Economics Of Small Scale On-Farm Alcohol Distilleries

This report documents the costs of producing ethanol from five small on-farm distilleries and compares the production costs with the value of ethanol when used as a motor fuel. Important factors useful in planning a fann distillery are discussed in the first section of the report. These include the availability and cost of utilizing various sources of feedstock and a comparison of various fuel input costs. Also, values are imputed for hydrous ethanol and stillage used on the farm. In the second section, production costs for five model distilleries, producing 190 proof ethanol and ranging in output from 840 gpy (gallons per year) to 201,600 gpy, are derived using a base set of input prices. The costs indicate that there are significant economies of scale in the production of ethanol within a range of small scale distillery outputs. In the third section, a breakeven analysis is used to evaluate the profitability of each distillery. Using the base input prices, the ethanol breakeven values for each model distillery, listed in order of increasing distillery capacity, in dollars per gallon, are: $3.84, $2.34, $2.64, $2.16 and $1.99. Since gasoline is currently selling at $1.25/gal. and gasoline as a fuel has a higher value than does ethanol, none of the model distilleries represent a profitable investment. The sensitivity of the breakeven values to various combinations of discount rates and corn prices is also given in this section. Even with a discount rate of 8 percent and a corn cost of $1EQ'bushel, none of the distilleries represent a profitable investment. Other studies have suggested that there are economies of scale even within the large industrial distillery output range (10-lOOmillion gpy). If these economies of scale do exist, it is unlikely that future small fann ethanol production will become profitable as gasoline prices and ethanol prices increase. Increased competition for distillery inputs (particularly grain) will favor the existence of the larger, more efficient industrial distilleries rather than the smaller, less efficient distilleries.