Given the right circumstances, a government analyst says, there is money to be made producing on-farm biodiesel.
Roy Arnott, business development specialist with Manitoba Agriculture, has created a series of biodiesel budgets that take into account a wide variety of factors – from canola production costs to prevailing diesel prices.
He frequently updates them and publishes the results in a Biweekly GO Team Biofuel Update that he sends to interested people.
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On the day of an Oct. 29 interview, canola cash prices had plunged to $8.70 per bushel from summer highs of $15 and diesel fuel was selling for $1.04 per litre. Arnott was assuming canola production costs of $273.19 per acre and average yields of 33 bu. per acre.
Plugging those factors and a variety of other operating, fixed and labour costs into his calculator (PDF format), he came up with a total cost of production for a 15,000-litre biodiesel operation of $1.25 per litre. The value of that biodiesel was estimated at $1.12, resulting in a loss of 13 cents per litre for the small-scale operation.
“It’s very marginal at this moment,” he said.
The economics changed when Arnott did the same calculation for a 50,000-litre facility.
“It just gets a little bit more efficient,” he said. “Suddenly your cost going in has dropped 20 cents just by using a slightly larger outfit.”
The bigger plant would generate a profit of 6.5 cents per litre. Or to put it another way, a farmer could afford to pay himself $9.57 per bu. for his canola to cover the fixed and operating costs of his biodiesel operation at a time when canola was selling for $8.70 on the open market.
“The take-home message on that is that maybe the opportunity for two or three farmers to get together to do a slightly larger operation makes good economic sense,” Arnott said.
A third model looked at a 10-million litre plant, which would represent a small community commercial enterprise that would need 1.25 million bushels of canola a year.
It would generate a profit of 29 cents per litre, or $2.9 million a year, given the conditions that existed Oct. 29.
Local farmers could pay the plant its cost of production plus a margin and it would be cheaper than making their own on-farm biodiesel.
“Having a commercial plant do custom processing for farmers could be quite cost advantageous for producers,” Arnott said.
He also said it is important to remember that the economics change drastically depending on prices of canola, meal and diesel.
“You can go from literally a good return to no return to a crushing loss with a $2 move in canola,” he said.
Another caveat is the type of government incentives available. He plugged in the maximum 20 cents per litre federal subsidy for the 10 million litre model. If that money isn’t there, that’s a $2 million hit.
That’s why his budgets were designed for producers to input their own numbers.
Arnott also stressed the importance of producing quality biodiesel, the kind that doesn’t destroy valuable engines.
That’s where Rex Newkirk can help. He operates a portable biodiesel plant, a classroom on wheels designed to provide farmers with hands-on training for producing the fuel.
“We try to make it a fun event where people get their hands wet and learn something,” said Newkirk, director of feed at the Canadian International Grains Institute.
During the one, two and three-day courses, producers extract oil from whatever seed they bring, turn the oil into fuel and test the fuel for various quality parameters.
Newkirk agreed that quality is critical, but said it’s not true that only the Archer Daniels Midlands of the world can produce biodiesel that meets the sought-after ASTM International standard.
“I can make ASTM quality biodiesel with a milk pail. That’s exaggerating but you almost could,” he said.
The manufacturer, rather than the equipment, creates good quality biodiesel.
“You can make equally crappy fuel with a $200-million plant as you can a $5,000-plant,” Newkirk said.
He taught the course to 1,800 pupils over the first18 months of operating the portable plant, a small portion of whom are making their own on-farm biodiesel.
Arnott estimated there might be one or two farmers on every 100- kilometre stretch of country road making 2,000 to 5,000 litres of biodiesel annually. That number would shoot up if canola settled in at $6.50 per bu. and diesel at $1.25 per litre.
One model that is gaining popularity is the 400,000 litre plant. Newkirk knows of Hutterite colonies and small communities that have built such facilities.
“From an economic perspective, that’s the one that seems to be making the most sense.”
He believes 200 of those larger on-farm plants could easily be built over the next two years, considering there are 450 Hutterite colonies across the Prairies, many of which have expressed interest in the model.
Arnott said the 10-million litre model has proven too costly for most communities. It would require $3.4 million of equity, half of which would need to come from local investors.
“That remains a lot of money for most communities,” he said.
