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Biodiesel begins to bloom

Grain prices are in the dumpster. Costs of inputs, such as seed and new machinery, continue to spiral upward. And the weather? Well, you hope the guy upstairs listens to you.

But despite tough times, Team FIN member Jack Appleby sees one bright spot on the horizon. “We are looking forward to news of biodiesel!” says Appleby, who farms with his brother Gary near Atwood, IL.

Appleby's anticipation has merit. Blending this soybean-based fuel with petroleum-derived diesel could help raise soybean prices. For example, soybean prices would rise $0.05 to $0.09/bu. nationally if all diesel fuel sold in Minnesota was a blend of 2% biodiesel and petroleum diesel, says Douglas Tiffany, a research fellow in the University of Minnesota Department of Applied Economics. At a 5% biodiesel level, prices would rise $0.12 to $0.18/bu., he says.

Other benefits exist. Because it better lubricates engines, biodiesel reduces engine wear and extends engine life, Tiffany says. Biodiesel improves air quality by curbing petroleum-based diesel's harmful emissions. Its use also lessens U.S. reliance upon foreign oil.

“If biodiesel was more readily available in our area, we would try it,” Appleby says.

Where is it?

Yet, availability is biodiesel's Achilles' heel. Though most Midwestern farmers grow the product's raw ingredient, they cannot yet easily buy biodiesel.

“The distribution infrastructure for biodiesel just doesn't yet exist,” says Rocke Weaver, brands, product and marketing manager for Country Energy, Kansas City, MO.

Biodiesel's current plight mimics the situation with ethanol in the 1980s, when this corn-based additive struggled to make its way into the fuel supply. Now, nearly all Midwestern suppliers offer 10% ethanol fuel blends.

Fuel industry officials expect biodiesel to follow the same path. “Biodiesel is still in its infancy,” says Paul Fauser, general manager of the Fauser Oil Co., Elgin, IA. “But we think that there is marketing potential for it.”

Consumers agree. The National Biodiesel Board predicts that U.S. biodiesel producers will manufacture 20 million gallons of biodiesel in fiscal year 2001, a fourfold increase over last year.

“It's not something that you see at every truck stop,” says John Campbell, vice president for industrial products for AGP, Omaha, NE. “It's still a customized product in that you need to order it. But if you order it, we still have fairly good coverage in the Midwest.”

Make a splash

Diesel engines can run on B100, which is the term for 100% biodiesel. However, B100 is expensive and also gels at 32°F. For these reasons, fuel firms blend biodiesel with petroleum-based diesel. A B2 or B5 blend — which you would use to fuel your tractor or pickup — contains 2 or 5% biodiesel, respectively.

Biodiesel can be blended with petroleum-based fuel at terminals. But because biodiesel is so new, it is not as common to blend biodiesel with petroleum diesel at terminals as it is to blend ethanol with gasoline there.

Instead, retailers or cooperatives order biodiesel in 55-gal. drums and 5-gal. pails to “splash blend” with petroleum-based diesel. “The problem with splash blending is that when you repackage biodiesel and pay freight, it's not price competitive,” Weaver says.

Current additive injection systems at terminals limit the amount of biodiesel that can be injected to approximately .25%. Boosting biodiesel content to B2 and B5 levels would require new blending facilities to be built at terminals.

“Those systems are extremely expensive,” Weaver says. “Currently, the demand isn't there to obtain an acceptable return on the investment required.”

However, this may be changing. Thanks to a USDA Commodity Credit Corporation (CCC) buy-down program, the price of biodiesel blends is becoming more competitive with that of petroleum diesel.

“A company can apply for CCC funds based upon anticipated production for this year and the next,” says Jack Hartman, a Sumner, IA, farmer and chairman of the National Biodiesel Board. “The biodiesel producers are using this to help buy down the cost of production.”

In some areas, biodiesel is still a few pennies per gallon more expensive than diesel fuel. However, the gap is narrowing. “And when you consider biodiesel's environmental impacts, it's probably a breakeven,” says Jerry Fruin, a University of Minnesota agricultural economist. The EPA has mandated that sulfur levels in diesel fuel be reduced by 97% in 2006 from current levels. Thus, biodiesel's ability to reduce sulfur emissions will help make the fuel more competitive.

“We think that will be a great place for biodiesel to fill in,” Hartman says. “It's a viable alternative to diesel fuel.”

That's what Fauser found. His firm initially immersed itself in biodiesel fuels by distributing a B20 mix for city busses for Cedar Rapids, IA. After meeting with soybean officials, he began to blend smaller, B2 quantities for farm customers.

“It is now selling at a level that premium diesel is sold,” Fauser says. “As long as it's priced competitively, I think that customers will prefer biodiesel.”

Uncle Sam's plan

Federal legislation also may make biodiesel more price competitive. A bill sponsored by Sen. Tim Hutchinson (R-AR) and Sen. Mark Dayton (D-MN) provides for a 3-cent-per-gallon exemption from the diesel fuel excise tax to fuel suppliers who use a diesel blend that contains at least 2% biodiesel. This bill mimics the 5.4-cent-per-gallon exemption that ethanol blends receive from the federal gasoline tax.

“Biodiesel is growing,” Campbell says. “But biodiesel, like ethanol, is totally dependent upon government policy. We wouldn't sell any ethanol if not for the excise tax incentive. The Dayton-Hutchinson bill follows the ethanol model in order to give biodiesel a chance to compete.”

Industry also is striving to more efficiently blend biodiesel with petroleum diesel. “We are now working toward where ethanol was several years ago,” Weaver says. “Similar to biodiesel, ethanol demand at the time didn't justify expensive blending systems at the terminal. As a less expensive alternative, off-site ethanol loading facilities were built close to the refined fuel terminals. A transport would then pick up the ethanol and haul it to the terminal for blending. Since then, the demand for ethanol has grown to warrant the installation of ethanol blending systems at many terminals.”

Biodiesel backers are evaluating whether they can convert these off-site ethanol facilities to biodiesel, Weaver says. Some of these facilities now are not being used or are underutilized, due to the installation of terminal ethanol blending systems.

Fill 'er up

If all these steps come together, farmers will likely be first in line to buy biodiesel blends. “I see a lot of interest by farmers in using something that they grow,” says Mike Lockart, marketing manager for propane and alternative fuels for Growmark, Bloomington, IL.

That's what the Appleby brothers, who also grow corn, first decided to do in the '80s. “We have used ethanol in our gas for approximately 17 years,” Jack says. “It only makes sense to use things we can produce.”

Ethanol market grows

When you pulled into a gas station back in the 1980s, you may have been greeted by a skull-and-crossbones-stamped “No alcohol in our gas” sign.

But this evil visage no longer exists. Instead, most service stations in the Midwest offer a kinder, gentler, “super-unleaded” 10% ethanol blend.

Farmers are ethanol's biggest users. A recent survey conducted by the Iowa Corn Promotion Board confirms that 91% of Iowa's corn growers regularly use ethanol. When combined with use by other consumers, ethanol consumption totaled 1.6 billion gallons in 2000 in the U.S. In 2001, use is expected to increase to 1.9 billion gallons.

“Throughout the Midwest, ethanol is widely available,” says Trevor Guthmiller, executive director of the American Coalition for Ethanol (ACE). “But outside the Midwest, it's spotty.”

That likely will change, he adds. The Bush Administration recently denied California's waiver to exclude ethanol-based fuels. This will open a huge market for ethanol. Plus, legislation that establishes a national renewable fuel standard may triple ethanol use in the next decade, Guthmiller says.

Fuels like E-85, an 85% ethanol/15% gasoline mix, also could potentially expand ethanol use.

“More stations are selling E-85 every year,” Guthmiller says. “More automobiles and pickups also are able to use it. But it's still in its infancy.” ACE and other ethanol backers are working with automobile and pickup manufacturers to include more vehicles that burn E-85. Currently, consumers can buy E-85 in 16 states.

If you live in an area that still doesn't offer ethanol, you don't have to accept it, Guthmiller says. “Go to fuel dealers and ask them to make ethanol available. Let people know where there's a desire for it to be sold. That's what we've had to do in the Midwest for the last 10 to 15 years.”

For more information …

To learn more about biodiesel, check out the National Biodiesel Board's Web site at The site contains current information about biodiesel, including facts about the fuel's economic impact and performance.

To learn more about ethanol, visit the American Coalition for Ethanol's Web site at Site information includes legislative updates and facts about ethanol and E-85.

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