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Brian Cofell, General Manager,

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Tel: 519.312.0267

A Biomass Corn-Stalk Co-operative

February 23, 2017

Farmers need to invest now if the new corn-stalk project is to go ahead

 

Farmers aren’t negative or pessimistic by nature, but they are realists. When it comes to business proposals, they’ve heard terms such as “sure-fire” and “can’t-miss” before, not always with good cause.

 

So, do those terms work for the proposed corn biomass co-op?

 

You decide, but it appears there may be a good case for the new farmer-driven, farmer-centric co-op venture now taking shape in southwestern Ontario. At least, that’s the pitch that the Cellulosic Sugar Producers Co-operative (CSPC) is making in discussions it is now holding with farmers who could be potential partners in the venture.

 

If and when the processing plant is built near Sarnia, the co-op would then merge the talents and expertise of AGRIS Co-op, Comet Biorefining and Bioindust­rial Innovation Canada, along with participating farmers.

 

Initially, the plan is to use two-thirds corn stover and one-third wheat straw, with an annual demand for 75,000 tonnes of biomass to run the new processing facility. The co-op will handle all removal activities. It will flail-chop the stover, bale and stack it, and truck the bales off the farmer’s fields. (In order to be cost-effective, those farmers will be located within 100 km of the proposed plant in Sarnia.)

 

Project leaders are looking to get 55,000 acres under contract to generate $11 million in funding from their farming partners. Comet Biorefining has raised its own equity with 70 per cent of the total $70 million value, with the rest being held as commercial debt. There are also three lenders working together on due diligence, including Farm Credit Canada, Libro Credit Union, and the Business Development Bank of Canada.

 

On the farmer’s part, participating in the co-op will require a commitment of 100 acres minimum. Then, in exchange for an initial investment of $200 per acre, farmers will receive $25 per tonne for corn stover (at approximately 1.5 tonnes per acre) and $40 per tonne for wheat straw (at approximately 1.2 tonnes per acre), all adjusted to 15.5 per cent moisture.

That’s roughly $62 per acre annual return, comprised of $42 from the removal of corn stover (or wheat straw) from the field, and another $20 for the value of the high-purity dextrose that’s processed from the plant and sold to end-use customers.

With back-of-the-envelope math, that means a four-year payback on the investment, after which the farmer keeps essentially all of that annual return.

 

Double the opportunity

 

It’s a significant development, both in economic and environmental terms. A co-op venture, as many farmers know, reduces risk and provides stability in a variety of farm transactions. But with this venture, participating farmers will also help themselves and their soils by removing up to 30 per cent of their corn stover, which could help alleviate some challenges with residue management.

 

For most of the last five years, growers have been doubly challenged by trends that have seen higher plant populations as a way to boost yields, combined with improved genetics in corn hybrids that have strengthened stalks. Together, that means farmers are leaving a thicker mat or tougher, longer-lasting residue that makes it difficult to maintain no-till farming.

 

Production practices are also lengthening the growing season, keeping corn healthier for longer periods, says Dave Park, a Lambton County farmer and president of the cellulosic sugar co-op.

 

“This is a way to lessen our costs by having the co-op take over some of those fall practices that we would normally carry out,” says Park. “Then we can get back to more no till that some farmers —myself included — have gone away from in recent years because we haven’t had as much success no tilling into corn stalks as we once did.”

 

It’s also a way to add value to the current corn crop while farmers vertically integrate themselves by partnering with Comet Biorefining, for the opportunity to not only be the raw material suppliers but also be part of the ownership group of the Sarnia plant.

 

It’s a strategy, Park says, that will move farmers up the value chain. “By inserting ourselves into the value chain, we’re vertically integrating ourselves, and when you vertically integrate your business, it removes risk from a portion of it,” he says. “You have that ability to not just be a price-taker anymore, you’re moving yourselves up a couple of rungs on the ladder, and that vertical integration will give us more consistent returns and take some of the ebbs and flows out of the market.”

Park was one of four representatives of the co-op to speak at a pair of demonstration days, held in November on two different farms in Lambton County, one near Forest on the farm of Brad Goodhill, and the other at Chuck Baresich’s farm north of Bothwell. Each day’s exhibit attracted roughly 70 attendees, with demonstrations geared to showcase the machinery the co-op will purchase, taking the tasks of baling, stacking and transporting out of the hands of the farmer.

 

The machinery included a Hiniker flail chopper which makes two passes to create a 40-foot windrow, an AGCO/Hesston 2270 HD baler which creates 3x4x8-foot bales averaging 1,200 pounds, and a ProAg bale stacker that retrieves and stacks the bales at the edge of a field.

 

Asked about their progress lining up the various business interests for consideration as partners, Park says that once the project’s backers decided on the technology used by Comet Biorefining, things began falling into place. But in order to conduct due diligence in business, some things take more time.

But the wait is over, Park now says, and he sees this next step of attracting investment from farmers and building the value chain with those participating growers as a critical phase, and one that will bring important benefits to those growers.

 

“If we don’t try, we’ll never know, and certainly this is about building a market, and these things sometimes aren’t an easy road to go, but they do build momentum,” Park says. “For all of those people who say it won’t work, there are just as many who say it will. The reality is that we’re going to give this a good effort, and I think it will go — I do see some merit in this project.”

 

The process

 

In the past, there have been some concerns about bale quality because of the length of time the bales sit in the field, often in wet conditions. But according to Andrew Richard, chairman and chief technology officer with Comet Biorefining, the end-produce is high-purity dextrose, and one of the main ingredients in the processing of the stover is water.

 

Richard says that in tests at one of Comet’s European facilities, bales from southern Ontario were collected in spring, and they were quite wet. Yet the results showed little reason to be concerned about moisture content or length of time between baling and processing. The Comet process, says Richard, is “quite forgiving.”

 

As for targeting dextrose as the end-product, Richard notes the Sarnia plant, once complete in 2018, would produce 27,000 tonnes annually, a relative drop in the bucket in the North American bio-sugars market, which he estimates at somewhere between two and three milion tonnes. World-wide demand, he says, is roughly 12 million to 13 million tonnes per year, with most of that met with dextrose or cane sugar.

 

“We are the only cellulosic sugar company that is taking this approach with dextrose, and we did it because we wanted to be able to hit an existing specification,” says Richard. “We wanted to compete with corn-based dextrose, and then we put a process around it to compete cost-wise as well as quality-wise. Corn dextrose is sold into an existing large market in North America — about four million tonnes — for chemicals and some food uses.”

 

 

Most of the existing chemical companies as well as the emerging ones — such as BioAmber, which is trying to build a different route through succinic acid and butanediol — all use corn-based dextrose. That means anyone wanting to supply them with dextrose must hit precise specifications. But at least they know exactly what they have to achieve. “When you think about emerging markets in bioplastics or the types of products that would replace petroleum, such as what BioAmber is trying to do, that market is as big as you can imagine — tens of millions of tonnes, if not more,” says Richard. “At that point, you need to compete, not just on the quality of the material, but the cost. That is very dependent on the conversion technology and it’s dependent on oil processing. Everyone likes $100 oil better than $50 oil: for us, neither one is really an issue.”

 

 

The value statement

 

More than just adding value to a bushel or an acre of corn, the co-op will provide an ownership opportunity. That’s an important facet for Jim Campbell, general manager of AGRIS Co-op, based in Chatham.

 

Campbell knows the numbers, and is fluent at incorporating them into his conversation: $200 per acre invested, $62 per acre annual return, 55,000 acres to be contracted, 75,000 tonnes of material required, $70 million total value of the co-op and the plant.

 

But then he adds another number that he believes is particularly important: 100 per cent. That’s the percentage of the co-op that will be owned by farmers.

“When you’re done, you will own the co-op — it will be 100 per cent farmer-owned — there will be no other equity in the co-op except for you,” Campbell says. “Then the co-op is going to turn around and invest in the plant, and when we’re done that, the co-op will own about one-third of the plant.”

 

It’s not just another commodity being sold at the local elevator, adds Campbell. Through their involvement with the co-op, farmers will enter the value stream.

 Campbell understands that value chain scenario: it’s part of what’s made AGRIS Co-op the success it is, and why farmers invest in co-operatives, as well. Yet the proposition comes down to two simple questions: does removing some corn stover from a grower’s field make sense, and does investing $200 for a $62 annual return also make sense? That’s the ultimate decision Campbell puts before farmers.

 

It’s also a challenge that’s been placed before Jay Cunningham, CSPC’s business development manager. As the project moves from winter into early spring, it’s his task to entice farmers to contract with the co-op before spring planting in 2017, enabling the stockpiling of corn and wheat bales during the summer and fall, and awaiting final construction of the plant in early 2018.

 

“The challenges I see are getting out and getting the correct information out to as many producers as we can,” says Cunning­ham, who’s worked for years in agricultural business and financing, and is also a farmer. “Farmers are going to look at this and say, ‘This has been a challenge, with the heavy corn stover and getting more so with the genetics, the fertilizers and the yields we’ve been getting.’”

 

It’s also an opportunity to fix a problem and get paid for it at the same time, he notes. And it’s an exciting new opportunity to go into a new field, much like the sugar beet growers in Kent and Lambton counties did 20-plus years ago, and have a new market for something that normally gets plowed down anyway.

 

What’s impressed Cunningham through the early going is not the few objections he’s heard, it’s the questions, and some really good questions, he says, particularly about taking corn stover from the field. No matter how dense the mat of residues may be or the long-term impact of plowing or knifing it into the ground, that stover represents soil organic matter. But the fact that the process only takes 30 per cent from the field must be understood.

 

“Everyone’s farm is going to be different,” he says. “If it makes sense for you, on your type of ground and with your operation, and the way you till and the way you plant, then we’d be happy to discuss it with you.”

 

 

The CSPC initiative — Just the Facts

 

Key factors for successful cornstalk baling:

  • Bale density.

  • Uninterrupted baling.

  • Bale weight of 1,200 to 1,400 lbs.

 

Harvesting requirements:

  • Past grain harvest on fields having corn grain yields greater than 150 bu./ac.

  • Crop rotation to avoid using the same fields every year.

  • Variable stover harvest rate from one to two tonnes/ac.

  • Cover crops during rotation.

 

Harvest protocol:

  • Producer contacts CSPC when grain has been harvested to schedule stover removal.

  • Flail chopper creates 40-foot windrows (two 20-foot passes).

  • High density baler creates 1,400-lb. bales.

  • Stacker will temporarily stack bales at the edge of the field.

  • Bales will be removed from the edge of the field within 120 days.

This article was originally published in the January 2017 issue of the Corn Guide

 

 

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