Down to the Last Drop (of Biodiesel): Price of Soybeans Hits Biofuels Processors, Users Hard
The Star Tribune (Minneapolis) (KRT) via NewsEdge: May 25--High prices have thrown off the business plan at Peace Coffee. But it's not the price of coffee or oil that's the problem. It's soybeans.
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Now, with skyrocketing prices of both soybean oil and diesel fuel -- key ingredients in biodiesel -- the company is hard pressed to find anything but the standard diesel sold at pumps.
"When we made the commitment to buy the van, we did it because we were committed to biodiesel and believe it is a better way to power a vehicle for us," said Lee Wallace, the company's CEO. But the lack of availability has the company concerned. "It's a struggle."
In yet another ripple caused by the high price of food, a threefold increase in the average price of soybean oil has sparked a dramatic slowdown in the nation's biodiesel industry. Biodiesel plants have shuttered. Construction delays at new plants are widespread. Locally, the only metro area gas station that sold biodiesel has shelved plans to bring it back, citing its high cost.
"It's priced itself out of the market," said David Morris, an energy expert with the Institute for Local Self-Reliance, a Minneapolis think tank.
Still, in the middle of the upheaval, the state earlier this month passed a biodiesel mandate that calls for 20 percent of diesel sold in the state by 2015 to come from renewable sources.
The mandate requires a blend of 5 percent biodiesel in all diesel sold in the state by May 1 of next year. The percentage climbs to 10 percent by 2012 before reaching 20 percent three years later. Diesel fuel sold in Minnesota today contains 2 percent biodiesel, courtesy of a 2005 mandate, the nation's first when it was signed into law in 2002.
The state's mandate is by far the nation's strongest, with just four other states having biodiesel mandates of any kind, none of them yet in effect. New Mexico will require B5 for all diesel by 2012. Smaller blends of 2 percent will begin soon in Washington state, Oregon and Louisiana.
Losing $1 a gallon
But, at least in the near term, biodiesel supply is troubled.
One of the state's two largest plants, the 30 million-gallon-a-year Soymor plant near Albert Lea, which opened three years ago, shut down in March rather than pay the high cost of soybean oil. "You can't operate a plant that loses money. It doesn't make any sense," said Gary Pestorious, chairman of the board of governors of SoyMor Biodiesel LLC.
When it shut down, the plant was losing $1 for every gallon of biodiesel it produced. The plant will eventually reopen, Pestorious said, but only when the price of soybean oil drops.
He's hardly alone: The East Fork Biodiesel plant, a 60 million-gallon plant in Algona, Iowa, closed recently, as did a New Jersey biofuel producer. The openings of new plants in Emporia, Kan., and New Orleans have been delayed as has construction of a plant in Beatrice, Neb. And the Renewable Energy Group, an Ames, Iowa, company that manages seven biodiesel plants, withdrew its initial stock offering in late March.
Eventually, the industry says, things will get better.
"The biodiesel industry is viable for the long term," said Amber Thurlo Pearson, a spokeswoman for the National Biodiesel Board. Some plants have begun using nonedible feedstocks to produce biodiesel. And Congress will help next year with a new biodiesel mandate, requiring blenders and refineries to include 500 million gallons of biodiesel in the nation's diesel supply. It climbs to 1 billion by 2012.
Looking for algae
Biodiesel, made from soybeans primarily but also animal fats and waste oils, has become much more popular much more quickly than most analysts imagined. The nation produced 25 million gallons in 2003, rocketing to about 450 million gallons last year, according to the National Biodiesel Board. Many of the 171 companies producing biodiesel in this country are making less than they could with their existing plants, and with expansions and new plants scheduled to come online this year, the industry has the machinery to produce 3.7 billion gallons, according to the trade group.
High prices make that unlikely.
The price of soybean oil has climbed from about 25 cents a pound in early 2005 to 62 cents a pound today, according to Bloomberg market data. Some 80 percent of the nation's biodiesel comes from soybeans.
National average wholesale prices of biodiesel recently were $4.89 a gallon for pure biodiesel, $4.05 for B20, a blend of 20 percent biodiesel and 80 percent standard diesel fuel, and $3.85 a gallon for B2, which is 2 percent biodiesel. Standard diesel fuel, by comparison, sold at $3.84 a gallon. Prices in Minnesota were similar.
The industry is placing a bet that the high price of oil will make it economical again someday to produce biodiesel. Either that, or new technologies to make biodiesel out of algae or other crops will have to make up the difference.
"We've seen a lot of promise," said Jim Kleinschmit, director of the rural communities program at the Institute for Agriculture and Trade Policy in Minneapolis. "I have more faith that it's coming."
Searching for fuel
Meanwhile, drivers looking for biodiesel at the retail pumps have gone wanting.
Jim Johnson, the owner of Northfield Amacon, sold B99 last summer but has since stopped.
"It's no longer financially feasible to even sell it," said Tim Teachout, owner of T & T Automotive in Richfield. He sold B20 biodiesel last summer and at the time was the only gas station in the Twin Cities to offer the fuel. A gallon of B80, one of the highest blends he's sold, would sell for $5.75 a gallon now, he said.
"I get literally three, four, five calls a day from people asking for it," he said. "It was just as good as diesel fuel, and overall a better deal, but with everything there's a financial price."
Matt McKinney -- 612-673-7329
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