Great River Soy falls victim to soaring soybean oil prices
By Anne Todd
USDA Rural Development
ess than a year ago, in August 2007, the
Great River Soy Processing Cooperative, a
farmer-owned biodiesel production co-op in
Lilbourn, Mo., was preparing to begin
operation. Great River Soy was one of three
biodiesel plants located in the southeastern Missouri
“Bootheel,” a three-county region dotted with small, rural
communities where agriculture is the lifeblood and where
hopes for economic revival have been buoyed in recent years
by the prospects of renewable energy.
Construction of the Great River Soy plant was complete
last August, and construction of a soybean crushing facility
was slated to follow in spring 2008. Like the other biodiesel
plants in the Missouri Bootheel, the Lilbourn plant had a
production capacity of 5 million gallons of B100 (100 percent
pure, neat biodiesel) per year. The company planned to make
B100 exclusively from soybean oil.
Biodiesel plants have been emerging all over Missouri in
the past few years, spurred in large part by the state’s
Qualified Biodiesel Producer Incentive Fund. The state
legislature established the fund in 2002 to encourage
Missouri biodiesel production by providing a 30-cent-pergallon
subsidy for the first 15 million gallons produced each
year at facilities where at least 51 percent of owners are
Missouri agricultural producers.
Big hurdle to clear
Great River Soy had a big hurdle to overcome even before
it started operation. Soybean oil represents almost 90 percent
of the cost of biodiesel production. For the 2007 season,
many growers were swayed by the ethanol mandate to switch
from soybeans to corn. In Missouri alone, the 2007 soybean
yield was 11 million acres less than the 2006 crop. The
smaller crop, coupled with increased demand for biodiesel,
caused soybean prices to soar to almost 40 cents per pound
by August 2007 — about double the price compared to 2006.
(As of mid-April, soybeans were 62 cents per pound.)
Although Great River Soy general manager Stan Polivick
was nervous at the time about those high prices, he knew that
there would be challenges associated with any type of new
agricultural venture. Industry experts were predicting that
biodiesel demand would rise, and the higher prices that
farmers would get for their soybeans was expected to help
defray any potential start-up losses for farmer-owned
biodiesel plants.
Great River Soy started operations in October 2007 and
produced 94,000 gallons of B100 biodiesel that month.
Unfortunately, the co-op had to halt production soon
afterward.
As a start-up business, the company had only limited cash
reserves. Because of the skyrocketing soybean prices, the
amount of cash needed up front was quite high. Co-op
leaders realized that the cash-flow cycle would be about seven
weeks. This translated to a necessary cash reserve of more
than $2 million.
This created an insurmountable cash-flow problem for the
fledgling company, which didn’t have enough reserves to
outlast the funding gaps. Another issue was that all of the
soybean oil used at the Lilbourn plant was being purchased
from external providers, instead of from member/owners of
the co-op. Other factors contributing to the shutdown were
the low price of biodiesel at the pump, compared to the price
of production, and high distribution costs.
In January 2008, Great River Soy converted to a limited
liability company (LLC) in an effort to increase investments
from members. However, revamping the business structure
didn’t improve the situation. Great River Soy Processing
LLC is currently seeking a buyer.
Aftermath
Does Polivick still believe that the U.S. biodiesel industry
has a viable future? “Yes,” is his emphatic response.
“Agriculture is always a rollercoaster,” he says. “Right now is
a difficult time.”
Polivick believes that renewable energy producers must
devise other ways of production besides relying on foodgrade
industry feedstocks. He predicts that that transition
will take place over the coming years.
Currently, equipment and facilities are designed to process
food-grade products. Once that equipment is redesigned to
handle non-food feedstocks, Polivick believes that renewable
energy will serve its purpose, have a long-term future and be
“very viable, for sure.”
