STURGIS, Ky. — Buried back a rural road not too far south of the Indiana/ Illinois border, the Union County Biodiesel Co. has a name that suggests size and volume beyond reality.

There’s not much beyond a medium-sized processing shed and three 10,000-gallon tanks storing varying levels of product at any given time. And owner Andy Sprague could easily fit himself and nearly all his employees into the Volkswagen TDI Biofuels BioBoost Test Car parked next to the processing shed.

What Union County Biodiesel is – sandwiched between Sprague’s farmhouse and his nearly 4,000 acres of corn and soybeans – is a functional on-farm plant, which converts soybean oil into biodiesel.

From its inception in late 2004, Sprague intended the facility as a demonstration of perhaps the ultimate in future value-added farming. Frequent callers hope so. Sprague said he averages a call a day inquiring about his little plant, which now processes roughly 14,000 gallons of biodiesel daily, or almost 100,000 gallons weekly. Someone is at the facility 24/7, up just recently from six days a week.

History
In 2003, Sprague was one of 184 national recipients of a USDA Value-Added Agricultural Product Market Development Grant to conduct a feasibility study for bringing his proposed operation into existence. When he began production in January 2005 and quickly worked the plant up to putting out 2,000 gallons a day, Sprague described his mood as “ecstatic.”

In the spring, he switched from an electric to a propane boiler, which he found more economical and practical. Production jumped in just one day from 6,000 to 12,000 gallons, and was up to the 14,000 mark by mid-July, when Union County Biodiesel pumped out its one-millionth gallon of pure biodiesel, which is referred to in knowledgeable fuel circles as B-100.

Sprague sells most of his B-100 to a few dozen farmers, retailers and distributors within a 100-mile radius. The distributors receive a $1/gallon federal tax credit – recently extended by Congress through 2008 – when they blend B-100 with regular diesel fuel, usually in a 20/80 (B-20) proportion.

Sprague himself mixes maybe 5 percent of what he produces with the bare minimum of petroleum diesel, a B-99 blend, to sell to local dealers and to obtain the tax credit on that particular volume.

The rest, he tries to sell below the market value of regular diesel – this allows blenders to price their end product competitively after receiving their $1 credit, and keep Union County Biodiesel in business.

As Sprague pointed out, “Fuel touches everybody” – especially now, with the average price of petroleum diesel just under $3 a gallon. “This technology is workable at a small scale and in a local, regional approach,” he explained.

Because Sprague estimates at least 95 percent of his operating costs are in purchasing the soy oil (at around $250,000 weekly), he buys nearby from fellow Kentucky business Owensboro Grain, only 40 miles away, in the form of 2-3 truckloads daily.

Owensboro Grain CFO Jeff Erb said for distance, Sprague could have just as easily established a business relationship with CGB in Mt. Vernon, Ind.

“For whatever reason, we hit it off really well and we’ve been supplying him ever since,” Erb explained.

Owensboro Grain produces approximately 185,000 gallons of soy oil per day; Sprague buys less than 8 percent of that. The rest is sold mostly as food product.

Without a soy facility nearby, Sprague also admitted he wouldn’t have much of a business, since the raw oil is too costly to drive very far for it.

“You just don’t walk up to a soybean plant in the field and say ‘Surrender your oil,’” he chuckled. “This works for us because we have an Owensboro Grain.”

Process
Union County Biodiesel will use the oil from about 73,000 bushels of soybeans annually. It sounds like a lot, but as a comparison, it is well under one percent of the projected 50 million bushels forecast for the 2005 Kentucky harvest.

Sprague makes use of a new transesterification process developed by ECR Biodiesel Atlanta, based in Georgia. Simply explained, transesterification uses water in the process to remove acids and caustics from soy oil, thereby breaking the chemical bonds so that heat and agitation can re-form the substance into biodiesel fuel. ECR’s method uses an electrical catalyst instead of water; the result, Sprague said, is a biodiesel that does not have to be filtered for wastewater.

Another challenge with using water is getting it all out afterwards. Without water in the process to possibly be left behind, the fuel will not freeze in lower temperatures – good news for potential cold-state customers.

Eric Brown, biodiesel and lubricant division manager for Karbowski Oil, said his company has been doing business with Sprague since the beginning of the year and hopes to maintain a relationship well into the future. Much of the attraction of the Kentucky producer’s biodiesel is the lack of water in its transesterification.

“We are in Michigan,” Brown pointed out. “It’s cold up here. We don’t want our pipes freezing or bursting in the winter.”

Model
The reason Union County Biodiesel doesn’t look like a big, centrally-located company is because Sprague doesn’t intend it to be. He envisions a series of farmer-invested cooperative-type operations not terribly far from Sturgis. In fact, he is working to get four online in the very near future, all within a 120-mile radius.

He’s also talking with people in Missouri and Texas about possibilities there. The big thing, he explained, was making sure the model would work before offering his expertise elsewhere or taking any investors’ money.

“I have a fundamental fear of sitting across from someone at Thanksgiv-ing, knowing I lost half a million dollars of their money,” he said earlier this year.

At 1.6 million gallons of production and increasing costs of pure petroleum, loss doesn’t seem quite as imminent now. It helps that Sprague’s start-up costs were, according to him, less than $200,000. A conventional biodiesel production facility would be five to 10 times larger in both size and production – but also in capital investment, he explained. With a smaller, on-site facility, the average farmer can probably afford to invest in a percentage of the action.

“That is the heart of agriculture,” he said. “That is what agriculture was originally designed to do, to service your local area.”

For more information on Union Co. Biodiesel, call (270) 952-1850.

Published in the October, 2005 issue of MarketPlace.