High Soy Prices Idling Biodiesel Plants

According to the United States Department of Agriculture, the average American farmer grossed $403 on an acre of soybeans in 2007, up from $173 in 2000. (Photo: Carlos Carrion / AFP-Getty Images)

Richard Stadheim, a fourth-generation farmer, grows crops on about 3,200 acres in Albert Lea, Minn. This year, he will split that land about evenly, as he did last year, between soybeans and corn. As global demand for food and for biofuels inputs has climbed, prices for those crops have skyrocketed, making growing them financially satisfying for the first time in years.

According to the United States Department of Agriculture, the average American farmer grossed $403 on an acre of soybeans in 2007, up from $173 in 2000. That's put Stadheim and farmers like him among the handful of winners in these troubled economic times.

But there is a twist to his story. Stadheim is also a board member and one of 600 original investors at the SoyMor biodiesel plant in Albert Lea. Although the plant can produce 30 million gallons of biodiesel annually, using the oil from crushed soybeans, it sits idle, victimized by the same high prices that have brought prosperity to the Stadheim farm. Soy oil now costs so much that the plant's biodiesel products can't compete with the price of ordinary diesel fuel. Like many biodiesel investors, though, Stadheim entered the alternative fuel industry not to go green, or to help meet impending federal biodiesel mandates, but to make more money from his soybean crop. So he's pleased enough.

"That's why you don't see the farmer all panicked about it being shut down," Stadheim said." I'm getting $10 [per bushel] plus for my soybeans."

From Iowa to Delaware, Minnesota to Louisiana, biofuel plants have halted production, and construction of new plants has been delayed. When SoyMor began producing biodiesel in 2005, soybean oil, which can account for 80 percent of a biodiesel plant's costs, sold for roughly 20 cents per pound. In 2008 it's been trading at about 50 cents to 70 cents. The price for the beans has likewise more than doubled, to $11 to $16 per bushel in 2008 from $5 to $7.50 in 2005.

American soy biodiesel plants can together produce 2.24 billion gallons of fuel, but made only 500 million gallons in 2007, officials say. Federal law mandates the use of 500 million gallons of biodiesel by 2009 and 1 billion gallons by 2012. Bruce Babcock, a professor of economics at Iowa State University, expects mandates to be met.

"They will just result in higher soybean prices," he said.

Demand for other biofuels inputs has also created more competition for cropland, the World Bank noted in an April report. To make room for corn, used to produce alternative fuel ethanol, farmers planted fewer acres of soybeans in 2007—another factor contributing to the soy price rise.

Rising global demand for food, especially from burgeoning middle classes in certain fast-growing countries like China and India, is also bolstering soy prices. Since more people can afford meat, animal production operations are buying more soymeal, an input. Worldwide soy consumption rose 125 percent from 1990 to 2007, according to the U.S.D.A. A weak dollar is also encouraging foreign countries to import more American farm products.

Biodiesel industry insiders expect prices to eventually drop, which would allow plants to reopen. Many are also considering switching to inputs that don't compete with food, like oils from the jatropha plant, and from algae.

"Biodiesel is going to be an important fuel for our country in the future. But it's going to hinge upon our ability to make it from a variety of different feed stocks," said Jeff Stroburg, chief executive of Renewable Energy Group Inc., an Ames, Iowa, based company that owns or manages several biodiesel plants. "We believe that the market will turn around. We don't know when."

Production has been halted in at least two biodiesel plants R.E.G.manages—SoyMor and East Fork Biodiesel, in Algona, Iowa. Construction has been delayed on two others, a pair of 60 million-gallon plants in Emporia, Kan., and New Orleans. About $18 million had already been invested in Emporia.

Production at SoyMor began in 2005, and the plant ran on schedule until it closed in March 2008. The average investor there had contributed about $13,000. For farmer-investors like Stadheim—who also call the plant closings temporary—the high prices still represent a goal achieved. Stadheim estimated that 75 percent to 80 percent of the 600 investors shared his motivations to add value to the soybean crop.

"The American farmer, especially in this part of the country, we want to conserve our land for the next generation," Stadheim said. "The biodiesel industry has done an incredible job of doing what we wanted it to do, to give us a better price for our beans."

"We've created this extra demand," he said.

From NYU Livewire.

Jonathan Starkey is a graduate journalism student in New York University's Reporting the Nation program.