Confessions of a Biorefiner: Green Plains’ journey into the land of high-value proteins, and the who, what and why of that

December 18, 2019 |

This week news came out of a partnership between Novozymes and Green Plains to use biological technology to extract more value from corn protein, at what used to be known as corn ethanol plants, but with this news we might finally and forever begin to think of them as something else.

This provided us an opportunity to spend some time with Todd Becker, the long-time Green Plains CEO, who remains the visionary he always has been, but of the “two millimeters above the ground” type and not the flying through the blue skies of this weeks’ edition of the Opportunity of the Month Club.

Though you’ve never met anyone who’s found more ways to grind a penny out of a process, and I suspect he picks up nickels in the parking lot, he’s not short on vision. It’s just of an unusually practical kind, the kind that John Madden used to have as a coach in his days with the Oakland Raiders, there was never innovation for innovations sake, there was a lot of it and always with a purpose.

Our topic today — the transformation of the ethanol industry towards something else, which meant getting out of the management of commodity fractions and into the development of true added-value in the corn kernel using the concepts of refining itself.

The Ethanol backstory

For a long time, ethanol producers have been in the fractionation business. More of less, there were mechanical and chemical processes to separate the protein and starch fractions of the corn grain. Starch went to ethanol, via yeast fermentation. Protein went into a product called DDGs, or dried distillers grains, which have a ready if low-value market as beef and poultry feed and generally track the corn price. Along the way, corn oil began to be stripped out, and sold as a separate product — often to biodiesel producers who could handle the high free fatty acid levels.

That business was a rip-snorter in the mid-2000s. It seemed like everyone wanted in on the big ethanol bonanza, and then they didn’t. Back then, you could find an equities analyst with an informed take on ethanol as the prize at the bottom of any box of Cracker Jack, I think — these days, you can hardly find one using water diviners, GPS and surveillance technology stolen from the NSA.

“Our story got hijacked,” Green Plains CEO Todd Becker told The Digest in an in-depth, exclusive interview. “We had the most successful low carbon fuel ever built, we reduced GHGs and all that. We reduced BTUs [used in the ethanol making process]. We reduced water, we reduced our carbon footprint. Then, we got highjacked with a story that we we raising food prices, we were raising corn prices. We weren’t focused, we got highjacked, and we lost.

“Now, a major oil company runs ads on TV about algae fuels and we know there’s not as much there as suggested by the advertising. They highjacked our whole story [about the beneficial impact of renewable fuels], and we can’t fight back with the resources we have, and they know it.”

I was with some of the biggest investors in Boston last week, and for more and more investors sustainability is a strong driver in their investing, and price and performance will always matter. But one of them said to me, “you guys got to get back to your story.”

More, More, More

Truth is, investors are reasonably fatigued with the ethanol story. Ask any CEO who meets with them. “We’ve maintained our investor base,” says Becker, but overall, yes, investors are fatigued, they are not believers.” When a turning point in innovation comes, what will be the reaction? Checks? Share buying binges. “They are going to want to see us prove it out,” Becker noted ruefully.

Overproduction was another culprit, Becker noted.

“We constantly overproduced, as an industry, to our detriment. It’s always been yield for yields sake, make more ethanol, more, then more. Whether it was a producer or an enabler, the focus was never as much on the other products. And we’ve ended up with this volatility.”

The 10 Eras

Becker is alluding to the Six Eras of the Ethanol Industry, which date back to roughly 600 million years ago, according to experts, and are as follows.

1. Time out of Mind, before there was Ethanol.

2. The Age of Noah. After Ethanol, and before fuel Ethanol.

3. The Age of the Demon Fuel. After fuel ethanol and before mandates.

4. The Go-Go Age. After mandates, before food vs fuel.

5. The Age of Gigantor. Reaching 1 billion gallons in scale would make investors love us because of economies of scale.

6. The Age of Co-Products. Dried distillers grains, corn oil and industrial-grade CO2 would make investors love us.

7. The Age of Cellulosic. Fuels made from corn stover would make investors love us.

8. The Age of Diversification. Branching off into related businesses like cattle would make investors love us.

9. The Age of Yield Optimization and Cost Control. Becoming the lowest cost producer and the yield King would make investors love us.

Not every company went through every age. Green Plains, for example, skipped some of those early ages and they certainly took a pass on cellulosic ethanol. Though they made an on-going investment in algae-based protein, to take advantage of abundant on-site CO2, and they were leaders in the Age of Diversification.

A Turning Point

It may be that the turning point of the US ethanol industry, when it began its historic transformation into a low-carbon, sustainable, biorefining industry, may well have passed, and that it was marked by the sale of a vinegar plant.

Acetic acid, the cognoscenti sniff, but it was a vinegar plant, and Green Plains owned it, and sold it not long ago, and pocketed a tidy profit and used it to pay down debt. A cattle operation that company acquired also went on the block, sold well, and was used to pay down debt.

What was happening?

Green Plains was girding its loins, for a dispiriting 2019 of slashed prices, collapsed RIN credits, pared back markets for ethanol thanks to the EPA, and rough markets for ag products thanks to a China trade war.

The downturn has hit the industry hard. There’s hardly a major player that hasn’t been forced to shutter at least one plant, or sell off. Smaller producers have been slammed.

“We always tried to diversify, Green Plains CEO Todd Becker told The Digest in a lengthy interview. “Cattle, vinegar. We received no credit from investors — they came back to the base of ethanol. So, we sold, paid off debt, and we’d be a bankrupt company if we hadn’t. We were priced by investors at one stage for bankruptcy. So, we focused on core operations, and our cost per gallon. If you’re not in the top 20 percent as a cost operation, It’ll be tough.”

There’s More in There

Plants were scrutinized across the Green Plains network. “We sold some off’, closed one, but we have 13 left, and the question is, what’s out there [for improvement], and I always come back to the corn kernel. There’s more in there.”

“DDGs are going out as 30 percent protein,” Becker reflected, “and we watched the soybean industry, and the demand for high protein, and how they separate and isolate. And we thought, let’s see how we can transform ours. We evaluated lots of partners, each one had something a little different. We wanted to get to the highest level, unless you make 48% like soy, we thought, you’re suck in the mids and we didn’t want to be there. Fluid Quip we thought would get us to that level the quickest with their solution, and we chose Fluid Quip for the first unit. We chose our 1G Shenandoah plant, it’s big and efficient, and we have a world class lab there to test feed with any kind of fish. And we’ve attached protein production to that.

So, off they started. Aquaculture to start. Couple of reasons for that.

First, its deep,. As Becker noted, : there are 325 million tons of demand for good protein, and at 150,000 tons we’re not going to saturate that, it’s not like cellulosic or butanol.

Second, no policy dependencies. No waiting around in an attitude of prayer while the Environmental Protection Agency, which you might just as well regard as the Emitters Protection Agency, decides how much of the notional ethanol market will be destroyed — in the name of making the world safer for Texas light sweet crude and a sustainability story right out of the Seven Bowls of the Book of Revelation.

Third, acute need. Demand for fish is rising fast, population is rising fast, we’re short on feed for the demand that will be upon us. And sustainable aquaculture based on farming fish and not overfishing the oceans, is already the mantra of the times, and more to come.

Think Different

If there’s one very good reason that this evolution isn’t like the others, not just another commodity market, commodity business, it’s that the industry is going to have to think different in order to thrive in the high-end protein market.

“You can’t think like DDGs,” Becker stresses. “Those are very marketable, priced with corn, sold for poultry or cattle. Just because you make those, doesn’t mean you’ll make these.  It’s not substitutable in the same way, not a true commodity. Once you’re in the dog food, you don’t come out. It’s different than getting on the phone with the local cattleman and selling DDGs. If you think you’re going to produce high-value isolates at a single ethanol plant and just dial up some aquafarming operation in Asia and they’ll buy your product without knowing you or your operation, think again. For this, we need redundancy, new staffing, new training, we need consistency, reliability, a reputation, a history in high value protein, You need quality assurance, quality control. You can’t just degrade the product, or make more and make it cheaper, in another race to the bottom.

You can’t have poor products, bottom line, and customers don’t swap in this feed today, that feed tomorrow, and no feed at all the next day if the price isn’t right. They demand long term relationships before they will become your customer. That’s the bottom line in the high-value game.

“You need research, you need trails, customers will run their own trials. And they are going to grow a salmon for 28 months, and this is a global industry, there will be 45-55 projects built out in the US, but there is a lot — a lot — in this that does not have to do just with the feed.

Even More in There: The Novozymes gambit

Our first step was the Fluid Quip technology,,” Becker told The Digest, “and building on our history in protein markets and brining to the table a customer base. So we bring the demand and the mechanical.

“Now, we think that there’s more to be done, through biological solutions for functional proteins that improve the product even more. We found that Novozymes shared that vision, and we’re tapping into their mastery of biology, that depth in yeast. This partnership is very powerful and important to both.”

Novozymes agrees.

In an exclusive interview with the Digest, Novozymes YP Brian Brazeau noted that ethanol plants, indeed, are transitioning into true biorefineries, and are what he calls the “part of the first wave, true pioneers for enabling biology.”

“It starts to evolve the industry, biofuels part of agricultural value chain, one with a huge role to play. And this year in particular

the challenges of this year, everywhere people are looking for new value streams. And different tools and approaches are a part of an interesting story about how valuer can be created. Not just higher concentrations, there are opportunities for those who become inspired to think about value in the facer of a coming protein shortage.

Brazeau points to the old tools as the reason for the old results. Like the yields in the days of Jethro Tull and the simple plow. “It’s going to be up to the individual producer in terms of their strategy and what they want to go after, but there’s the biorefinery, for sure, not only an ethanol producer. We are absolutely at the tip, and more value can be created. It is all about continuing to evolve the biology and processing.

So, it’s an exclusive partnership, but the terms of exclusivity, the the term and scope and the who gets what, no one is saying just yet. Suffice to say, both partners see opportunity in a close partnership, and it will be that for some time to come.

Not for Everyone

We mentioned the old habits that will have to die quickly for those entering into this market. But let’s also consider the costs.

“$500 million it will take us to do this across our network of plants. That’s not an easy check after the years we have for a lot of people to write, or to finance. And they may well have priorities in cutting costs, or improving their CI score, or whatever is critical to them, and that makes this even less likely to be pursued by many. It would take $10 billion to deploy technology like this across the industry, and the industry doesn’t have it, so we feel we’re in a good position, because we have developed our vision, we we have the access to capital and we have a proven ability o execute.

Hijack it Back

it’s reinvigorating the industry, that’s what this does, not reinventing” Becker said. “These are not

pie in the sky experiments, and there’s mote here than aquaculture when we’re done. There are hogs, poultry, companion animals. This makes our plant in Shenandoah a true biorefinery, with high yield products that we are refining into existence.” As opposed to the old days of fractionation, yield chasing or the pursuit of diversity.

Becker pauses, as if in reflection.

“If we get this right, we’ll get our story back, too. That leadership in sustainable industries that provide high value products with an ability to execute at world scale, that is.

“We’ll hijack it back.”

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