Soy Biodiesel IPOs, A Risky Diet

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As the cost of soy rises, biodiesel producers betting on soy are struggling to make a buck. But that isn’t preventing biodiesel startups from tapping the public markets to fund their costly, and seemingly unprofitable expansion.

Take Renewable Energy Group as an example. The Ralston, Iowa-based company is planning to raise up to $150 million in an IPO according to regulatory filings with the SEC on Monday. REG boasts that it is one of the leading biodiesel producers in the United States, with an output of about 78 million gallons of fuel in 2006. REG is not the only one to cash in on the clean-craze.

Back in May, Imperium Renewables, which makes biodiesel from different crops including canola, soybean and palm oil, filed for an IPO expected to raise $345 million. The company had raised $214 million in private money, making it one of the best capitalized U.S. biodiesel companies, writes CNET.

REG and Impreium are bleeding red, if not soy. For the quarter ended March 31, Renewable Energy Group reported losses of about $1.6 million on revenues of about $55.5 million, compared to net income of $2 million on revenue of $22 million in the year-ago period. Imperium posted a net loss of $5.4 million on sales of about $5 million in 2006.

Clean tech is in fashion not just in the US, but around the planet. Chinese Biodiesel Producer Gushan, which makes fuel from a variety of agricultural products including soy, is looking to raise $200 million in a public offering in Hong Kong before the end of the year, reports Green Car Congress.

Investor enthusiasm not withstanding, these companies are walking a thin line. If the soy prices don’t come down, then these startups will be no different than dotcoms that sprouted up in the late 1990s.

Last week, The U.S. Department of Agriculture (USDA) said that the average farm-gate price for this year’s soybean crop will range between $7.25 and $8.25. That’s 60 cents higher from last month’s projection. That will bump up the price of the soybean oil used for biodiesel to an average between 32 and 36 cents per pound, up 1.5 cents from what the USDA estimated last month. With all the fuss over ethanol production causing corn prices to skyrocket (from $2 to $4 per bushel in the past year), it’s unlikely soy will escape similar woes.

There are about seven-and-a-half pounds of soy oil in a gallon of biodiesel, and biodiesel is already pricey because it is 30 to 40 percent less efficient than gasoline fuel. 

Those costs have nearly shut down one promising biodiesel plant in the Midwest. Seven months after opening its doors, Michigan Biodiesel, the Eaton Rapids-based corporation that owns the production facility, acknowledges that the plant is in trouble.

But regardless the startups still need to raise more to open expensive plants and are looking at the public markets for an answer. Imperium Renewables’ founder John Plaza tells John Cook’s VC notebook that each plant costs $60 million to $90 million, and the company is looking at starting at least 4 new plants. It’s good that they will raise $345 million to pay for it all. As for the investors who buy into all this soy madness, they are on their own!

15 Comments

ganabol

That was such a well written article, informative and accurate, i commend you, and say thankyou!
Diana

Diane Funk

Hello Guru, what entice you to post an article. This article was extremely interesting, especially since I was searching for thoughts on this subject last Thursday

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ibb

Invest in Malaysia- there’s plenty of Plam Oil as raw material for biodiesel

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Adena DeMonte

Sorry about that folks, added the wrong stat — I updated it. Thanks for the catch, Joel.

Joel Balbien

Your comment about the efficiency (or BTU value) of biodiesel relative to gasoline is inaccurate. Biodiesel is burned in compression (as opposed to spark ignition) internal combustion engines, which are 20 – 40% more efficient than a gasoline (or E85) powered engines. In addition, biodiesel contains roughly 130,000 BTUs per gallon, compared to 117,000 BTUs for gasoline, and only 78,000 BTUs for Ethanol which means fewer tankers on the road, and less fuel wasted in refueling operations. As a consequence, biodiesel and other Clean Diesel from biomass substitutes for petrodiesel, that can fuel vehicles like the 2009 Honda Accord 2.2L, (which reportedly can achieve 52 MPG and meet California’s strict emission requirements), are the most cost effective fuels now available to reduce greenhouse gas emissions, increase energy security, and ultimately address our addiction to petroleum.

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