Corn oil extraction conundrum

by Susan Reidy
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Extracting corn oil from distillers grains can add more revenue to an ethanol facility’s bottom line, but the new de-oiled grain co-product is giving the feed industry some headaches.

In the last few years, the percentage of ethanol plants extracting corn oil has skyrocketed. According to one estimate, it grew from 40% in April 2011 to 62% in April 2012, and could reach as high as 75% by the end of this year. The plants can increase their revenues by selling the corn oil to various markets including biodiesel production, while still selling the de-oiled distillers into the feed market.

The de-oiled distillers have a nutrient profile that differs from standard distillers grains, complicating diet formulations particularly for swine and poultry. The issue was a hot topic during the 16th Annual Distillers Grains Symposium, hosted by the Distillers Grains Technology Council in May in St. Louis, Missouri, U.S.

“It’s been a pretty rapid implantation (of corn oil extraction) over the past year. More than anything, that’s probably what’s been more alarming to the swine and poultry industry,” said Rob Musser, director of technical sales and services, Nutriquest, which has a database with distillers grains assays from 130 ethanol plants.

“Oil extraction hit and because of the numbers, it was quickly adapted, and I think it was a shock. We didn’t have the research at the time on the impact, but now a lot of good research is being done.”

Extracting profit

Separating and extracting corn oil from distillers grains has been one of the biggest change to the ethanol industry in the last five years, said Eric Thompson, business development manager for POET, a major U.S. ethanol producer.

Current corn oil removal practices typically involve a centrifugation step on the condensed distillers solubles, or syrup, he said. The result is a distillers product with a lower crude fat value, typically increased protein, and a slight increase in other nutrients as well.

Corn oil extraction represents a new revenue stream and new markets for ethanol producers, Thompson said. Some plants have seen a return on investment in as short as 12 months, but the economic factor is very variable.

The corn oil yield per bushel can have a major impact on the economic benefit the ethanol facility realizes from extraction, said John Christianson, with Christianson & Associates. The accounting firm maintains a benchmarking program that allows ethanol plants to see how they measure up financially against their peers. About 54% of the plants in the program extract corn oil.

Christianson analyzed data from the program to compare the revenue benefit for facilities with above average, average and below average corn oil extraction. With an above average yield of .6508 pounds of corn oil per bushel, a facility sees a revenue benefit of $2.2 million, while an average yield of .4088 pounds of corn oil has no revenue benefit. A below average yield of .1717 pounds of corn oil results in a loss of $2.2 million.

Overall, Christianson said the net income of corn oil is about 4¢ per denatured gallon of ethanol produced, with some facilities seeing as high as 6¢ per gallon. That’s an increase from an average of 1¢ per gallon in 2009, 2¢ in 2009 and 4¢ in 2011.

“Not all corn oil extraction is created equal,” Christianson said. “You have to look the impact of the yield and the technology costs. If you have a larger capital expenditure, are you going to realize that back in yield? We are seeing significant benefits in increasing yield.”

Ethanol facilities that extract corn oil have been able to capture the same percentage of feedstock costs as in past years, despite the increase in corn prices. The recapture percentage is the total cost of feedstock and co-product revenue divided by the total feedstock purchases.

Given the economic potential, it’s not surprising that in the last 12 months there has been a threefold increase in oil extraction, Musser said. In April 2011, 40% of ethanol plants were extracting corn oil, but by this April, 62% were extracting oil. He estimates that could increase to 70% to 75% by the end of this year.

The industry on average has taken about 1% of corn out of all distillers grains in the U.S., Musser said, lowering the previous 10% oil average content in distillers to a 9% oil average.

The oil can be used as a feedstock for biodiesel production, for oleo chemicals, and as a feed ingredient including as an alternate feed fat for blenders, as a natural corn oil for all-vegetable feed, and as a fat source, Thompson said.

Biodiesel is a significant factor in supporting corn oil demand, he said, but only 50% of biodiesel plants can use corn oil as a feedstock. The U.S. Environmental Protection Agency estimates that 680 million gallons of corn oil would be needed to meet the biomass- based diesel targets in the Renewable Fuels Standard 2.

Even if all dry mill ethanol producers extracted corn oil, the ethanol industry output capacity would only reach 270 million gallons, meaning there’s ample room in the marketplace for more corn oil.

On the other side of corn oil extraction is the impact on distillers grains. The rapid expansion in extraction has brought a lot of attention to the process, resulting in technology advances allowing facilities to remove even more corn oil, if they choose to.

Distillers grains are no longer a single, well-defined commodity. Nutritional variability has always been a concern with distillers grains, and adding corn oil extraction to the process compounds that concern. Variability is possible even from a single facility, which will require paying more attention to rations.

Feed impacts

Nutritionists are resigned to the fact that low oil distillers grains is here to stay, Musser said.

“We’re going to figure out how to deal with them, and hopefully they have a value in the system,” he said. “We are seeing a market separation in high oil and low oil distillers. A separation of value doesn’t necessarily indicate a separation of price. The value of distillers grains for swine and poultry is less than it was, but it’s still a good value.”

In the poultry industry, producers of low oil distillers grains shouldn’t expect as high of an economic value compared to higher oil products, said Sheila Purdum, professor, poultry nutrition, University of Nebraska, Lincoln.

She said low oil distillers have a place in poultry rations, as long as other good energy sources are available at economic prices to provide the energy needs of the bird.

“Such products are more likely to fit in layer rations which are lower in metabolizable energy compared to meat bird rations such as broilers or turkeys,” she said.

There is enough flexibility in laying hen rations energy formulation to allow for a 4 to 6 kcal/kg drop in energy, with the hens adjusting their feed intake slightly up.

Poultry overall is a small user of distillers grains, but it has potential for growth, said Robert Wisner, ag extension economics professor, Iowa State University, Ames.

“The trend in poultry production has been moving up, and that will continue at least until 2022,” he said.

For swine, the energy value in conventional distillers grains is similar to that of corn, said Hans Stein, professor, Department of Animal Sciences, University of Illinois, Champaign-Urbana, Illinois, U.S. But low-fat distillers (6% to 9% fat) has a slightly lower energy value. In addition, de-oiled distillers grains has significantly lower dietary energy and metabolizable energy.

Distillers grains can be fed at up to 45% of the feed ration, with little impact on growth performance, Stein said. However, it does reduce belly firmness.

The pork industry has a long history of trending upward in terms of production, Wisner said, and it’s anticipated that will continue. It’s not the largest market for distillers grains, but it is another potential area for growth.

Beef and dairy cattle are the two biggest markets for distillers, accounting for about 70% of the market in 2012, according to Wisner. Dairy numbers have been slowly declining and are expected to continue that trend in the future. After a cyclical decline in beef cows, exacerbated by drought, numbers are expected to start increasing in two to four years, Wisner said. But drought in the U.S. is delaying the expansion. “It’s going to take some time for that industry to come back,” he said. “That’s important because it’s a big market for distillers grains.”

The beef industry likes distillers grains the way they are, said Paul Walker, Department of Agriculture, Animal Science, Illinois State University, Bloomington.

 But he said it can adapt to changes, like a lower oil content. Some challenges the beef industry faces now with distillers grains is greater inconsistency and current nutrient analysis.

Low fat performance of distillers grains differs from that of high fat grains, especially when distillers is included at a higher percentage of the feed ration, Walker said.

Both average daily intake and dry matter intake increases with low fat distillers grains included at 70% of the cattle’s diet.

The value of low fat distillers could be as much as 25% lower than distillers with a higher fat content, Walker said.

“As producers get smarter, they are going to want to pay you less,” he said. “Too much improvement in distillers manufacturing may not be in the beef industries best interest. Unless shelled corn is low cost or decreases in relative cost, then it doesn’t matter.”

For dairy cows, low fat distillers grains presents less of an issue, and may even allow the industry to feed high levels of distillers, said Paul Kononoff, assistant professor and dairy extension specialist, University of Nebraska.

Distillers grains with 12% fat have been problematic when fed at high levels to dairy cows. However, low oil distillers can be fed at higher levels without causing milk fat depression.

Ethanol facilities that are extracting corn oil can take some measures to make it easier for the feed industry to handle de-oiled distillers grains, Musser said.

“Think about ways you can improve the product for us while at the same time extracting oil,” he said. “We’re seeing a higher moisture content; that doesn’t help. Anything you can do to control the fiber is a value to swine producers.

“As we look to the next technology, the further in advance we can start working with the universities to characterize the impact on the co-products, the better the industry will react,” Musser said.