KgosKerm

DTN Distillers Grain Weekly Update

By Cheryl Anderson
DTN Staff Reporter

DAVENPORT, Neb. (DTN) -- A Nebraska company that is manufacturing a distillers grains-based plastic resin enhancer will begin phase one of production at their facility in Laurel, Neb., soon.

Laurel BioComposite, LLC, is producing Bio-Res, the company's patented bio-material. It uses dried distillers grains which are made into a dry-ground product that is pelleted and mixed with polypropylene or polyethylene, the two most widely used resin systems. Thermal plastics cover about 50% of the plastic industry. The product is a light-colored material that can be used in a variety of colored plastics well suited for such applications as shipping, lawn and garden, agriculture and automotive industries.

The company is just finishing construction of a new 12,000-square-foot manufacturing facility, according to Annette Junck, business manager of Laurel BioComposite.

Construction of a pilot plant was finished in mid-November of 2011. By December 2011, the company had produced enough of bioresin enhancer from distillers grains to ship the first test batches of its product to seven companies for testing.

Laurel BioComposite has since produced enough material at that pilot plant to send out to even more companies to test for uses such as flower pots, pallets, storage containers, etc.

Phase one, which began in April 2013, is targeted to deliver an annual commercial production rate of about 7 million pounds. Phase one has included construction of the new plant, and placement of new equipment, including an ENTEK E-Max 53mm twin screw extruder and an Amtek Microwave system.

Phase one is targeted to be completed in early June when production begins at the new facility.

Phase two will bring production levels up to 48 million pounds and should be completed in late fourth quarter 2013.

GREEN PRODUCT

Using Bio-Res will enable companies to raise the renewable or "green" content of plastic products by as much as 40%, by replacing traditional petroleum-based resins in a number of production processes.

The bio-material replaces petroleum-based resins in plastics. Since the company uses distillers grains, a renewable feedstock, for production companies trying to find ways to get more sustainable materials into their products are targeted.

Other attempts to produce bio-based resins have not been successful, as they were produced with certain negative attributes. Sometimes the quality of end products made with sustainable materials is weakened; however, Bio-Res actually enhances the strength of the final product.

Another problem has been objectionable odor from the sustainable materials. That has also been corrected in the Bio-Res pellets.

The company also sequesters carbon-dioxide and does not use toxic compounds during the production process.

"The potential for this is huge -- it is really a selling point," Junck said. "A lot of times using green materials can become cost prohibitive, so companies don't go that route. We can produce our product at a price competitive with virgin resins."

DISTILLERS GRAINS

The company has used dried distillers grains as feedstock for its Bio-Res production since its beginning.

Junck said they purchase all their DDG locally from Husker Ag in Plainview. She said they have not had problems securing DDG during production at the test facility and added that the high DDG prices last fall were not prohibitive.

Cheryl Anderson can be reached at Cheryl.anderson@telventdtn.com.

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DTN WEEKLY DISTILLERS GRAIN SPOT PRICES

*The spot prices gathered by DTN are only intended to reflect general market trends and may vary. Please contact individual plant or merchandiser for exact prices.

If you would be willing to take a weekly phone call and have your distiller grains spot prices listed in this feature, please contact Cheryl Anderson at (308) 224-1527 or (800) 369-7875, or e-mail cheryl.anderson@telventdtn.com.

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USDA MARKET NEWS/DISTILLER GRAINS PRICES

USDA WEEKLY DISTILLERS GRAINS SUMMARY (May 17, 2013)

Dried Distillers Grain: 10% Moisture

Modified Wet Distillers: 50-55% Moisture

Wet Distillers Grains: 65-70% Moisture

CALIFORNIA WHOLESALE FEEDSTUFF PRICES (Tue May 21, 2013)

Distillers Dry Grains 

  FOB Truck Offers 276.00-286.00 dn 10.00-2.00 

  Rail Delivered California Points Offer 282.00 up 12.00-2.00

PACIFIC NORTHWEST WEEKLY FEED (Tue May 21, 2013)

*All prices quoted per ton unless otherwise noted.

Offers for Distillers Dried Grains delivered by rail to feed mills in the Pacific Northwest were 265.00-277.00, mixed, from 7.00 lower to 2.00 higher compared to week ago offers. Offers for distillers dried grains trans-loaded onto trucks and delivered to Willamette Valley dairies were 283.00-292.00, also mixed, from 7.00 lower to 2.00 higher compared to week ago offers.

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RFA WEEKLY U.S. LIVESTOCK FEED PRODUCITON

*Information from 2010 Weekly U.S. Fuel Ethanol/Livestock Feed Production report (http://www.ethanolrfa.org/…)

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IN THE NEWS

ICM Inc. Team Tests New Cellulosic Technology

ICM Inc. has been working on cellulosic conversion technology at its research facility in St. Joseph, Mo., since 2009 using a $25 million grant from the U.S. Department of Energy, according to an article by Ethanol Producer magazine (http://bit.ly/…).

Using five 15,000-gallon pilot fermenters and four 35,000-gallon hydrolysis/fermentation reactors in its pilot facility, ICM's patent-pending Gen 1.5 cellulosic technology is built on two types of proprietary technology: select milling technology and fiber separation technology. These two technologies can result in 14% great ethanol production yield and about 70% greater oil recovery, or the equivalent of producing the same ethanol production from 14% less corn.

The technology involves slightly more work on the front end of production with pretreatment and enzymatic hydrolysis. While ICM is working with several companies to develop a genetically-modified yeast, federal approval will be required before being used commercially, since they end up in the distillers grain.

The ICM research and development team recently completed a six-week run of its Generation 1.5 process and has pulled more than 2,000 samples during the run, besides other extensive testing. The research and development team is preparing for a similar run on the Gen 2 cellulosic ethanol process in late summer using energy sorghum as feedstock.

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DDG CONFERENCES

*Distillers Grains Technology Council Inc.'s 17th Annual Distillers Grains Symposium

The Distillers Grains Technology Council will hold its 17th Annual Distillers Grains Symposium on May 15-16, 2013, in Bloomington, Minn. For information, contact the DGTC office at (502) 852-1575 or (800) 759-3448, or check the DGTC website (http://www.distillersgrains.org).

(If you are sponsoring or know of any event, conference or workshop on distillers grains, and would like to list it in the DTN Weekly Distillers Grains Update, please contact Cheryl Anderson (see contact info below).

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DDG LINKS/RESOURCES

Organizations

*Distillers Grains Technology Council

http://www.distillersgrains.org

*National Corn Growers Association Corn Distillers Grains Brochure

http://ncga.com/…

*Iowa Corn

http://www.iowacorn.org/…

*Renewable Fuels Association - Ethanol Co-Products

http://www.ethanolrfa.org/…

*American Coalition for Ethanol

http://www.ethanol.org/…

*U.S. Grains Council

http://www.grains.org/…

*South Dakota Corn Utilization Council

http://www.drieddistillersgrains.com

Government Sites

*Iowa Department of Agriculture and Land Stewardship/Office of Renewable Fuels & Coproducts

http://www.distillersgrains.com

University Sites

*University of Minnesota - Distillers Grains By-Products in Livestock

and Poultry Feed

http://www.ddgs.umn.edu

*University of Illinois - Illinois Livestock Integrated Focus Team Distillers Grains site

http://ilift.traill.uiuc.edu/…

*University of Nebraska - Beef Cattle Production By-Product Feeds site

http://beef.unl.edu/…

*University of Nebraska Extension

http://ianrpubs.unl.edu/…

*Iowa Beef Center - Iowa State University

http://www.iowabeefcenter.org/…

*University of Missouri - Byproducts Resource Page

http://agebb.missouri.edu/…

*South Dakota State University - Dairy Science Department - Dairy cattle research

http://dairysci.sdstate.edu/…

(select "Distillers Grains" from the topic menu)

*Purdue University Renewable Energy Web Site

http://www.extension.purdue.edu/…

(select "Biofuels Co-Products from the menu)

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We welcome any comments/suggestions for this feature. Please let us know what information is valuable to you that we could include in the Distillers Grains Weekly Update. Please feel free to contact Cheryl Anderson at (308) 224-1527, or e-mail cheryl.anderson@telventdtn.com.

(AG/SK)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.

Critics Lament New COOL Rule

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- U.S. country-of-origin labeling for meat will continue to be controversial and divisive with greater potential scrutiny from the World Trade Organization and possible retaliatory measures from Canada.

USDA issued a final rule Thursday modifying country-of-origin labeling, commonly called COOL. USDA stated, "The final rule will ensure that consumers are provided with accurate origin information for muscle cut meats as Congress intended and bring the United States into conformity with its WTO obligations. The United States remains committed to ensuring that consumers are provided with information about the origin of muscle cut meats they buy at the retail level."

Yet, opponents of COOL on Thursday lashed out against USDA and the new labeling requirements. Those criticisms were loudest from U.S. meatpackers, feeders and Canadians.

Under the WTO process, the U.S. will have to ask the trade body to ratify its changes.

Gerry Ritz, Canada's agricultural minister, said he was not surprised, but disappointed with USDA's changes. He added Canada would do everything in its power to make sure the WTO understands its concerns over the labels.

"We are sure that this does not comply," Ritz said during a press conference, adding he saw no significant changes but the "same misguided direction" in the modifications USDA announced in its final rule Thursday.

A new labeling rule was required after the U.S. lost a WTO case last year to Canada and Mexico. The countries had argued the rule, which went into effect in 2009, discriminated against imported livestock, notably cattle and hogs. Canadian and Mexican livestock producers said markets for their livestock fell sharply after USDA began requiring the labels on U.S. meat products.

The rule released Thursday would modify labeling provisions for muscle cuts to require more information on where each of the production steps -- born, raised and slaughtered -- occurred. For instance, a steer born in Canada, but raised and slaughtered in the U.S. would be labeled effectively in that manner, "Born in Canada, Raised and Slaughtered in the United States."

For all domestic animals, the label would change from "Product of the U.S." to "Born, Raised and Slaughtered in the U.S."

Retailers also would be prevented from co-mingling muscle cuts from different countries in packaging. Currently, a label for multiple cuts of meat may state "Product of the United States, Mexico and Canada." Now, meat from animals from different countries will have to be segregated during processing to provide more accurate information.

National Farmers Union, which helped create COOL and has defended such labeling from the outset, stated Thursday the group is pleased USDA moved ahead with a new rule that NFU said would be in compliance with international rulings. "We further applaud the administration for deciding to take a proactive approach in bringing COOL into compliance by providing more information on the origins of our food, instead of simply watering down the process," said Roger Johnson, president of NFU.

Last week, backers of country-of-origin labeling touted a new survey from the Consumer Federation of America citing that 90% of Americans favor labeling the origin of meat.

The Canadian Cattlemen's Association argued Thursday that USDA failed to comply with the WTO rule. To suggest it complies is "absurd," said CCA President Martin Unrau.

"It is extremely frustrating that the United States is continuing to inflict these costs on Canadian producers," Unrau said. "USDA has demonstrated that they have no intention of attempting to end the discrimination and it is time they experience some consequences."

CCA called on the Canadian government to swiftly respond by publishing a list of retaliatory options to impose on U.S. products.

Ritz said Canada will analyze the changes, assess all options and expects to go back to WTO in the next month or two. He added that Canada is continuing to work with Mexico on this.

Ritz stressed that the WTO process takes time, but emphasized Canada has "no interest in backing off or backing down. If the Americans think this is a game of chicken, well, the cliff's in front of them."

Scott George, president of the National Cattlemen's Beef Association, also stated the group was deeply disappointed in USDA's actions, citing the retaliatory threats from Canada and Mexico. "While trying to make an untenable mandate fit with our international trade obligations, USDA chose to set up U.S. cattle producers for financial losses," George stated. "Moreover, this rule will place a greater record-keeping burden on producers, feeders and processors through the born, raised and harvested label."

George said NCBA backs a voluntary label used as a marketing tool. "However, USDA is not the entity that we want marketing beef, and on its face, a label that says 'harvested' is unappealing to both consumers and cattle producers."

Mark Dopp, vice president for regulatory affairs at the American Meat Institute, called it "incomprehensible" that USDA moved ahead with the new language on COOL. AMI argues the label would harm U.S. agriculture and agribusinesses. Dopp said politics is driving USDA's decision on COOL.

"This rubber stamping of the proposal begs the question of the integrity of the process: many people spoke, but no one at USDA listened," Dopp stated. "The decision to proceed with a rule that is more costly, complex and burdensome than the earlier version, when WTO and our trading partners have sent strong signals that this is no 'fix,' shows a reckless disregard for trade relations and for companies whose very survival is at risk because they rely upon imported livestock."

AMI argued COOL cost the meat sector $500 million in 2009 alone, when the labeling provision went into effect. USDA stated in March that its new labeling rule would affect 3,038 livestock packing and processing facilities, 30,156 supermarkets and warehouse clubs, as well as 156 chicken-processing plants. The White House Office of Management and Budget stated it will cost those facilities an estimated $32.8 million to implement the changes.

DTN Associate Managing Editor Elaine Shein contributed to this report.

Chris Clayton can be reached at chris.clayton@telventdtn.com

(SK/CZ)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.

Senate Backs Insurance AGI Cap

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Larger farmers would have to pay higher crop-insurance premiums under an amendment added to the Senate version of the farm bill on Thursday.

Repeating a provision they introduced last year, Sen. Dick Durbin, D-Ill., and Sen. Tom Coburn, R-Okla., got senators to back a plan that would lower the premium subsidy for farmers making more than $750,000 adjusted gross income. The vote was 59-33 despite opposition from leaders on the Senate Agriculture Committee.

Senators spent most of Thursday afternoon debating crop-insurance amendments before shutting down debate on the farm bill until they return from a break on June 3.

Under the Durbin-Coburn provision, those farmers making more than $750,000 would see their premium subsidy lowered from 62% to 47%.

Durbin and Coburn said their amendment would affect about 20,000 farmers and save $1 billion over 10 years. They also each noted that roughly 4% of farmers account for nearly 33% of all the premium support for the federal government. Those figures come from a Government Accounting Office report last year.

Durbin pointed to some large, diverse operations that have large amounts of premium subsidies now, including one farmer who received $1.8 million in premium subsidies last year. Another farmer's insurance premium was subsidized to the amount of $1.6 million. Durbin pointed out the administrative and operating costs paid on that one multi-state policy was $433,000.

"If we can't say to the 1% of farmers, the wealthiest of the country, that you are going to take a slightly diminished federal subsidy for your crop insurance, then we are not very good budget cutters," Durbin said on the floor Wednesday.

Coburn noted everyone receiving federal assistance is going to face tighter requirements and means testing over time and users of crop insurance are no different.

"On every other program, we are going to ask those who have more to participate more," Cochran said.

Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., had largely been able to stave off changes to the farm bill this week on the floor. That wasn't the case with the Durbin-Coburn amendment despite her arguments that it would put at risk an agreement struck between farm and conservation groups.

Stabenow also noted higher premium costs could prompt large farmers to stop buying crop insurance altogether. "Crop insurance is insurance. The farmer gets a bill, not a check," Stabenow said.

Coburn countered that large farmers would still make an economic decision to buy crop insurance. "They won't go out because it's still too much of a sweetheart deal."

Durbin also said he supports tying conservation compliance to crop insurance premium subsidies anyway. "I don't think it's too much to ask for farmers participating in the crop insurance program also participate in conservation practices to protect farmland across this country," Durbin said.

The House Agriculture Committee version of the farm bill does not include any means testing for crop insurance, nor does the House bill tie conservation compliance to eligibility for the crop-insurance premium subsidy.

The Sustainable Agriculture Coalition issued a statement praising senators for backing the Durbin-Coburn amendment. "We are delighted the Senate held firm for common sense reforms that strengthen the farm safety net. By once again passing the Durbin-Coburn amendment, the Senate is on record in support of reform that aids family farmers, reduces incentives to environmentally harmful overproduction, and saves the taxpayer money."

In another vote related to crop insurance, senators also voted 94-0 to expand efforts to root out fraud in the program through better data mining efforts. Sen. Kay Hagan, R-N.C., offered the amendment, citing a major federal crop-insurance fraud case in her state. Hagan said the amendment's cost was minimal, but would generate substantial savings by reducing crop-insurance fraud.

Another amendment that would have eliminated all crop-insurance premium subsidies for tobacco farmers was defeated in a 44-52 vote.

Chris Clayton can be reached at chris.clayton@telventdtn.com

(AG)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.

Ask the Taxman by Andy Biebl

By Andy Biebl
DTN Tax Columnist

DTN Tax Columnist Andy Biebl is a CPA and tax partner with the accounting firm of CliftonLarsonAllen LLP in Minneapolis, Minn., and a national authority on agricultural taxation. To pose questions for upcoming columns, email AskAndy@dtn.com.

QUESTION:

We are in the process of doing estate planning. We are in our mid-60s and have two sons who are married. We are residents of South Dakota and our assets are worth approximately $8 million, with the farm land about $5 million of that total. Our attorney is proposing a Revocable Trust for each of us, but is also proposing a Dynasty Trust provision in the Revocable Trust. This is explained to us as protection for our children from creditors, particularly from a divorcing spouse.

I understand a third party must be involved as a trustee, but it seems it could really handcuff our children. What are your thoughts regarding a Dynasty Trust and when it should be used? Is there anything else we should consider to protect the land other than a Dynasty Trust?

ANSWER

Years ago, various states had statutes that prevented a trust from extending through multiple generations. This was known as the "rule against perpetuities" and it was designed to prevent the wealthy from tying up assets in trusts that continued through many generations of their heirs. But those rules have been reversed in many states; a Dynasty Trust is one of the results.

The key feature of the Dynasty Trust is its ability to skip a generation or more with respect to distributing the assets to your heirs. If properly structured, it can avoid the estate tax on those assets to your heirs for one or more generations, assuming a willingness to "lock up" the assets for a long-term timeframe.

The best application for a Dynasty Trust is for those with high net worth who want to bypass the estates of their children and essentially skip a generation or two before the wealth comes out and is again exposed to another round of estate tax. But your question indicates a net worth of $8 million, which is less than a married couple's combined estate exemptions of $10.5 million. Your estates, as well as each of your sons, should be clear of the federal estate tax.

The negative, as you have identified, is that your sons are restricted from direct access to the assets within the Dynasty Trust. This Trust would come into existence at the second of your deaths, and essentially holds the land without distributing it to your sons. It does provide creditor protection, so you need to weigh protecting from that risk against the "handcuffing" of your sons.

The trust income will be taxed each year, whether it is taxed to the trust or to the beneficiaries (your sons or their heirs). If trust income is retained, beware of the high trust income tax rates. Essentially any undistributed income retained by the trust above about $12,000 per year is taxed at the top bracket. The annual income distributions can be flexible ("discretionary" in trust lingo), but in that case you should use an independent trustee, not a family member or beneficiary as trustee. In addition to the detrimental income tax rates, trusts are also prohibited from claiming the Section 179 first-year depreciation deduction; this could be important if the trust is ever going to purchase depreciable equipment.

If the primary objective for the Dynasty Trust is to hold the land together and protect against either son selling it or losing it to a creditor or ex-spouse (rather than estate tax "skipping"), you may wish to consider a Family Limited Partnership or other limited liability entity.

These FLP entities are taxed like a partnership, and have much more flexibility for the children. But the partnership agreement can effectively force them to hold the land together. The document can be drafted in a way that makes it hard for creditors to get much more than the annual share of the rent of any partner. Also, the document can contain lengthy buy-out terms that effectively are a disincentive to an heir who wants to cash out. And yet, if one of the sons or their family members want to operate the land, the agreement can assure that the family member has the first access under reasonable rental rates. In addition, the existence of the partnership with its restrictive terms in favor of family successorship will cause some discounting of the value within your estate and that of your sons, so as to further minimize the risk of any federal estate tax. Finally, because the net income all passes through to individual returns of the partners, there are no detrimental income tax rates or Section 179 rules.

EDITOR'S NOTE: For more articles on estate and succession planning go to the Senior Partners series at InDepth http://www.dtn.com/…

(CZ)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.

Eastern Livestock Owner Sentenced

OMAHA (DTN) -- Thomas Gibson, the former head of cattle brokerage Eastern Livestock Company, has been convicted of mail fraud as part of a check-kiting scheme that sent $130 million of bad checks to cattlemen and businesses across the country.

This latest conviction in U.S. District Court in Kentucky focused on federal charges against Gibson, now 73. He was sentenced to 70 months in federal prison along with two years of supervised release. Former chief operating officer of Eastern Livestock, Michael Steven McDonald, age 61, was sentenced to 57 months in federal prison and two years supervised release for his part in the multi-million dollar scheme. There is no parole in the federal system.

"Gibson and McDonald caused widespread damage to the livestock industry and devastating harm to numerous individual cattle farmers in Kentucky and elsewhere," stated David Hale, United States Attorney for the Western District of Kentucky, in a news release. "Many other businesses associated with the livestock industry were also damaged by the Eastern Livestock fraud. These lengthy prison sentences hold Gibson and McDonald accountable for their federal crimes."

These two men had previously been sentenced on state charges. The new federal charges will run concurrent with the state charges, which added up to 10 years jail time for both Gibson and McDonald. The state charges followed a guilty plea by the two men to the following: one count of criminal syndication, engaging in organized crime, 17 counts of complicity by theft by deception over $1,000, 144 counts of complicity to theft by deception over $500 but under $1,000, and 11 counts of complicity to theft by deception of less than $500.

Gibson and McDonald admitted they were part of an ongoing "criminal collaboration" between 2009 and 2010, which involved theft, falsely inflating accounts, and check kiting. In Kentucky, about 200 cattlemen were issued checks for their cattle that did not clear the bank.

To date some $600,000 has been paid in restitution to producers, and more checks are expected to be issued in the months to come.

In an earlier article reporting on the state charges, DTN Markets Editor Katie Micik spoke to Edmonton, Ky., cattleman Gary Bell. He sold 20 steers to Eastern Livestock in November 2010. His check, like others sent to ranchers and feedlots around the country, didn't clear.

Following the state convictions, Bell said: "We're pleased that the AG's office did what they did and we got restitution, but it is bittersweet because a lot of people suffered consequential damages that the restitution will not fully cover." Bell told DTN some ranchers he knew couldn't cover property taxes that year, and some still owed money on the cattle Eastern bought and had to mortgage other property to pay the bank.

Hale said the seizure of $4.7 million early on from the defendants' accounts preserved what he described as a "significant portion of the crime proceeds" which can be distributed to the victims. The disbursement is being handled through two bankruptcy cases pending in Indiana, and the forfeiture action brought by Hale's office in federal court in the Western District of Kentucky. The bankruptcy cases are still ongoing but are nearing their final stages.

Before its downfall, Eastern Livestock was one of the biggest cattle broker operations in the U.S. It worked in 11 states until they were closed down November 2010 after issuing bad checks to more than 700 ranchers and businesses. The plea agreement says defendants Gibson and McDonald were involved in fraud and check kiting for nearly 6 years, from August 2004 to November 2010.

(KM/CZ )

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.