More Gallons per Bushel
Nebraska is the second-largest ethanol producing state with 24 plants with an annual production capacity of more than 2.5 billion gallons according to the Nebraska Ethanol Board. Nebraska’s ethanol plants use more than 700 million bushels of corn per year and produce 5.2 million tons of distillers’ grains (ddgs). Nebraska’s crop and livestock sectors, plus the state economy, reap economic benefits from the ethanol sector. Thus, the sector’s long-term profitability is of interest.
A key to long-term profitability is operational efficiency. To remain profitable and viable in the face of competition, firms must strive for increased efficiency. To that end, Scott Irwin, an agricultural economist with the University of Illinois, tracks the efficiency of the ethanol industry over time in a recent article. Irwin examines several measures of efficiency—looking at trends in ethanol, ddgs, and corn oil produced per bushel of feedstock—and discovers some interesting trends.
Figure 3, taken from the article, shows the monthly average conversion rate for ethanol produced per bushel of corn and sorghum over a nine-year period beginning October 2014. As can be seen, there is an upward trend in the ethanol conversion rate, meaning more ethanol produced per bushel processed. Irwin writes, “There is a clear upward trend over time, with the ethanol conversion rate steadily increasing from around 2.80 in late 2014 to a peak near 3.00 in mid-2019.” Since 2019 the rate has stabilized.
Figure 3. Monthly Conversion Rate for Ethanol per Bushel of Feedstock
Source: Irwin, S. “Trends in the Operational Efficiency of the U.S. Ethanol Industry: 2022 Update.” farmdoc daily (13):37, Department of Agricultural and Consumer Economics at Urbana-Champaign, March 1, 2023.
Figure 4 shows the monthly conversion rate for ddgs per bushel of corn and sorghum over the same period. Here, in contrast to the trend in the ethanol conversion rate, there is a clear downward trend. Irwin found that the ddgs rate falls from 17.34 pounds per bushel in October 2014 to 15.30 pounds in May 2021, a 12 percent decrease. Irwin also found the conversion rate for corn oil produced per bushel increases over the period.
Figure 4. Monthly Conversion Rate for DDGS Per Bushel of Feedstock
Source: Irwin, S. “Trends in the Operational Efficiency of the U.S. Ethanol Industry: 2022 Update.” farmdoc daily (13):37, Department of Agricultural and Consumer Economics at Urbana-Champaign, March 1, 2023.
Since 2014, ethanol and corn oil conversion rates have increased while the rate for ddgs has declined. Irwin comments, “. . . producers were able to net an additional 0.15 gallons of ethanol and 0.24 pounds of corn oil for each bushel of corn processed. This came at a cost of 1.13 pounds less DDGS.” The tradeoffs mean less corn used per gallon of ethanol produced and less ddgs produced per bushel of corn processed. The trends, while demonstrating ethanol plants are improving their operational efficiency, impact both corn and livestock producers in Nebraska. Already the improved conversion rate for ethanol production means 60 million fewer bushels of corn are needed today by Nebraska ethanol plants operating at capacity compared to 2014. This means adjusting for both Nebraska’s crop and livestock sectors while at the same time improving the long-term profitability of the ethanol sector.
