    7. Rhys T. Dale & Wallace E. Tyner, 2006. "Economic And Technical Analysis Of Ethanol Dry Milling: Model Description," Working Papers 06-04, Purdue University, College of Agriculture, Department of Agricultural Economics.
    8. Doering, Otto C., III, 2004. "U.S. Ethanol Policy: Is It the Best Energy Alternative?," CAFRI: Current Agriculture, Food and Resource Issues, Canadian Agricultural Economics Society, issue 5, pages 1-8, December.
    9. Carlberg, Jared G. & Ward, Clement E. & Holcomb, Rodney B., 2006. "Success Factors for New Generation Cooperatives," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 9(1), pages 1-20.
    10. Ali, Tariq & Huang, Jikun & Yang, Jun, 2013. "Impact assessment of global and national biofuels developments on agriculture in Pakistan," Applied Energy, Elsevier, vol. 104(C), pages 466-474.
    11. Boukis, Ioannis & Vassilakos, Nikos & Kontopoulos, Georgios & Karellas, Sotirios, 2009. "Policy plan for the use of biomass and biofuels in Greece: Part II: Logistics and economic investigation," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(4), pages 703-720, May.
    12. Hettinga, W.G. & Junginger, H.M. & Dekker, S.C. & Hoogwijk, M. & McAloon, A.J. & Hicks, K.B., 2009. "Understanding the reductions in US corn ethanol production costs: An experience curve approach," Energy Policy, Elsevier, vol. 37(1), pages 190-203, January.
    13. Finco, Adele & Padella, Monica & Spinozzi, Romina & Benedetti, Andrea, 2010. "Biofuel And Policy Alternatives: A Farm Level Analysis," 14th ICABR Conference, June 16-18, 2010, Ravello, Italy 188088, International Consortium on Applied Bioeconomy Research (ICABR).
    14. Viju, Crina & Kerr, William A., 2013. "Taking an option on the future: Subsidizing biofuels for energy security or reducing global warming," Energy Policy, Elsevier, vol. 56(C), pages 543-548.
    15. Eidman, Vernon R., 2005. "Agriculture's Role in Energy Production: Current Levels and Future Prospects," Energy from Agriculture: New Technologies, Innovative Programs and Success Stories, December 14-15, 2005, St. Louis, Missouri 7628, Farm Foundation.
    16. Schlosser, Janet A. & Leatherman, John C. & Peterson, Jeffrey M., 2008. "Are Biofuels Revitalizing Rural Economies? Projected Versus Actual Labor Market Impacts in the Great Plains," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6123, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    17. Richardson, James W. & Lemmer, Wessel J. & Outlaw, Joe L., 2007. "Bio-ethanol Production from Wheat in the Winter Rainfall Region of South Africa: A Quantitative Risk Analysis," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 10(2), pages 1-24.
    18. Tiffany, Douglas G. & Jordan, Brendan & Dietrich, Erin & Vargo-Daggett, Becca, 2006. "Energy and Chemicals from Native Grasses: Production, Transportation and Processing Technologies Considered in the Northern Great Plains," Staff Papers 13838, University of Minnesota, Department of Applied Economics.
    19. Eidman, Vernon R., 2007. "The Evolving Ethanol Industry in the United States," Annual Meeting, 2007, July 29-August 1, Portland, Oregon 9305, Canadian Agricultural Economics Society.
    20. Outlaw, Joe L. & Burnquist, Heloisa Lee & Ribera, Luis A., 2007. "Bioenergy--Agricultural Issues and Outlook," 2007 NAAMIC Workshop IV: Contemporary Drivers of Integration 163901, North American Agrifood Market Integration Consortium (NAAMIC).
    21. Kebede, Ellene & Duffy, Patricia A. & Zabawa, Robert, 2006. "The Effect of Ethanol Production on Agricultural Production in the State of Alabama," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35415, Southern Agricultural Economics Association.
    22. Andrian, Leandro Gaston, 2010. "Essays on energy economics: Microeconomic and macroeconomic dimensions," ISU General Staff Papers 201001010800002725, Iowa State University, Department of Economics.
    23. Miranowski, John A, 2007. "Biofuel Incentives and the Energy Title of the 2007 Farm Bill," ISU General Staff Papers 200705170700001565, Iowa State University, Department of Economics.
    24. Bureau for Food and Agricultural Policy, 2005. "Bio-ethanol production in South Africa: An objective Analysis," BFAP Reports 279778, Bureau for Food and Agricultural Policy (BFAP), BFAP Reports.

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