VALUE-ADDED CORNER
Biodiesel project looks
promising for Iowa co-op
By Jeff Jobe, Co-op Specialist
USDA Rural Development, Iowa
ooperatives everywhere
are looking for
new opportunities to
add value and expand
markets for their
members. Farmers Co-op Elevator Co.
(FCEC) at Ruthven, Iowa, is accomplishing
this by processing its members’
soybeans into an array of soy oil
and meal products and biodiesel fuel.
FCEC, founded in 1902, is a fullservice
cooperative providing grain
handling and marketing, agronomy
services and feed and petroleum products
to 1,176 members in northwest
Iowa. Annual sales for the cooperative
have exceeded $50 million.
In 1999, the cooperative management
and board of directors created a
new company called Soy Solutions to
explore and expand marketing opportunities
for the 3.5 million bushels of
soybeans produced by co-op members.
After exhaustively analyzing the
soy-processing industry, Soy Solutions
created Iowa Lakes Processing (ILP)
to use the Insta-Pro extruder and
expeller’s process to transform locally
grown soybeans into soybean meal
and oil.
ILP produces a high-quality, natural
soybean meal that can be used in a
variety of products for human consumption
and livestock feed. This was
a natural fit for
the co-op’s feed
division, as it
allowed FCEC
to source a highquality
protein
through its own
operations. The
same process also
yields soybean oil,
which ILP has
initially been selling
on the open
market.
Soy Solutions
looked at the opportunities available
for further processing and enhancing
the value of the soy oil. With the assistance
of Cenex Harvest States, Iowa
Soybean Promotion Board, National
Biodiesel Board and Iowa State
University’s Institute for Physical
Research and Technologies, Soy
Solutions created Power Plus
Technologies to develop and operate a
soy methyl ester manufacturing plant.
Soy methyl ester is commonly
known as biodiesel, an alternative fuel
that can be used as a blend in petroleum
diesel. Its physical and chemical properties
(as it relates to operation of diesel
engines) are similar to petroleum-based
diesel fuel. More than 10 years of testing
and 60 million road miles have
proven that biodiesel is comparable to
conventional diesel in performance, fuel
efficiency, power and torque.
Fuel distributors across the United
States are beginning to offer biodiesel
in blends of 2 percent (B2), 5 percent
(B5) or 20 percent (B20) soyoil mixed
with conventional diesel fuel. Diesel
engines can run on 100 percent
biodiesel with little or no modification.
“If all Iowa farmers used a B2
biodiesel blend, they would use the oil
from 3 million bushels of soybeans,
and if all on-road trucks used B2
biodiesel, they would use the oil from
473 million bushels of soybeans,” says
Karen Andersen-Schank of the Iowa
Soybean Promotion Board. “That’s
basically Iowa’s entire crop.”
In developing these opportunities,
Farmers Cooperative Elevator
Company has made a sizable investment
in this project. There was overwhelming
support in Iowa for the project. Funding for the project came
from many sources, including the city
of Milford, Dickinson County
Economic Development Group, the
Iowa Department of Economic
Development, the Iowa Energy Center
and CoBank.
“Our cooperative is a 101-year-old
company operating as a traditional
Chapter 499 (Iowa Code) cooperative,”
Kevin Hartkemeyer, general manager
of the Farmers Co-op Elevator Co.,
says in an article in the Iowa Institute
for Cooperatives newsletter. “One
required provision of being a 499 cooperative
is that a minimum of 20 percent
of all profits must be returned to our
member/owners each year. However,
we return 40 percent of all our company’s
profits in cash. This makes it very
difficult, if not impossible, for even a
profitable company like ours to build
large sums of venture capital needed
for a project like this.
“Having extra capital in addition to
the normal working capital it takes to
run a corporation our size can be challenging,
especially when trying to grow
a company like ours. With that in
mind, we knew it would be necessary to
tap nontraditional sources of funding
for us to complete this project.”
In June 2002, the co-op learned that
it might be eligible for a USDA Value
Added Development Grant after visiting
with Dave Holm from the Iowa
Institute of Cooperatives and with Jeff
Jobe, director of cooperative services
with USDA Rural Development.
“Since we were almost half done
with the construction of our plant, we
focused on the feasibility of obtaining
a working capital grant,” Hartkemeyer
continued. It was a tough decision to
decide whether it was worth the large
effort it would take to obtain a grant.
“To help our decision-making
process, I contacted Dick Drahota of
the Storm Lake Rural Development
Office. Dick came to my office and sat
down with my project manager and
myself, and very extensively reviewed
the program and its intent. We went
step by step through the evaluation criteria,
and compared our scope and
intent it was critical that these complimented
each other. Based on our
review, we reached the conclusion that
our project should be on target with
most of the evaluation criteria.
“Dick then went carefully through
each step of the application process. As
an applicant, we had to evaluate if the
detail of each step in the application
process might be too involved and outweigh
the possibility of potential
reward. We reached the conclusion
that while this would be a lengthy and
very detailed process, it was pretty
straight forward and there were obviously
people in the USDA that were
very willing to give advice and answer
questions.”
As a result of their work, Farmers
Co-op Elevator Co. was awarded a
$500,000 grant for working capital to
assist in the start-up and operation of a
soy biodiesel plant.
Hartkemeyer says “that only
because of this program was the
cooperative able to commit resources
to this project, without having to
borrow additional funds for the
development of this project. It also
allows our entire membership to capture
the benefits of this type project,
without having to form a new, closed
membership business where only a
few of the cooperative members
would participate.”
