Biodiesel's challenge

Watch General Manager Stan Polivick talk about the facility.

LILBOURN, Mo. -- The tan metal building at the edge of the Lilbourn city limits is nondescript -- just another metal building, this one in the shadow of a water tower with a grouping of large, shiny, vertical metal tanks outside.

This is farm country, where corn and bean fields stretch for miles through flatlands; where tractors are as plentiful as cars; and where metal buildings are used to store just about anything. But this metal building doesn't store farm implements -- it houses Great Soy River Processing Cooperative, a biodiesel plant expected to start operations soon.

Great River Soy is one of four plants either operating or planned in Southeast Missouri. All of them are in small, rural communities where, like in much of the Midwest, the buzz words in agriculture are "alternative fuels" and "value-added." While ethanol has gotten more attention, biodiesel plans and facilities have sprung up across the state, and in Illinois. A 70-million-gallon per year plant is planned for construction in the economically disadvantaged Cairo, Ill.

Stan Polivick is general manager of Great River Soy Processing Cooperative in Lilbourn, Mo. (Fred Lynch)

But the new industry still faces a big challenge from the very thing soybean farmers love about biodiesel -- high soybean prices. Increased demand for biodiesel production and a smaller soybean crop have driven soybean oil prices well above their average over the last three years.

"Soybean oil is almost 90 percent of the cost of production," said Stan Polivick, general manager of the Great River Soy Processing Cooperative. "It's been unnerving for us. Two plants within 50 miles of us are trying to produce, but they're struggling to make a profit."

About 7.5 pounds of soybean oil go into a gallon of biodiesel, and that oil has climbed nearly 40 cents a pound this summer.

Polivick said he's heard rumors some plants in other parts of the state may close due to the high cost of the oil, one of several feedstocks that can be used to produce biodiesel.

But his forecast isn't all gloom. Such struggles are at the heart of any new industry, he said.

Expecting demand to rise

Demand for biodiesel is expected to rise, and the industry will adjust to meet that demand even if soybean oil prices are high, said Amber Thurlo Pearson, a spokeswoman for the Missouri-based advocacy group the National Biodiesel Board. A report prepared last summer for the biodiesel board said demand is expected to rise from 75 million gallons in 2005 to 650 million gallons by 2015.

With high soybean oil prices, operating plants are looking at ways of streamlining operations by becoming more efficient or using different feedstocks to produce biodiesel, which can be made from a variety of vegetable oils and animal fats.

At Global Fuels LLC, a 3-million-gallon-per-year facility in Dexter, Mo., poultry grease has been used for up to 75 percent of the feedstock, said plant manager Tim Hutchcraft.

Fuels produced with animal fats or other oils still meet federal fuel standards.

"Soybean oil is expensive for the price of fuel, but you just try to run as efficient as you can," Hutchcraft said. "It's early on. It's just a tough market. Until you run it for a while, it's hard to say exactly how much you can make."

Some producers are reluctant to use feedstocks derived from animal fats, though, due to concerns the biodiesel will jell up during cool weather more easily than soybean-oil-based biodiesel and petroleum-based diesel. Governments and biodiesel advocates say that's a myth.

Because of the suspected jell factor, some distributors don't even sell biodiesel during the winter, like Jackson's Co-op Service Center. The center sells a 2 percent biodiesel blend, something manager Jim Hope says a portion of the clientele actually requests. Hope said the company transports about 8,000 gallons of the blend to its customers every week.

Government support

State and local governments have put their support behind biodiesel, hoping the young industry will sustain and help create a brighter future for rural areas. Because of the Missouri Qualified Biodiesel Producer Incentive Fund -- which gives a 30-cent-per-gallon grant to facilities owned at least 51 percent by Missouri agricultural producers or using feedstock that's 80 percent of Missouri origin -- farmers have large stakes in Missouri facilities. And it's hoped they will then pour their profits into local economies. The federal government also offers subsidies for biodiesel production. All of that helps insulate the industry from the growing pains of finding true economic viability.

Biodiesel also creates jobs. Polivick said Great River will pay its employees $12 to $14 per hour plus benefits. Such jobs have local governments enthusiastic about new plants.

According to studies by biodiesel advocacy organizations, the economic benefits of biodiesel are already being seen in Missouri. Adam Buckallew, spokesman for the Missouri Soybean Association, said studies show biodiesel production will add $278 million in personal income and 268 jobs annually for the next 10 years in Missouri.

"When they approached the city, it was really a shot in the arm for us, because Lilbourn at the time didn't have any industry," said Lilbourn Mayor Dale Ray.

Like other small towns in Southeast Missouri, Lilbourn's economy has suffered as goods and services have become consolidated in larger population centers. The city secured a $850,000 grant to improve infrastructure to accommodate the plant and donated the land the plant was built on.

On top of that are construction dollars. The average plant with a companion soybean crushing facility costs about $10 million to build.

Great River has plans for a soybean crushing facility in the future, which will go a long way to insulate the operation from fluctuating soybean oil costs. Like many other biodiesel groups, Great River is also farmer-owned. Buckallew said in farmer-owned operations, high prices for soybeans and their oil can have an evening effect -- the higher prices farmers get for their soybeans helps cushion them from lower profits or losses due to the high cost of feedstocks.

Those in the biodiesel industry are convinced the alternative fuel will retain its viability in the future, especially because diesel engines require little or no modification to use the fuel. In Missouri alone, production is expected to total around 150 million gallons in 2008.

Won't affect food prices

However, the coming months could get tougher for biodiesel facilities that rely on soybean oil. If drought conditions don't let up and soybean yields are reduced significantly, a scarce product could cause prices to go up.

But Buckallew said there's no concern about the effect on food prices, since soybean meal -- the primary soybean product used for food goods -- is a byproduct of the crushing process that creates soybean oil.

"Not many people eat whole soybeans," Buckallew said.

msanders@semissourian.com

335-6611, extension 182