The energy security needs of energy importing nations continue to escalate. It is clear that biofuels can help meet some of the increasing need for energy. Theoretically, these can be produced from a variety of biological materials, including agricultural residues (such as corn stover and wheat straw), perennial grasses, legumes, algae, and other biological materials. Currently, however, the most heavily utilized material is corn starch. Industrial fuel ethanol production in the US primarily uses corn, because it is readily converted into fuel at a relatively low cost compared to other biomass sources. The production of corn-based ethanol in the US is dramatically increasing. As the industry continues to grow, the amount of byproducts and coproducts also increases. At the moment, the nonfermentable residues (which are dried and sold as distillers dried grains with solubles--DDGS) are utilized only as livestock feed. The sale of coproducts provides ethanol processors with a substantial revenue source and significantly increases the profitability of the production process. Even though these materials are used to feed animals in local markets, as the size and scope of the industry continues to grow, the need to ship large quantities of coproducts grows as well. This includes both domestic as well as international transportation. Value-added processing options offer the potential to increase the sustainability of each ethanol plant, and thus the industry overall. However, implementation of new technologies will be dependent upon how their costs interact with current processing costs and the logistics of coproduct deliveries. The objective of this study was to examine some of these issues by developing a computer model to determine potential cost ramifications of using various alternative technologies during ethanol processing. This paper focuses specifically on adding a densification unit operation (i.e., pelleting) to produce value-added DDGS at a fuel ethanol manufacturing plant. We have examined the economic implications of pelleting DDGS for varying DDGS production rates (100-1000 tons/d) and pelleting rates (0-100%), for a series of DDGS sales prices ($50-$200/ton). As the proportion of pelleting increases, the cost of transporting DDGS to distant markets drastically declines, because the rail cars can be filled to capacity. For example, at a DDGS sales price of $50/ton, 100% pelleting will reduce shipping costs (both direct and indirect) by 89% compared to shipping the DDGS in bulk form (i.e., no pelleting), whereas at a DDGS sales price of $200/ton, it will reduce costs by over 96%. It is clear that the sustainability of the ethanol industry can be improved by implementing pelleting technology for the coproducts, especially at those plants that ship their DDGS via rail.