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`Distillers Corn Oil and tÌþ Lo^/ Carbon Fuel Standard I Jacobsen Blog
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`HOME ¡ BIODIESEL, VEGETABLE OlL, AND GRAIN ¡ DISTILLERS CORN OIL AND THE LOW CARBON FUEL STANDARD
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`Dístillers Corn Oiland the Low Carbon Fuel Standard
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`Posted on Apr 26,2016 in Eiod¡esel,Vegetoble Oil, ond Gro¡n, News
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`Ryan Standard
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`With the LCFS in full swing and California's goats of offsett¡ng carbon continuing to ¡ntensiry into 2020, so hâs the
`demand for low Cl feedstocks for bio and renewable diesel production. Th¡s has been especially apparent in the
`dist¡llerscorn oil market, which has seen both price and usage increasesoverthe last few months.
`
`lnitially, bio and renewable diesel producers saw an opportunity for additional feedstock from the distilters' corn o¡l
`production, and ethano[ producers saw an add¡t¡onal revenue stream. Assum¡ng an annual biodiesel production
`capac¡ty of 2.1 b¡llion gallons, as repofted by the ElA, that translates [oosely ¡nto 16 billion pounds of feedstock needed
`to make said fuel, The combined production of US recycled products, exctuding distillers corn o¡1, ¡s 9 biltion pounds.
`That 7 biLlion pound gap teft a lot to be filled with higher priced virgin vegetable oils, and the addition of corn oil into the
`feedstock stream over the last few years has been a b¡g benefit to the industry.
`
`Now w¡th the California LcFS program incent¡v¡zing the use of recycled feedstocks or low Cl feedstocks, the demand for
`those 9 biltion pounds (11 biLlion with corn oil ¡ncluded) is even more pronounced. LcFs creditvalues have multiplied
`six fotd since this time last year, as more regulated pârties are taking note of their need to reduce their cl's with either
`credits or fuet to meet intens¡fied carbon reduct¡on goals. As credit values have increased, so has the usage of corn oil in
`biodiesel production. January 2016 set a record foi Jan usage at 94 million pounds.
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`Distillers Corn Oil and the Low Carbon Fuel
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`Cùlû Oil U¡qr ln Blodlrrl MuÊüon ¡nd Lcñs cr¡dlt valr
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`EIA corn oil usage in biodiesel product¡on (left y-axis) is shown aga¡nst the value of LCFS cred¡ts ¡n USS/[4T (right
`y-axis).
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`There are currently 29 plants registered with the cal¡forn¡a A¡r Resources Board (cARB), with a fuel production capacity
`of 1.33 bill¡on galLons per year. Nearty atl of these plants have multi-feedsiock pathways, ofwhich corn oiI is one. lf all of
`these plants were to suddenly decide to run 100 percent corn o¡1, the annual demand would be roughly 10.64 b¡llion
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`pounds or nearly 3.5 times the amount of distillers corn oil produced annually in the United States.
`
`Over the tâst three years, DCO values have tracked loosely with soybean oil, as has much of the animal fats market.
`There have been times, however, when DCo threatened to close the spread and perhaps surpass soybean oil prices. The
`substitutabit¡ty in biodieset is certainly present, but the per-galton difference in credit vatue is astonlshing at S1,2094
`per gatlon, assu ming an LcFs cred it value of S121/MT,
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`Figure 2.
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`[GFs Cltdlt v¡lu! per Grllon bv Faedstocl
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`http://blog.ttËjacobsen.com/20lddistillers-cornoil-andlhe-low-carbon-nlel-stendard/
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`1t3
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`HYDRITE EXHIBIT 1029
`Hydrite v. Solenis
`Trial IPR2015-1592
`(1 of 3)
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`

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`7t6t2016
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`Distillers Corn O¡l and the Lot¡v Carbon Fuel Standard I Jacobsen Blog
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`The value ofthe LCFS credits per gallon is shown for d¡stilters corn oil, yetlow grease, choice white grease and
`soybean oil for2015 - YTD 2016.
`
`Feed buyers buying oil for speciatty, alt-vegetarian diets, have fewer options when ¡t comes to subst¡tutes and input
`
`flexib¡l¡ty. Cost is certainly a big factor when considering feed inclusions, but the alternative all-vegetar¡ân options are
`few due to unfavorable results in the finished broiler that are caused by too much soybean oil or high usage of
`unsaturated fat in rations.
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`D¡¡tlll.r¡ com oll& NrÈy GME SBO 2013 - 2Ot6YTD
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`The average of Mo. River and lltinois distillers' corn oil FOB is shown along w¡th the CME nearby SBO price on a
`weekty basis from August 2013 - YTD 2016,
`
`.Sr,Ê JÈ -¡É irrìd vs¡.,'S.f.tr,tÈ
`
`Why the relationship to bean oil? Market size and tradition are Likely the reason, the "lt's what we have always done"
`explanat¡on dominates, even in such an immature market. We estimate that the percentage of ethanoL plants producing
`corn o¡l has grown from 50 percent in 2012 to 82 percent in 2016, With the growth in both production and demand,
`prices shoutd certainly start to break away as the Cl scores for d¡eset continue to r¡se and the demand for carbon offset
`rises along with it. A handful of facilities still do not have the abil¡ty to produce bìodiesel from corn oil, many ofthe
`properties that may make it favorable in broiter rations make it unfavorable to those without the proper feedstock
`treatment, wax, and color. st¡ll, the low Cl score and value ofcredits in the LCFS market have widened the spread to the
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`other recycled products.
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`F¡gure 4.
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`sH¡rd b.t$n.n oco ¡nd F¡tr
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`t!l ÌÌil Iililt!t rÌt¡ IÍl tÍ ilt
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`The difference between the average of DCO Mo, River and llLinois ¡s shown to the average of the Chicago Packer
`BFT, national yetlow grease, pouttry fat and Mo. River cWG prices.
`
`The Californla LCFS carbon intensity currently sits at 2 percent and a¡ms to reduce carbon intensitles 10 percent by
`
`2020. To get to thìs goat, a variety of resources and methods w¡ll need to be employed. All ofthe renewable fuels play a
`key part in this, and dist¡llers' corn oiI wilI cont¡nue to be a large piece of this complex puzzle, As more corn oit is
`demanded by renewable fuel producers, a d¡sconnect betwepn bean oil and corn oil seems inevitabl€, both because of
`low Cl values, but atso because of what many predict will be a rising LCFS credit market. Advancements in production
`technotogy witl continue to create additional demand avenues for corn oil sellers and shift the bulk of demand to the
`renew¿ble fuel sector, both in the United States and to the renewable fuel producers abroad,
`
`http://blog.thejacobsen.com/20lddistillers-cornoil-and-thelow-cerborÞfud-starìdard/
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`23
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`HYDRITE EXHIBIT 1029
`Hydrite v. Solenis
`Trial IPR2015-1592
`(2 of 3)
`
`

`
`7t6t2016
`
`Distillers Corn Oil and the Lovì/ Carbon Fuel Standard I Jacobsen Blog
`
`O The Jacobsen Slgn up forthe Jacobsen Contãct
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`Prlclng lnformãtlon llTfuStr¡mfæ' Blog Deslgned by strateg¡c eMerket¡ng
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`http//blog.tþacobsen.com/20lddistillers-corrroil-anó.thelo^/-carborrfud-standard/
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`3/3
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`HYDRITE EXHIBIT 1029
`Hydrite v. Solenis
`Trial IPR2015-1592
`(3 of 3)