Agricultural Residues

Dr. Tim SmithAssociate Professor, CEM & Bio-based ProductsDirector, Forest Products Management Development InstituteUniversity of Minnesota

BP 3503-5503 – Marketing Bio-based Products

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

The Plan for Today

• Discussion of factors increasing biomass resources from agriculture:

– Crop yields and seed ratios

– Collection Technologies and tillage

– Biomass for fuels/products and secondary processing residues

• Ag. Residues in the Global Panels Industry:

– Wood fiber and Ag. Fiber link

– Wood fiber per capita dilemma

– Growth of Plantation Forests

– Crops for industrial use

– Residues…

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Historical Gas/Crude Oil Prices

• Minnesota gas prices down 21% in past month.

• Crude down 14%.

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Historical Gas/Crude Oil Prices

Bush releases oil from the nation's emergency stockpile

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Wood Procurement – Mill Costs (Metering Ag. Fiber in Paper)

Aspen Pulpwood Stumpage: $28.89

Estimated additional Costs:Production/Harvest Cost $35.00Transportation $0.17/mile; plus $6.00/cord

loading

2002-2003 state stumpage sales of Aspen

Statewide Avg. Price per Cord = $28.89

Miles: 50 100 150 250 350 450 550

Transportation: $ 14.50 $ 23.00 $ 31.50 $ 48.50 $ 65.50 $ 82.50 $ 99.50

Total Est. Mill Cost: $ 78.39 $ 86.89 $ 95.39 $ 112.39 $ 129.39 $ 146.39 $ 163.39

Notes: Stumpage value based on Minnesota DNR data; estimated additional costs generated from talk delivered by Bob DeRoche, Wood Procurement, Stora Enso, April 22, 2004, St. Paul, MN.

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Wood Procurement – Price/Ton of dry fiber

• 1.8 tons of oven-dry wood is required to produce a ton of oven-dry pulp, resulting in total fiber costs of $150 to $313.

Assuming that yeilds drop approximately 10% when using agricultural fiber as the feedstock,

• 1.98 tons of oven-dry agricultural fiber is required to produce the same ton of oven-dry pulp, resulting in an estimated target agricultural fiber costs of $78 to $158 per dry ton.

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Wood Procurement – Price/Ton of dry fiber

• Is adequate straw surplus available within reasonable transportation distances to Minnesota pulp mills?

• Can this resources be delivered to Minnesota pulp mills at a price below its highest cost equivalent fiber - $158 per dry ton.

Two Primary Questions

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Minnesota in pretty good shape…

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Agricultural Straw Resource

Million mt

Wheat, barley, oats (100%)a 118.2

Soil conservation (50%) 59.1

Agricultural uses (35%) 41.4

Surplus (15%) 17.7

a Assuming 1 mt of straw for each mt of grain produced

(Bowyer 2001)

Estimated Straw Surplus in North America, 1999

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Agricultural Straw Resource

High Straw Concentration

12

1

2

3

3

44

55

6

6

7

7

8

8

Blandin (UPM-K) 550 59.42

Boise Corp. 970 104.80

Cerainteed 100 10.80

G-P, Duluth 350 37.82

I-P 370 39.98

G-P, Bemidji 100 10.80

Sappi 1150 124.25

Stora-Enso 440 47.54

Annual Pot. Demand 435.41

Equivalent to 485,304 cords of green Aspen.

DailyProd.(tonsd)

15%Fiber

(m tonsd)

≈100 miles

Note: 15% fiber requirement based on Sappi procurement data.

(Bowyer 2001)

$36/ton, + trans.

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Potential Fiber Cost Savings

Ag. FiberCost (dry ton) $110 $130 $150 $170

$60 $5,000,000 $7,000,000 $9,000,000 $11,000,000$70 $4,000,000 $6,000,000 $8,000,000 $10,000,000$80 $3,000,000 $5,000,000 $7,000,000 $9,000,000$90 $2,000,000 $4,000,000 $6,000,000 $8,000,000

Most Expensive Current Wood Fiber Cost (Dry Ton Basis)

• With a metering strategy, the mill doesn’t replace wood fiber at its average cost but at its highest fiber costs.

• For a mill purchasing 100,000 tons of Ag. fiber, annually; potential savings of $2 to $11 million are not out of the question.

• On average, potential savings to the Minnesota Pulp & Paper Industry of $20 million, annually.

Estimated Savings for a Mill purchasing 100,000 tons of Agricultural Fiber

| UNIVERSITY OF MINNESOTA, Department of Bio-based Products

BP 3503-5503: MARKETING BIO-BASED PRODUCTS

© T. M. Smith, 2005

Additional Issues – the short list…

• Straw Storage and preparation

• Additional material handling capital/operations costs

• Impact on the farmer (soil conservation, opportunity costs, etc.)

• Impact on forest resource, price elasticities