FARMING OUT: Dr. Steve Bares talks about agriculture and biofuels at a recent meeting of the West Tennessee Clean Cities Coalition. -- Photo By Amy O. Williams

It's been all over the news: The biodiesel market is booming, and it's come to Memphis.

Milagro Biofuels of Memphis LLC opened in October; Memphis Biofuels LLC is expected to open by the end of this month, and a slew of other biofuels plants are in the works. But who is producing the ingredients?

Farmers - both corporate and independent - are responsible for most of the raw materials used in the production of alternative fuels.

Money grows on stalks

Those raw materials include oils from various crops or animal fats. The range of crops that can be used to make biodiesel is large, said Bud Hughes, director of Verdant Partners LLC. Hughes manages the Collierville office of Verdant, an investment banking and consulting group for agribusinesses and the global crop genetics industry.

Some plant oils are converted easily for fuel and some are more difficult, but all are useable, Hughes said.

"There are lots of oil crops out there with various characteristics, crops like soybeans, sunflowers and canola," Hughes said. "Anything you can make vegetable oil out of, you can make biodiesel out of."

In the Mississippi-Arkansas-Tennessee area, the primary energy source for biodiesel is soybean oil, and for Mid-South farmers and people like Hughes who work with or inside the agricultural industry, that's really good news.

"We see this new demand as the beginning of a strong trend for soybean markets," he said.

In 2004, the latest year for which statistics were available, soybeans were planted on 75.2 million acres in the United States, producing a record 3.1 billion bushels of soybeans, according to the American Soybean Association (ASA). The average price paid to farmers was $5.65 per bushel, and the total 2004 crop value exceeded $17.7 billion.

Tennessee soybean producers in particular yielded 41 bushels per acre from the more than 1.2 million acres that were planted in 2004, according to the ASA data.

From the ground up

Hughes compared the current growth trend in fuels made from soybeans to what American corn farmers have experienced over the past decade as demand for ethanol has exploded and has driven up corn production to record price and production levels.

Ethanol - ethyl alcohol - is a product of corn and reportedly is used as an additive to more than 40 percent of all U.S. gasoline.

U.S. ethanol production has increased from 1.1 billion gallons in 1996 to a current annualized capacity of 5 billion gallons, according to the Washington-based Renewable Fuels Association (RFA). The bigger demand drove production levels to 1.4 billion bushels of U.S. corn last year, according to the National Corn Growers Association.

Like ethanol, biodiesel is a sustainable resource, Hughes said.

"Instead of using up a limited resource like oil - where once used, it's gone for good - for farmers, the potential demand associated with making biodiesel from soybeans is also good news," said John Dodson, owner of Dodson Farms in Halls, Tenn.

Soybeans account for 30 percent to 40 percent of what Dodson grows each year at his 1,500-acre farm near Dyersburg.

"It's another market for our product," said Dodson, who is a vice president of ASA and one of nine soybean growers who make up the ASA executive committee. Dodson also produces corn and cotton, and has a small herd of cattle.

"The timing is very good for biodiesel production to increase," he said.

A happy accident

Dodson cites the recent issues surrounding the health risks associated with trans fats - which are found in hydrogenated vegetable oils such as shortening and margarine - as hurting the market for farmers.

"We have lost a substantial amount of the market because of the trans fat issue, so the increased production of biodiesel using soybean oil is a real plus for our commodity," he said. "The timing of biodiesel was accidental, but it was very good. With fuels made from crops, we just grow some more next year."

Dodson does not sell his soybean crop directly to alternative fuel companies because no soybean processing facilities are near his farm. Instead, he sells his beans to companies that export them, such as Cargill Inc., an international food and agricultural products distributor based in Minneapolis.

Currently, no soybean-crushing facilities exist in Tennessee, said Dodson, who, in addition to his duties for ASA, also serves as chairman of the Tennessee Soy Promotion Board.

Green growth, greenbacks

Companies such as Milagro in Memphis buy their feedstock oil - primarily vegetable oil - on the open market because there aren't any local suppliers, Dodson said.

Most Tennessee soybean producers agree that U.S. markets for biodiesel will grow rapidly in the next 10 years, according to a February 2005 report issued by the University of Tennessee Agricultural Economics Department. The farmers also agree that biodiesel production will provide an important national market for soybeans over the next decade, according to the report.

But to make biodiesel production an important local market, farmers must make money, said Memphis BioWorks executive director Steve Bares.

"The biofuels industry must help the local farmer to be a sustainable job engine in the region," he said.