SHELBY COUNTY: BANKING on BEANS

SHELBY COUNTY BANKING on BEANS Integrity Biofuels in Morristown persevering despite run-up in soy prices

MORRISTOWN-Two years ago this August, the biggest thing in this Shelby County town of 1,300 residents was not the Bunge North America soybean processing plant. Not even its three silos, each as big as an aircraft carrier planted upright by the stern.

The big deal was just across a field, where Integrity Biofuels switched on the No. 4 soybean-growing state’s second biodiesel plant inside an abandoned warehouse.

A crowd equivalent to one-third of Morristown’s population came to honor the birth of yet another plant that was to help Indiana become a national leader in the production of biofuels.

Farmers welcomed more demand for their beans. And Lt. Gov. Becky Skillman cited the need for energy independence “for the well-being of our children’s future.”

Today, Integrity Biofuels’ 12 employees are still making mono-alkyl esters-the finished product that results from the 14-hour process of stripping from soy oil its pesky glycerin, which is unsuitable for use in fuel. The esters are then shipped to refineries, where they’re blended with diesel fuel. But the high hopes of two years ago have been replaced with worry.

Integrity and other biodiesel plants suddenly find themselves at an economic disadvantage, thanks mainly to the soaring price of soy oil, the raw material the plant depends on.

When Integrity opened in 2006, it paid 24 cents a pound for soybean oil; today, it’s around 60 cents.

“I wish I could say things will change soon for the better,” said Allan Gray, an associate professor of agricultural economics at Purdue University. “Biodiesel is in a very difficult position.”

Prices for “B20” biodiesel, a 20-percent blend of mono-alkyl esters with diesel fuel, lately have been 10 cents to 20 cents more

a gallon than for ultra-lowsulfur diesel now mandated

by the federal government.

Making matters worse, the price of diesel has soared to an average $4.14 a gallon from $2.91 a gallon a year ago. That jump was bad enough for struggling truckers on the verge of bankruptcy. Now try to get them to buy B20 biodiesel for $4.27 a gallon-the cost at a station in Noblesville recently.

“It’s very difficult to convince over-theroad truckers when [just] one penny can make a difference” to them, said John Whittington, vice president of Integrity Biofuels.

He’s heard that the industry might be operating at only 30-percent capacity at the moment. And to think that Integrity’s initial intent was to “double or triple in size” by now, he said, showing off thousands of square feet of empty floor space that could swallow dozens of new processing tanks.

“I think you’re going to see a shakeout of biodiesel plants.”

Indeed, the 2-year old, $32 million SoyMor Biodiesel plant in Albert Lea, Minn., last month suspended production on falling demand “to ensure the longterm viability of SoyMor.” It was built to crank out 30 million gallons a year.

Challenge ahead

Nobody is even hinting at such a move at Integrity. The 6-million-gallon-a-year plant is the well-conceived baby of Charles “Shorty” Whittington, John’s father, who founded and owns Grammer Industries Inc., a trucking company near Columbus.

Shorty first got to thinking about a biodiesel plant four years ago, when a county development agent proposed the idea. Shorty realized that the new, ultra-lowsulfur diesel fuel would be harder on engines and need a fuel additive to make it more slippery.

Shorty isn’t known as one who shrinks from a challenge. He’s an entrepreneur who embraced one of the most challenging segments of the trucking industry, with his Grammer truck fleet hauling intimidating cargo such as anhydrous ammonia, liquefied petroleum gasses, nitric acid and liquid hazardous waste.

So confident was Shorty in his own team that they believed they knew more than salesman of “off-the-shelf” biodiesel plants they’d inquired about. So the Whittingtons and their team designed and built their own plant, with the help of engineers, at a cost of about $6 million.

But Shorty now has more at risk than trying to restore profits at his biodiesel firm. He has some professional credibility at stake, insofar as he recently became a member of the National Biodiesel Board. He’s also vice chairman of the American Trucking Associations, which represents the very constituents he’d like to see using biodiesel in greater volume. And recently, Shorty met with President Bush as part of his industry lobbying, giving the president a toy tanker truck filled with soybeans.

The Whittingtons are touting biodiesel’s benefits, said to reduce engine wear, extend maintenance cycles and generate less particulate pollution. Unlike gasoline biofuel ethanol, it can be run in higher concentrations in most diesel-powered vehicles without any engine modifications.

One of the biggest markets for the esters produced at plants like Integrity has been as a friction-reducing additive to ultra-low-sulfur diesel-fuel. The blenders who buy Integrity’s soy elixir and mix it with diesel also sell it to bus fleets and farmers.

Big users of biodiesel in the region are school corporations, such as those of Franklin, Warren and Wayne townships. Indianapolis’ bus system, IndyGo, also uses biodiesel, according to the Central Indiana Clean Cities Alliance, a government-funded group promoting alternative fuels and vehicles.

Many schools use the fuel because it minimizes student exposure to particulates, is said to improve mileage, and reduces maintenance, said Kellie Walsh, executive director of CICCA. But with school budgets tight, and with no federal or state tax credits to help schools buy the pricier fuel, many of these users are struggling to afford it, Walsh said.

If soy prices weren’t so high, “it would be cheaper than ultra-low-sulfur diesel,” she said.

Soy prices have been on the rise since Integrity opened in 2006.

One reason is increased demand for vegetable oils worldwide. Many countries flocked to buy it from the United States as the dollar plunged in value, making it a bargain.

And then there’s the downturn in soybean planting. Corn, in hot demand to make the biofuel ethanol, became a more attractive crop for many farmers.

“You can thank ethanol for that. It created a whole new environment for biodiesel,” said Purdue’s Gray.

Last year, soybean acreage fell about 13 percent in Indiana, to 4.7 million acres, said Chris Novak, executive director of the Indiana Soybean Alliance.

The latest projection is for 5.5 million acres of soy planted in 2008, a 17 percent increase, as farmers see bigger returns from beans and as they rotate their crop mix to rejuvenate soil.

“We’re going to see more soy acres planted this year,” Novak said. “We would expect to see some moderation in pricing.”

Making lemonade

In the meantime, Integrity is trying to be creative. For example, the company has been accepting from other firms the glycerin byproduct that comes from the production of esters. From the glycerin, Integrity can capture methanol, another ingredient needed to produce the esters. Capturing more methanol saves money because methanol prices have been rising.

Integrity also sells glycerin as a byproduct. It’s used in airplane de-icing, for dust control, in animal feed and for health products. Integrity exports some of its glycerin to China, where it is being refined further for use in toothpaste.

John Whittington also is trying to harvest a salt-like byproduct that can be used as a drying agent. “That’s my next project.”

So far, “We’ve been able to multiply the value of glycerin fivefold.”

The company is also tinkering with the idea of, at least temporarily, using additional kinds of ingredients to make esters. Some plants are using animal fats and used cooking oil, for example. One plant in Kentucky is even said to be using road kill. A corn oil produced by ethanol plants is another possibility. The downside is that some of these stocks can cause biodiesel to gel more easily at lower temperatures.

Integrity has tried to distinguish itself by promoting the quality of the mono-alkyl esters it produces. From the Bunge plant across the field it gets a super-refined version of soybean oil that’s “probably overkill for biodiesel,” Whittington said. “We’re trying to stay ahead and figure out a better mousetrap all of the time.”

The Indiana State Department of Agriculture lists four biodiesel and 16 ethanol plants already announced or operating in the state. They’re projected to create at least 670 jobs and $2 billion in investment.

Last year, a Florida company, NexGen BioFuels, applied for permits to construct an ethanol plant just west of Shelbyville.