Stalled markets hitting home

May 3, 2010
| By Pete Daly |
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About four years ago, Michigan BioDiesel LLC in Bangor was preparing to begin production of what it hoped would be at least 10 million gallons a year of biodiesel, which is mixed with straight petroleum diesel fuel to help reduce air pollution and help reduce U.S. dependence on foreign oil.

It also creates a new market for farmers, particularly soybean growers. Michigan BioDiesel was formed by 57 farmers and eight biodiesel distributors and other related businesses, and was expected to create about 22 new jobs in Bangor, a small rural community in Van Buren County.

Today, a crew of five or six, including some part-time, work in the plant, which has not produced any biodiesel for more than a year, according to CEO John Oakley. Instead, they have managed to keep the doors open by processing the crude glycerin that is a byproduct of biodiesel production, and selling it for a variety of uses. Oakley gets the crude glycerin from a few remaining biodiesel plants still functioning in the Northeastern United States and Canada.

“We’ve come to the point of being a green chemical company,” he said. “That’s how we’ve come back and been able to somewhat survive,” he added.

Oakley estimated that about 100 of the 178 biodiesel plants built in the U.S. in the last few years have ceased production.

A Michigan State University agricultural economist said a more Western-type diet popular among the growing middle class in China and India is one of many reasons biodiesel production has stalled in the U.S.

“Right now, production (of biodiesel) is virtually zero,” said Bill Knudson, of the MSU Product Center for Agriculture and Natural Resources. He is referring to production primarily in Michigan, “but it is way down everywhere.”

“There’s a lot of interest in biodiesel, but right now the economics make it very difficult for it to be successful,” added Knudson.

The interest is evident. For example, at the two-day Michigan Energy Conference at Ferris State University in early April, professors Russ Leonard, Pat English and Darren Wilson presented a hands-on how-to about how to make biodiesel fuel.

Knudson said the two primary types of raw material for making it are vegetable oil — “which in Michigan means soybean oil” — and animal fats in the form of used cooking oil from restaurants or animal tallow left over in butchering and processing operations, such as the turkey processing plants in West Michigan.

Soy oil is thought to be the key ingredient in more than 50 percent of all biodiesel made. The economics that got in the way of biodiesel production in the last two years was an increase in soybean prices and a simultaneous decrease in petroleum prices. Soybean oil went from about 22 cents per pound to 40 cents, according to Oakley.

Knudson said the MSU ag economists believe “the fundamental thing that’s driving increases in corn and soybean prices — the biggest one — is increasing demand in foreign countries.”

As the Chinese and Indian economies take off, he said, the people are beginning to eat “more and more like Westerners,” meaning they’re eating more meat and poultry, which pushes up demand for animal feed grains, according to Knudson.

He said the Chinese are raising more hogs, in particular, than they ever have.

When the price for soybean oil was still feasible, the Bangor biodiesel plant had been getting its oil from Zeeland Farm Services, according to Oakley. ZFS is a major soybean buyer and shipper, a worldwide enterprise that specializes in soybean meal and oil. Cliff Meeuwsen, president of ZFS, agreed that exports to China were keeping the beans higher priced. Another factor that moves prices up and down is soybean production in South America.

“This is a worldwide market we’re in,” said Meeuwsen.

Although the U.S. is “just barely” the largest producer of soybeans, South America — especially Brazil and Argentina — is a close second, he said, and closing the gap. Those countries have a very good crop of soybeans this year, which will tend to keep the price down in the U.S.

Other impacts on soybean prices here are the corn crop in China and palm oil production in India.

Meeuwsen predicted that the cap-and-trade regulation coming to the U.S. from the federal government to reduce carbon emissions “will cause a huge loss in (soybean) acreage,” while at the same time, he said, the EPA and other government agencies are making it very expensive to raise and process soybeans in the U.S. Add urban sprawl to the mix, which is reducing agricultural land, and “we’re going downhill and South Americans are going up” in soybean production.

In 2004, the federal government began subsidizing the biodiesel industry through a tax credit to fuel companies that blend biodiesel with straight petroleum diesel, equivalent to $1 per gallon. That subsidy ended Dec. 31, 2009, but there is pressure on Congress to renew it, and some feel that may happen before Memorial Day.

According to the National Biodiesel Board, 1.9 billion gallons of biodiesel were produced in the U.S. since the 2004 tax credit took effect. Cleaner-burning biodiesel fuel can reduce greenhouse gas emissions by as much as 86 percent, compared to petroleum diesel emissions.

Jessica Robinson, director of communications for the NBB, said there is “a laundry list of challenges that have faced the (biodiesel) industry in the last year.” She said the recession actually reduced demand for diesel fuel because consumers bought fewer goods, reducing the demand for shipping.

Tom Fehsenfeld, president of Crystal Flash Energy, said his company is still selling biodiesel fuel made from soybean oil coming mainly from a large farmers’ cooperative in Iowa and sometimes from plants in northern Indiana.

“There’s very little activity (in biodiesel production) here in Michigan,” Fehsenfeld said. “It’s difficult for that industry to produce under the current circumstances. They do require a subsidy to be economically viable, and Congress has just been dragging its feet.” Without the subsidy, he said, biodiesel fuel probably costs from 5 to 10 cents more per gallon than straight petroleum diesel.

“In the long run, I really think it’s going to be a great fuel for this country, and going to help us be energy independent. But it’s going through some growing pains right now,” said Fehsenfeld. “We’re continuing to believe in the long term for biodiesel, but we’ll have to see what develops over this next year or two,” he added.

Oakley said the federal tax credit is “most definitely” essential in allowing the biodiesel industry to compete with standard diesel fuel.

Although it was planned for 10 million gallons of annual production, he said the Bangor plant probably has an actual capacity of about 17 million gallons of biodiesel a year. It produced 7 million gallons in 2007, 3 million in 2008, and none in 2009.

Oakley said biodiesel is an inherently sustainable industry that will only get stronger with time and experience. The challenge is surviving the present. Like many other small businesses in Michigan, Michigan BioDiesel is facing problems getting its bank credit renewed so that it can continue operations.

Oakley drives from his home in the Lansing area every day to manage the Bangor plant, a round trip of 108 miles. Despite the challenges, he said he is determined to persist in the face of adversity.

“If the good Lord’s willing and there is (crude glycerin) to be processed, we will be there,” he said.

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