Ethanol Production Ramping Up - Implications for Whiskey?

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Ethanol Production Ramping Up - Implications for Whiskey?

Unread postby gillmang » Sun Feb 11, 2007 10:50 am

A story in today's Sunday Times (Sunday edition of New York Times) covers latest developments. There are currently 113 ethanol plants, diversely owned, whereas 10 years ago the industry was dominated by one large company, Archer Daniels Midland. Many more plants are in planning stage. Some are owned by mega-business (ADM still has 22% of total production) but some 40% are smaller independents. Because of proximity to source of raw materials, smaller operations can be price competitive.

It is hoped this will reclaim many parts of rural America by creating jobs in the plants and restoring or opening more acreage to grain production.

The story also reports the spike in production is putting pressure on corn prices.

I have two questions: will this bode ill for beverage alcohol distillers and consumers by causing price hikes in wholesale and retail prices? And, will this cause some beverage alcohol makers to move over to, or expand their existing, industrial alcohol production? Can more money be made from corn ethanol than from whiskey?

The story also reports favorable developments regarding conversion of unused straw and other agricultural wastes or by-products to fermentable sugar. It costs twice as much to convert such cellulose products to fermentables as for starch-rich corn, but technology is improving to narrow the gap.

Finally, the story suggests that this time, the ethanol boom may be for good. The trend certainly is benefiting from various government programs. But it seems motivated primarily by market forces which in turn reflect a deepening social and political committment to energy self-sufficiency.

Gary
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Unread postby cowdery » Sun Feb 11, 2007 7:40 pm

The rising cost of yellow corn in the United States, due to increased fuel ethanol production, has already put pressure on the price of white corn in Mexico, causing steep increases in the price of tortillas, Mexico's "daily bread," and sparking protests and near riots.

Whiskey, however, should be pretty safe since the cost of raw materials, including corn, is a small part of the cost of a bottle of whiskey. Whiskey is a very small part of the overall market for corn. Whiskey also is probably the single most profitable product in which corn is a major ingredient.

Worry instead about the price of meat.
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Unread postby EllenJ » Sun Feb 11, 2007 9:57 pm

One interesting point to add to Chuck's is that, as an investor in ethanol (the kind used as an alternative to foreign oil, rather than the kind used as an alternative to good beverage spirits), I feel confident about the product for the immediate future. And the reason is because of the current industry focus on rye whiskey.
Y'see, it's not ONLY us enthusiasts' fascination with rye that makes it worth consideration to the distillers. It's the fact that the price of corn has doubled in the past twelve months and promises to continue raising. The "spread" between the cost of corn and the cost of rye has narrowed dramatically. Whiskey makers are always looking four to six years into the future, and they apparently believe this situation is going to continue for at least the next several years. That tells me that folks who depend on their relationship to such as Archer, Daniels, Midland believe corn is going to be expensive for a long time.
I'll bet we're gonna see a LOT more young rye brands coming out in the near future.
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Unread postby gillmang » Sun Feb 11, 2007 10:46 pm

Yes John, unless the ethanol makers start buying up all that rye...

Byrn wrote in the 1860's that pound for pound no grain produces more alcohol than rye.

In a tight market for fuel ethanol I would have thought you could make more money selling clear alcohol off the still than aging it for years in wood. But I don't have the facts and figures, it would be interesting to see a spreadsheet on this.

Doesn't e.g., Brown-Forman do both kinds of distilling? I wonder if they will start to look at where to put investment and other resources. True, you wouldn't want to endanger a long-term business like the whiskey business but current market developments might incline a producer not to expand, say, straight whiskey production, in favor of fuel ethanol production. Maybe we will see more focus on blends, that kind of thing.

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Unread postby EllenJ » Sun Feb 11, 2007 11:19 pm

Hmmmm....
It DOES kind of make you wonder what would happen if the Green People teamed up with the Prohibitionist People, doesn't it? :rofl2:
:protest: :rolleyes: :clapthumbsup: :rolleyes: :protest:
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Unread postby cowdery » Mon Feb 12, 2007 2:35 am

I don't believe B-F makes any GNS, for either fuel or beverage purposes. BT, of course, does make vodka, but they do it in an expensive way that would never be suitable for anything other than a beverage.

Things have changed a lot since Byrn wrote his treatise 147 years ago. One is that the alcohol yield from a bushel of corn is much greater than from a bushel of rye. That's why corn is the choice for fuel ethanol, at least until they get sawgrass going.

But John's prediction may be right, not because rye looks necessarily more attractive, but it looks less unattractive, if you get the difference. In other words, if rye and corn are priced similarly, there is little reason to favor corn.

In Scotland and Ireland, where grain whiskey usually has been made mostly from corn (maize), it is now mostly made from wheat because the price difference has changed so much. Domestic vodka could go in the same direction since it really doesn't matter what kind of grain they make it from.

But, like I said, if corn prices get too high it will be the fuel ethanol makers who get priced out, not the whiskey makers.
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Unread postby gillmang » Mon Feb 12, 2007 5:34 am

I thought Mike Veach once mentioned to me that B-F also did some ethanol-for-industry manufacture (maybe when he gave me the tour of distilleries in Louisville), Mike is that the case?

That is interesting that today corn is viewed as having a higher yield than rye unmalted grain. I looked again at the Murtagh article from the 1990's on distillers specifications for various grains (from the book "Whisky") and it seems from his table both wheat and rye render one pound more per bushel than corn. I would have thought this means rye and wheat offer more fermentables but I guess this is not necessarily true, e.g., I think rye has a heavier husk than corn. Also, I know rye is quite variable (unlike white corn) year to year in starch and protein content. Byrn might have been familiar too mostly with the grains of his area (Pennsylvania) which might have had specific characteristics, and of course the varieties of his time would not have been intensively bred.

I have since read that varieties of corn have been bred especially for ethanol which can raise the normal starch content by 6%.

I think the feedstock choice question may have to do, too, with the suitability of various areas for specific grain cultivation.

I have been reading up on the ethanol boom and find it fascinating, e.g., the wet vs. dry milling methods used for the plants, the co-products that can be obtained (e.g., corn oil, proteins) and the different grades of the resultant distillers grains. Many grains can be used including cane sorghum, Jerusalem artichoke, sugar beets and the list goes on.

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Unread postby bourbonv » Mon Feb 12, 2007 10:27 am

I don't see that there will be a problem of supply. The type of corn used for distilling bourbon is a higher category than what is needed to go into the gas tank. This simply means that the corn rejected because of deisel fuel contamination or must and mold will be sold to the ethanol plants. The top quality will still go to the distillers.

Rye has some production problems that makes it less desirable than corn so if the price is equal, then corn would still be prefered on that count.

Gary,
I think you must be thinking of the ethanol plant at the old Hill and Hill distillery just north of Brown-Forman's shively distillery. Brown-Forman does not own the ethanol plant, but I did mention that they have re-distilled bad whiskey into ethanol from every distillery, including Brown-Forman.
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Unread postby gillmang » Mon Feb 12, 2007 11:32 am

Mike, indeed, that is what you said at the time, thanks for the clarification.

I wonder though, since whiskey distillers are obviously experts at distilling and its technologies (or can ramp up easily I would think), whether some of them have thought of establishing a business to handle the manufacture and sale of fuel ethanol. I guess if all of them are distilling full-bore, and assuming (as Chuck says) they make more money making whiskey than can be realised from sale of fuel ethanol, there is no incentive to do that.

This raises another question: are all the whiskey distillers operating at full capacity currently? I know HH is, but what about the others?

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Unread postby bourbonv » Mon Feb 12, 2007 11:58 am

Gary,
I would say that the distilleries have ramped up production, but I am not sure that they are all at full production at this time.
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Unread postby cowdery » Mon Feb 12, 2007 12:54 pm

I believe the Shively B-F plant is the only operating whiskey plant in America not operating at near full capacity. The Courier-Journal in the next couple days will be running a story about how much Jim Beam is investing to expand all of its Kentucky plants.

As for making fuel ethanol, the whiskey-makers found the last time they tried to switch over to ethanol that they aren't very good at it, neither the production of it nor the business of it. It's not as similar as you might think.

Even the people who are now big producers of food-grade GNS might not be the best people to do fuel ethanol. Both are commodity businesses, which typically means you're working with very narrow margins, but working with something humans are going to consume involves many things that aren't in the picture when you're making something for fuel.
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