Soybean farmers face choice: Refine for food or fuel?

BISMARCK, N.D. — One oilseed crushing plant in eastern North Dakota is switching from soybeans to canola. A few miles away, farmers are banking on a bright future with beans, with plans for a crushing plant of their own.

The situation in the Red River Valley illustrates the paradoxical state of the nation's biodiesel industry, and the decisions facing crushers over whether to refine oil for food or fuel.

On one hand, only a quarter of the current production capacity is being used and the number of new plants coming on line has slowed dramatically. On the other, biodiesel sales volume continues to rise, and government mandates call for even more biodiesel use in coming years.

Northwood Mills LLC in Northwood is not giving up on refining vegetable oil, but it is drastically changing its focus. Instead of crushing soybeans for the biodiesel market, it's switching to canola for the food market.

Part of the reason is a decline in the Canadian hog industry that has been a primary market for the plant's soybean meal, a byproduct used for animal feed. General manager Clarence Leschied said the company also has soured on soybeans.

"The demand (for vegetable oil) from the biodiesel sector has just about disappeared, whereas canola going into the food market still has good demand," he said. "We've just seen the margins on soybeans deteriorating."

Leschied said other plants also might switch from the energy sector to the food sector. "U.S. biodiesel capacity is only running at about 25 percent," he said.

Amber Thurlo Pearson, a spokeswoman for the National Biodiesel Board, confirmed the percentage. She said biodiesel producers are going through "a rough patch" because of rising vegetable oil prices. But she believes many of the nation's 171 plants were built large — accounting for much of the unused production capacity — in anticipation of growth sure to come.

More passenger vehicles are being made with engines that can burn biodiesel, an alternative to petroleum-based fuels, Pearson said. A new federal law also sets a biofuels standard of 36 billion gallons per year by 2022, a sevenfold increase.

Farmers in southeastern North Dakota are counting on continued growth as they develop a plant to crush soybeans and refine the oil. The Ag Plus Cooperative plant would be big enough to crush up to 40 percent of the soybeans grown in the state.

Co-op director Dale Beck said plant officials will decide later whether it will be more profitable to sell soybean oil to the energy or food industries. "We're looking at primarily biodiesel," he said.