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Biodiesel hits rough patch as ethanol industry continues to garner attention

ST. PAUL -- The Minnesota biodiesel industry is in the slow lane.

"Things have kind of slowed down," the University of Minnesota's Doug Tiffany said. "The excitement of ethanol has not been shared with biodiesel."

Corn-based ethanol is part of the reason biodiesel hit a rough patch. Farmers last year put more acres into corn to feed the booming ethanol market, taking land away from soybeans.

That, in turn, cut the soybean supply and helped force soybean oil prices to soar. Pure biodiesel tops $3.50 a gallon.

"That makes it an expensive fuel," said Tiffany, a research fellow with the College of Agriculture, Food and Environmental Sciences' Department of Applied Economics.

"The cost of soybean oil has gone up dramatically," added Ralph Groschen, the state Agriculture Department's senior marketing specialist. "The old classic answer is supply and demand."

But that is not the full answer. Another factor is a weak American dollar, which makes products produced here, like soybean oil, attractive to overseas buyers.

Also affecting the price is a growing need for soybean oil in the food industry, which increases competition for the oil.

Groschen warns Minnesotans not to get overly concerned about the biodiesel situation. Even today's successful ethanol, which is blended with gasoline, faced similar rough times.

"It's going to have its ups and downs and bumps in the road," Groschen said.

Most diesel fuel sold in Minnesota contains 2 percent biodiesel -- which mostly comes from soybeans in this part of the world -- blended with 98 percent petroleum diesel. Twin Cities' public buses will use a 20 percent biodiesel blend beginning next year and some applications use pure biodiesel.

Three Minnesota plants produce significant amounts of biodiesel; they are near Brewster, Redwood Falls and Albert Lea. Others have been discussed.

In Minnesota, soybeans are used for most biodiesel, but other plant and animal fats may be used. Much of the attention for sources other than beans is on restaurants' used grease.

Groschen said that when ethanol was in the same rough economic shape as biodiesel is today, plants continued to be built and now are profitable.

"It seems that people can't wait to sound the death knell for something that is new," Groschen said. "I think that is premature."

Farmers are familiar with making investments and then waiting to see financial returns.

"If you are going to do something that is worth doing, you have to take a position and stand there and have the intestinal fortitude to do that," Groschen added.

Changes are on the horizon. Many reports indicate farmers plan to plant more soybeans this year, which could ease the high cost of soybean oil, thus increasing demand for it.

Until production increases and soybean oil prices fall, "there will be tightening of the supply overall," Tiffany said. "The opportunities have been blunted by these prices right now."

Don Davis
Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.