Get in on the biodiesel gold

The time is now for farmers:

Biodiesel opportunities may be limited
By MATTHEW WILDE

IOWA FALLS --- Biodiesel is like black gold, and industry experts say the time to cash in is now.

In Iowa Falls, the world's largest biodiesel plant is only months away from production. Many others are planned in the state. Officials say that is a good indication profitability exists in the industry, but they warn farmers not to wait too long get a piece of the action.

"The window of opportunity is now. I'm not sure if that will be the case later as large corporations come in and just build," said Mark Muench, an Ogden farmer and biodiesel consultant specializing in producer-owned plants. "In two or three years I think growth will ... level off."

Iowa produced 28.5 million gallons of biodiesel last year. About 75 million gallons was consumed nationally.

According to the Iowa Soybean Association, the state has four biodiesel plants, two under construction and 10 to 15 in the organization or feasibility study phase. If most of these plants are built, the state's production capacity will top 400 million gallons by 2010. States like Minnesota are also embracing the environmentally friendly fuel.

"Every corner of the state is looking at plants. ... If Iowa has 20 plants and nothing changes, it would certainly be possible to be over capacity," said Karen Andersen, ISA director of marketing.

Muench --- supplying expertise and capital --- helps biodiesel plants get off the ground. He's involved in projects at Wall Lake, Farley, Washington and Newton. It takes a minimum of 18 months to raise money and build a biodiesel plant if everything works out perfect, he said.

Biodiesel doesn't have the acceptance of its cousin, ethanol --- 4.3 billion gallons of the corn-based fuel was blended with gasoline last year. Future demand will dictate the profitability of biodiesel, Muench said. That's why it's important to start producing as soon as possible.

Experts believe established plants with a stable of buyers will be more successful.

"It's important Iowans own plants first. That's what value-added is all about," Muench said.

There are several reasons biodiesel production isn't booming in Northeast Iowa like ethanol. Four ethanol plants are either producing fuel, in the planning stages, under construction or expanding.

Ethanol has enjoyed more tax breaks, giving it a cost advantage at both the production and retail level. The infrastructure to get ethanol from plants into vehicles is more advanced. Ethanol has been on the market for more than two decades, compared to less than one for biodiesel.

And, refined products like soybean oil are needed to make biodiesel. Ethanol turns raw material like corn into ethanol. Plants aren't dependent on other companies. Soybean oil prices may be up even if soybean prices are down, which will cut into biodiesel profits. Ethanol producers don't have to worry about that, making the industry attractive to investors.

It wasn't until last year that biodiesel became competitive with ethanol and petroleum-based diesel. A $1 per gallon federal blenders credit was approved along with a federal tax credit of $1.5 million a year for investors in plants up to 30 million gallons. A state income tax credit of 5 percent to 10 percent is also available for biodiesel investors.

"This created an explosion of interest," Muench said.

Cargill is building a 37.5-million-gallon biodiesel plant and a 30-million-pound glycerin refinery next to its soybean crush facility in Iowa Falls. Company officials hope to turn the 35 million bushels of soybeans it crushes at the plant into fuel by the beginning of May.

Jim Sutter, vice president of Cargill's grain and oilseeds supply chain, believes the company is expanding its biodiesel production just in time. The $33 million Iowa Falls facility will be Cargill's first in the United States, though it has plants in Europe.

"We viewed being one of the first a good thing. We hope demand will be there," Sutter.

The ethanol industry went through the same growing pains 20 years ago, Sutter said. Today its thriving, he said.

Renewable fuels experts currently peg the return on investment for ethanol plants at 20 percent to 30 percent a year.

Farmers Cooperative, based in Marble Rock, is considering building a new 30-million-gallon biodiesel facility. The co-op used a $100,000 federal grant to do a feasibility study. The results were positive --- an equity drive is expected to begin later this month.

Steve Bodensteiner, co-op general manager, wouldn't reveal profit projections for potential investors, but he said it's similar to ethanol. Timing has a lot do with it, he said.

"Presently, it's a very viable industry. Let's put is this way, it's (profit potential) good," Bodensteiner said.

The 7.5-billion-gallon federal renewable fuels standard passed last year will boost demand. The soybean association projects biodiesel consumption nationwide will increase from 30 million gallons in 2004 to more than 700 million gallons by 2012.

However, the soybean association said more biodiesel retail outlets are needed in the state to give it mainstream acceptance. Last year there were only 52. Until that time comes and biodiesel is convenient for all drivers and retailers to get, investing in the industry is not a sure thing.

"We encourage people to look into the business aspect and not the emotional one," Andersen said. "We all like fuel made in America, but there is such a sting as the industry growing too fast. We don't want plants to fail."