Biodiesel Bonanza

Farm Journal, Sep 28, 2005 by Jeanne Bernick

Hollywood maven Daryl Hannah unfolds her long legs from a vintage 1983 El Camino and takes a stand for the environment by filling up with 100% biodiesel.

Missouri soybean farmer Neal Bredehoeft steps down out of his John Deere 8400 tractor and fills it up with a 2% biodiesel blend in an effort to buoy soybean prices and liberate the U.S. from foreign oil. These individuals and their purposes are miles apart, but both agendas are impacting the fledgling biodiesel industry.

Domestic biodiesel production and use have grown from 500,000 gal. in 1999 to 25 million gallons in 2004, reports the National Biodiesel Board (NBB). By the end of 2005, NBB expects annual production to be an additional 100 million gallons.

A helping hand. Cost has always been a limiting factor to biodiesel demand. This year, the government provided a tax incentive to blenders to drop cost by $1/gal. for biodiesel made from ag feedstocks like soybeans and 50cents/gal. for biodiesel made from other sources like recycled cooking oil. The result: Biodiesel blends in some places sell for about the same price as regular diesel, and usage is on the uptake.

"We're where the ethanol industry was 10 to 15 years ago," says Joe Jobe, NBB executive director. The ethanol industry excise tax credit was passed in 1979. In 1980, it had about 30 million gallons in sales. Today, ethanol is estimated at 4 billion gallons in sales.

Soybean producers like Bredehoeft hope biodiesel carries the same magic ethanol did for corn. Ethanol provides an average 13.3% annual return on investment over 10 years to a farmer who invests $20,000 in an ethanol plant, reports the Renewable Fuels Association. Corn producers in areas surrounding ethanol plants typically see 10cents more per bushel for their corn.

"I think if biodiesel follows the trend of ethanol, we will see basis increase in areas where plants are located," says Bredehoeft, who is chairman of the American Soybean Association.

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri estimates that for every 100 million gallons of biodiesel sold, farmers will see a 10cents/bu. increase in the soybean price. Based on USDA estimates for future soybean production, over a five-year period, the tax incentive could add $1 billion to U.S. farm income.

Depending on a number of other factors, including spikes in crude oil prices, demand could grow higher. "We think biodiesel will have as big an impact on the diesel market as ethanol did on gasoline," says Nile Ramsbottom, executive vice president of West Central, which owns a 12-million-gallon biodiesel plant in Ralston, Iowa. "Diesel fuel is the industrial fuel of our nation, so it will always be needed. Now with the tax incentive, more consumers outside the ag sector are using biodiesel."

Ramsbottom says West Central has seen increased demand since the tax incentive went into effect in January. Rodney Christianson, CEO of Minnesota Soybean Processors, predicts the biodiesel industry will grow to 300 million gallons, and eventually to 800 million or even 1 billion gallons. But he believes it's unfair to compare the ethanol and biodiesel industries.

"Everyone compares biodiesel to ethanol, but they are different," says Christianson, whose company recently opened a 30-million-gallon biodiesel facility in Brewster, Minn. "With soybeans, you are a feed producer first and an oil producer second." Soybeans are about 80% protein meal and 20% oil. As a result, soybeans must first be crushed to get the oil out that is then processed into biodiesel. Comparatively, when corn is brought into a dry- mill ethanol facility, the unprocessed corn is used as raw material for ethanol.

Soybean oil is the dominant feedstock, representing about 90% of biodiesel. Of the total available fats and oils in the U.S., about half is soy oil. The other half is made up of animal fats, yellow grease and other virgin plant oils.

"As volume of biodiesel increases, the feedstock used will more closely resemble the percent of materials available from different sources," Jobe says. "However, soy is likely to remain the single largest feedstock." In part, that's because soybeans and other oilseed crops can be bred to produce higher oil content in response to increased demand.

The reality remains, however, that U.S. consumers use only 55 billion gallons of diesel fuel annually, about one-third of the gasoline market. Among passenger vehicles, diesel vehicles represent only 4% of U.S. sales.

Bumps in the road. Another obstacle in the young biodiesel industry is the lack of a solid distribution infrastructure and availability at retail pumps. Fuel quality is also a concern. The World Wide Fuel Charter, which compiles a list of fuel requirements endorsed by auto and engine manufacturers, only recommends biodiesel blends of up to 5% (B5) in the U.S.

Despite education efforts, consumers remain confused on whether their engine can handle biodiesel. Biodiesel blends of B2, B5 and B20 are safe for any diesel engine, NBB states.