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Canadian Biofuel Industry: Western Canada Perspective and Opportunities

By the Alberta Agriculture and Rural Development. This document is part of the Capturing Feed Grain & Forage Opportunities 2007 Proceedings - "Farming for Feed, Forage and Fuel".

Key Points

  • Ethanol and other bio-fuel production is a global happening and will impact on us whether we like it or not
  • Canada and particularly Western Canada is ramping up to produce biofuels
  • Wheat will be the main substrate for ethanol production in Western Canada and with time cellulosic ethanol will also contribute in a significant way
  • The supply of cereal grain should be adequate in Western Canada to produce feed, food and fuel. The higher than high prices for grains seen presently are a result of past low commodity prices and lesser due to global ethanol production.
  • The co-products from bio-fuel production represent an opportunity for the livestock industry but will require a change in thinking and approach to capture this pot of gold

The path has been set globally. The drive for energy, self sufficiency and the necessity for reduction of environmental impact have the U.S.A. at over 18.5 billion liters of ethanol production annually from corn and Brazil at over 17.5 billion liters annually, mostly from sugarcane. The growing production of biofuels is followed in quantity by Europe and with well established programs, China, South Africa and others joining the biofuels drive. Corn use for ethanol production in the U.S. is expected to reach 26 to 28 % of the corn crop this year and while others such as China are expected to be in relatively tight supplies for their own corn needs. The fact is we are in a global marketplace with biofuel production and one which impacts with our feed and food products such as wheat, canola and corn. The availability of new options of use for our grains has increased demand and price and looks good for our grain producer, but it is less well defined for the livestock producer.

To answer sceptics, biofuels truly represent an economic opportunity for agriculture; it is here now with ethanol, a renewable fuel and the cornerstone upon to which to build a variety of value added enterprises. In addition with ethanol production will, as the new cellulose technologies come available expand from grain based to include crop residues and forestry by-products. For the immediate future however grain based ethanol will be the norm and most credible estimates place larger, significant contributions from cellulosic ethanol 8 to 10 years away.

In Canada while there have been some existing ethanol plants it is only in the last 2 to 3 years that production has started to expand. Table 1 shows the current status of ethanol and bio-diesel development as given by the Canadian Renewable Fuels Association. There are many other plants in various stages of development such as at Unity, and Tisdale, Saskatchewan and in Central Alberta. There is no doubt that a portion of these will succeed in their plans and be built. Irrespective because of grain availability, it is expected that major activity in ethanol and bio-diesel will occur in Western Canada.

Table 1: Canadian Biofuel production
Plant Name Place Feedstock Capacity (m.liters)
Ethanol:      
Permolex Red Deer wheat 40.0
Husky Energy Lloydminister wheat 130.0
*Terra Grain Fuels Belle Plain wheat 150.0
Pound Maker Lanigan wheat 12.0
Nor Amera Energy Weyburn wheat 25.0
Husky Energy Minnedosa wheat 10.0
*Husky Energy Minnedosa wheat 130.0
Iogen Ottawa wheat straw 2.0
*IGPC Aylmer corn 150.0
*Greenfield Ethanol Hensall corn 200.0
Greenfield Ethanol Tiverton corn 26.0
*Greenfield Ethanol Johnstown corn 200.0
Greenfield Ethanol Vareness corn 120.0
*Collingwood Ethanol Collingwood corn 50.0
Suncor Energy St. Clair corn 200.0
*plant currently under construction
Biodiesel:      
*Milligan Bio Tech Foam Lake Multi feed stock 1.0
Biox Hamilton Tallow 66.0
Rothsay Montreal Animal fats 30.0
*plant under expansion
Source: Canadian Renewable Fuels Association

The choice of substrate to produce ethanol is not readily apparent unless corn is available. Corn has the advantage of being a relatively efficient ethanol producer and more importantly has high yields per acre. In a presentation made in Montana at the ethanol producers and consumers Conference John Urbanchuk, Director of LECG-LLC suggested that in the future increased corn acres will come at the expense of other crops, displacing mainly soybeans, oat and wheat crops. Further he indicated that corn yields have increased substantially since 1960 and has increased even more since 1990 to a present average yield of approximately 160 bushels/acre. More is achievable and estimates are that 220 to 250 bushels/acre average is attainable. It is interesting to note that wheat and soybean yields moved little during this same period. Urbanchuks point was that corn production will increase and with the development of alternate forms such as cellulosic ethanol, the greatest demand for corn will be in the near future and not as critical in the longer term. We will need both however to fill the demand.

In Western Canada the dominant substrate will be wheat for ethanol production as it is the most competitive in providing starch for ethanol production. Table 2 is cost of production and yield data for spring wheat, barley and CPS wheat from the crops livestock interface project at the University of Saskatchewan. In the black soil zone of Saskatchewan higher yielding CPS wheat is the one which supplies higher amounts of digestible energy per acre and has the greatest profit potential for the producer. Also notable are the break even levels for the various grains which will be discussed later.

Table 2: Yield and Cost of Production of Wheat and Barley, on Stubble, Black Soil Zone, Saskatchewan
  Barley HRS CPS
Total Variable:      
Costs / acre $ 99.89 106.62 107.66
Total Cost / acre $ 158.49 165.22 166.26
 
Yield bu / acre 59.6 35.6 45.0
 
Break even / bushel      
For variable cost $ 1.68 2.99 2.39
For total cost $ 2.65 4.64 3.69
Yield of DE / MCal / acre 4096.0 3378 4270
(swine)      
 
Yield of starch / acre      
Lbs.      
*Source: Crop Planning guide, Saskatchewan Agriculture and food and Crops Livestock Interface Project, University of Sask.

In Canada we produce 22 to 24 million tonnes of wheat per year with the majority coming from Saskatchewan. Table 3 shows grain production statistics derived from the Canada Grains Council grain industry database for Canada. Of the total wheat crop 14 to 17 million tonnes is exported, 2.6 to 2.9 million tonnes is used for food domestically 3.6 million tonnes for feed and dockage with carry over of 4 to 5 million tonnes. The effect of low commodity prices for wheat and barley, higher transportation costs and the fact that with wheat 20 to 25 % of annual crop production falls in the lower grades with a frequency of 1 year in 2 has severely limited opportunity for profit the last several years. Data given in Table 2 comparing the costs of production for wheat and barley to actual returns show in the last several years little incentive to grow these crops. This helps to explain much of the fluctuation in production seen in Table 3.

Table 3: Western Canada Production of Grains:
Production of Starch Materials
Western Canada (‘000 tonnes)
    MB AB SK CA
HRSW 06/07 3543 6966 9076 18617
  07/08(P) 2659 5019 5935 14098
  Est./Yr 3200 5500 8900 19000
 
Oats 06/07 979 670 1526 3602
  07/08(P) 1230 763 2587 5086
  5086 950 850 1550 3600
 
Barley 06/07 1145 4626 3570 9573
  07/08(P) 1336 5356 4406 11847
  Est./Yr 1250 5400 4950 12800
 
Durum 06/07 8.7 691 3946 4162
  Est./Yr 12 850 3800 4700
 
Winter W 06/07 571.5 160 275 3301
  07/08(P) 781 231 508 2694
  Est./Yr ? ? ?  
 
Peas 06/07 91 586 2126 2806
  07/08 103 535 2326 2953
  Est./Yr 170 650 2250 2900
 
Trit+(Rye) 04/05 7.6 (86.4) 28(103) 45(165)  
 
Corn 03/04 495 17 -  
*Source: Canada Grains Council Database
Estimates: Based on last 8 years of production.

The situation prior to June 2007 was unsustainable in terms of crop production and only recently have wheat and barley prices improved. Wheat plantings this last spring were down and would venture to estimate so was fertilizer use. High nitrogen prices and threats of shortages from U.S. corn crop use also indirectly impacted our grain production. Prices of our grains are set globally and suggest that the increased barley and wheat prices are a result of low world supply and cost of production within Canada and not demand for ethanol as in Canada we are using only a small fraction for ethanol.

To look ahead consider what a high yielding CPS wheat, high in starch and 25 % more yield suited for ethanol could do for increasing the bottom line and capability to make ethanol. This same wheat will likely be the best also for feeding swine and poultry. Further providing a base support price for wheat may be the only way of retaining a high end use market for Canadian wheat similar to the relationship now existing between barley for feed or for malting.

Ethanol production from wheat (dry milling) results in approximately 365 liters of ethanol, 290 kg of dried distillers grain with solubles and 290 kg of carbon dioxide from each tonne of grain. The co-products, distillers grains and solubles composition can be altered by pre-processing and post processing after fermentation. Pre-processing of wheat could extract the bran leaving less material to be fermented, obtaining better fermentation efficiency and one which will alter the distillers grains in both amounts and composition. All of these variations resulting from processing will generate co-products usually destined for the feed industry. Presently in Western Canada we have a distinct segregation in size of plants being built, large plants over 100 million liters and smaller 20 to 25 million liter ethanol plants usually integrated with feedlots or other ventures. With current Western Canadian production of approximately 180 million liters (Sept. 2007) and with another 275 million liter capacity being built in the next year and more plants in varying stages of planning ethanol production has and will be established. The current lower price for ethanol and high grain prices have impacted plans and a slow down in activity is being seen. The food vs fuel debate is also creating a cloudy picture and forgets to look at positives to their own detriment.

Regardless of how it is done we still have after fermentation the ethanol, plus wet distillers grains, thin stillage and if we dry, distillers dried grains with solubles. The real question is to dry or not to dry because of added cost. Consider hat an 80 million liter ethanol plant will give us 70,000 tonnes of dried distillers grains with solubles per year or the equivalent of 233,000 tonnes of wet distillers grains (30% D.M). Wheat distillers dried grains are low in starch, high in protein (35 – 40%), fat (5 – 7 %) phosphorus and fermentable fibre. The energy density is similar to barley, but because of its unique carbohydrate compliment it behaves differently in the rumen giving enhanced benefit to the diet. Further the undegradeable protein or bypass protein is higher in the dried product as a result of the drying process which adds benefit. The composition of wheat distillers dried grains, feeding value and recommendations for feeding will be given by others, but it is at the heart of the opportunity for the livestock industry.

The sheer volume of co-product from ethanol plants is of major concern. Consider that the same 80 million liter ethanol plant will feed 190,000 head of cattle yearly at 1 kg. per head per day of distillers dried grains. Those plants that are in the 20 to 25 million liter capacity that are integrated with feedlots or nearby feeding operation can avoid drying costs. Those plants over 100 million liter capacity have strictly ethanol production as the main focus and will move to drying all production of co-products with shipping of only limited amounts of wet material to local feeding operations. The avoidance of drying costs increases energy capture from ethanol production substantially and is the main reason smaller plants can be competitive. With movement to higher yielding wheat varieties it is estimated that we will have 4 million tonnes of wheat to be used for ethanol without jeopardising other feed or food supplies and production. This amount of wheat will generate 1.46 billion litres of ethanol, and 1.16 million tonnes of DDGS. The impact is substantial and the logistics of moving this much DDGS, daunting.

The die is cast there will be an ethanol industry simply to replace MTBE in fuels to increase octane rating. Further we need to reduce emissions and ethanol and other biofuels give us this opportunity. There will be impact both on the feed grain side and feeds used in animal diets in the future. To evaluate this impact it is wise to step back and take an objective look. The price of corn has increased resulting from ethanol use. However as planting of corn and the yield increases over the next several years of adjustment, there will be a levelling and perhaps a decline in corn price for feed. As alternate forms of ethanol production such as cellulose come on stream this will also temper corn prices. Cellulosic ethanol is hampered by low efficiencies, bio mass supply and logistics problems.

In Western Canada perhaps we could be in a better position as our main feed grain barley, is not the most desirable substrate for ethanol unless the added cost in front end processing is accounted for. At present both wheat and barley are high priced and for the grain producer the stars have aligned. Both grains have a number of factors that add up to this higher price, but the main cause for both is low initial commodity prices some 2 to three years previous. With barley during the 2006 crop year from Table 3 we grew over 2 million tonnes less barley than our previous average. With corn in short supply the price rise in feed barley was of larger magnitude then expected. Wheat prices increased because of low world stocks and drought in Australian and other places. Canada in response to low commodity prices grew less wheat the last 2 years with significantly less this last year. The question now is how long will these prices hold and perhaps decline. Countries such as the Ukraine and others in Eastern Europe and USA have already ramping up wheat production. However in particularly with barley it will not decline to past year low levels because the price received by producers was below the cost of production, which was not sustainable and the principle reason for the lower production and resulting higher than high prices.

Since we are in a global marketplace, the products, beef and pork if we take advantage of domestic opportunities, we should remain competitive because of transportation and industry structure. This depends on how we capture opportunities such as bio-fuel co-product use. The price of DDGS will stabilize and use will be tied to it’s use mainly as a protein source because of environmental considerations and ration costs. Leading edge developments now look to things such as bio digesters to handle co-products deriving fertilizer and energy for power generation. Regardless there is a huge opportunity to use distillers grains to economic advantage and add a dimension to livestock production we never had before.

The value of distillers dried grains is the greatest with high producing dairy cattle where bypass protein adds the value. Next in line would be growing calves and further down the line swine and poultry. The latter two place them at the bottom because of available amino acid considerations in ration balancing. Beyond backgrounding and finishing beef diets consider DDGS use if combined with low quality forages such as straw to reduce feed costs. There are many ways to reconfigure winter feeding systems to optimize economic efficiency as a total farm unit. Pasture supplementation could be developed for finishing and or extending grazing systems. The situation is here, evaluate, respond and capture opportunities.

References

Canadian renewable Fuels Association
Canada Grains Council; Winnipeg, Manitoba
On-line statistical handbook and database on Canadian Grains Industry October 2007.
Urbanchuk John M., Director, LECG-LLC - “Are there enough fields, have we overshot our headlights”
(Presentation to 17th annual EPAC Conference, Big Sky, Montana, June, 2007)

June 2008

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