In the last several months, especially since the passage of the Renewable Fuel Standard, there has been a lot of buzz about renewable fuels, which has many agricultural people in the Midwest smiling. But will this buzz translate into business for ag retailers, and what challenges will it present?

Several ag retailers, particularly those that have been involved with the renewable fuels business for some time now, think that ethanol and biodiesel are having (and will continue to have) a substantial impact on their companies and their customers.

Growmark and its member cooperatives, for example, have been marketing ethanol since the late 1970s and biodiesel since 2000. “We continue to see consumer interest in renewable fuels increase as publicity on all aspects of renewable fuels grows,” says Mark Dehner, marketing manager, Refined & Renewable Fuels, Growmark. Such publicity includes news about the Renewable Fuel Standard, the marketing of E85 by GM and Ford, soybean organizations' promotion of biodiesel blends, and political statements.

The company's renewable fuel sales volumes continue to grow, Dehner says, adding that FS member cooperatives sold 12% of all the biodiesel used in the U.S. in 2005.

“Our member cooperatives have been and continue to be very passionate about renewable fuels,” he says. “I firmly believe that our sales displays convey that passion to our members' customers.” Growmark adopted the Home Grown Fuels campaign in 2000 and continues to use it to promote the benefits of renewable fuels. The program emphasizes fuel performance and how use of renewable fuels will benefit the environment and make the U.S. less dependent on foreign oil.

“These key points were very much on target in 2000 and continue to be on target within our organization and with consumers,” Dehner says. He says that Growmark also promotes renewable fuels “one conversation at a time.” By this he means that member cooperative employees have conversations with their individual customers about how renewable fuel can fit their situations, whether it be use of E10 and/or E85 ethanol blends, or B2, B5, B11 or B20 biodiesel blends.

Ag View FS, Princeton, IL, was the first Growmark member cooperative in northern Illinois to offer ethanol blends and one of the few dealerships in its area to offer E85. “E85 displaced premium at our Princeton location, with sales 10 times what premium gasoline was the previous year,” says Dave Miller, the cooperative's energy marketing manager.

Ag View FS also began offering biodiesel as soon as it became available. It started with a 2% blend and quickly moved to the 11% blend when tax incentives became available. Today, the cooperative's sales of biodiesel make up approximately 90% of its total diesel sales.

Ag View FS promotes the sale and use of renewable fuels through radio and newspaper advertising. It also holds local meetings for retail and farm customers. “I believe the secret to our success has been keeping an emphasis on the product,” Miller says.

Ag retailers as well as their growers can do quite a bit to create greater consumer support of renewable fuels by continuing to educate and lead by example, says Ron Milby, Growmark seed division manager. He encourages his peers to take every opportunity to explain the value of using what is grown in the U.S., especially when they are confronted about energy or agriculture issues in general. Renewable fuel can help boost the economy as well as lower American dependence on foreign oil.

Even if an ag retailer does not have an energy division, it can benefit from the growth of renewable fuels by helping growers further improve their corn and soybean yields. Milby points out that seed genetic suppliers are doing a good job of screening their products to see which ones are more fermentable than others.

Although these high fermentable corn hybrids are not having a large impact on ethanol producers' feedstock choices now, there are some products in the pipeline that may have a significant impact in the future, Milby says.

“There is no question that emphasis will remain on the utilization of biofuels,” says Ag View's Miller. “As we see more research and more available options, we will have more options to offer our customers.”

On the question of feedstocks for the production of cellulosic ethanol, Miller says, “While we aren't looking into cellulosic ethanol now, we do believe it is paramount that we continue to address this issue.”

Some experts are concerned about the ethanol industry competing with the food and feed industries for corn. Cellulosic ethanol offers an answer to these concerns. Producing feedstocks (for example, crop residues and switchgrass) for cellulosic ethanol production could offer growers additional opportunities to increase their income, Miller says.

West Central Cooperative, Ralston, IA, is another ag retail business with significant experience selling renewable fuels. A full-service, farmer-owned cooperative, West Central is one of the 20 largest grain companies in the United States with 3,148 stockholders and inbound grain of 80.9 million bushels in 2006. In addition to being a full-service agronomy inputs provider, the Iowa cooperative processes soybeans into a variety of products.

In 1998, West Central began selling SoyPower brand premium biodiesel fuel, a brand created and marketed as a high-quality fuel.

In 2003, West Central's biodiesel business formed Renewable Energy Group Inc., a biodiesel plant construction business (a joint venture between West Central and the Sargents, owners of Todd & Sargent). REG Inc. was formed to offer plant management, risk management, raw material procurement, plant construction, biodiesel production, and biodiesel sales and marketing services.

This past August, West Central announced the completion of a $100 million financing package and two new strategic partnerships with Bunge North America and E D&F Man Holdings Ltd. to form REG LLC. The new partners as well as West Central, Natural Gas Partners VIII, L.P., the Sargents and other Iowa investors provided the $100 million to expand REG's network of wholly owned and third-party-managed biodiesel plants.

After this investment, West Central is not directly involved in the biodiesel industry. It is only involved through its majority ownership of REG LLC.

However, biodiesel will continue to benefit all divisions of West Central, says Harry Ahrenholtz, executive vice president of West Central's agronomy division. At the same time, it will present challenges. The agronomy division now has a “new dimension” to consider in the area of soybean seed selection, he notes.

The renewable fuels market is now a large factor driving the grower's crop choices and crop mix. “The recent drive-up of corn prices has many producers shifting and/or seriously thinking about shifting more acres to corn, which will have a dramatic impact on the agronomy business,” Ahrenholtz says. “Demand for stacked trait corn varieties has been brisk and interest in locking in nitrogen prices has been high due to anticipated additional demand to new corn acres that, in most cases, will be corn on corn.” Ahrenholtz says that fall fertilizer activity increased as a result of these factors as well as favorable postharvest weather conditions.

Growers are just beginning to grasp some of the more subtle opportunities that might come from growing crops for specific uses, Ahrenholtz says. “As an agronomy company, we will need to consider expanding our field demonstration plots to measure the value that specific varieties contribute to fuel production,” he says.

The first step for the renewable fuels industry will be to get the necessary acres into production, Ahrenholtz says. Ultimately, management practices will have to be fine-tuned to provide desired characteristics to the intended end use of the harvested crop.

Growers who want to produce feedstocks for cellulosic ethanol will present a new dimension to plant food management as more mass is removed per acre. “If a practical solution is found to convert cellulose to ethanol, there will be opportunities for the grower, retailer and consuming public,” Ahrenholtz says.

What about other opportunities? Will there be chances for ag retailers to help their customers find markets for co-products, such as distiller's dried grains with solubles (DDGS) and CO₂ from ethanol production, or glycerin/glycol products from biodiesel production?

More university research is needed, with both industry and end user input, to find new and better uses for co-products from both ethanol and biodiesel production, Ahrenholtz says. “The current situation with biofuels production could be compared to some extent to the early days of petroleum refining,” he says. “The first refinery had more waste than finished product from its early processes. Nearly all waste products from those early processes are now valuable co-products.”

Growmark's Milby sees opportunities to move livestock into some areas to take advantage of DDGS. “There is a lot of work going on to help make DDGS a better product that can be exported,” he says. “Those having experience with grain movement could also have an opportunity to move DDGS.”

Many industry experts predict a bright future for both ethanol and biodiesel. “These emerging industries are at a minimum contributing to an overall solution to the imported energy crisis,” Ahrenholtz says. “Biofuels are ushering in a new era in American agriculture. There are new opportunities for producers and ag suppliers alike. At the same time, there are some huge challenges that this new era will bring to both. There are dramatic changes in store for everyone associated with American agriculture. We are at the tip of the iceberg now and are seeing only a little glimpse of what might be in store.”

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