Business Plan for Producers to Create Value-added Crop-based Products

Final Report for FW06-314

Project Type: Professional + Producer
Funds awarded in 2006: $20,000.00
Projected End Date: 12/31/2006
Region: Western
State: Colorado
Principal Investigator:
Ravi Malhotra
ICAST Intl Ctr for Appropriate & Sustainable Tech
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Project Information

Abstract:

Summary

The producers in Holyoke, CO want to grow soybeans as a rotation crop with corn. The project team evaluated the viability of a business enterprise that would crush 300,000 to 1 million bushels of soybeans into meal and oil. They determined that the resulting products could be sold at a profit. Such a crushing facility would convert soybeans into meal cake and oil, with three-fourths being meal. The team focused on establishing a market for meal with local hog farms and dairies as well as the feed mills operated by local producer cooperatives. They also added a processing oepration that would produce a value-added product, meal cake, for range animals, wildlife, horses and other animals. As for the oil, it would be converted to biodiesel by a third-party processor. The business plan evaluates the economic viability of this strategy and provides the cost of developing and operating such a facility, along with five years of income, cash flow and balance sheets.

Objectives

The primary objective is to establish the technical and economic viability of crushing soybean seeds into oil and meal for a group of producers in Holyoke, CO. Such an operation would typically be conducted at a very large scale, but the producers wanted to assess the viability of a small-scale facility.

If the operation was deemed to be potentially viable, the second objective is to disseminate the information to producers in Colorado and elsewhere and to others who might consider the value-added potential of such an enterprise.
Results

The project team completed a business plan for a soybean crushing facility to be considered by producers in Holyoke, CO, who have created a business venture called Holyoke BioFuels LLC (HBL) and are now working to attract the investment needed to move forward with the project. (A prospectus for the business can be obtained by contacting the principals involved.)

HBL is offering ownership positions to investors in exchange for an equity investment of $500,000 ($100,000 had already been acquired). The remaining $600,000 in needed capital will be dept financed. The evaluation, assuming that 80% of the cash flow HBL generates will be returned to investors, estimates that a $10,000 investment will generate cash dividends of $215.60 in the first year, $5,805.40 in the second year, $15,281.40 in the third year, $27,551.50 in the fourth year and $42,021.20 in the fifth year, for a total return of $90,880 for each $10,000 invested.

Potential Benefits

Besides the economic benefits to producers, growing soybeans in rotation with corn is expected to produce these soil and water conservation benefits:

• Enhanced environmental quality. Corn grown following soybeans typically yields about 10% more than continuous corn and requires 12% less nitrogen fertilizer. It also implies less disease and insect build-up, more weed control options and fewer weed problems.
• The use of nonrenewable and on-farm resources: On poorly drained soils, no-till cropping systems are more likely to succeed if corn follows soybeans instead of following corn or wheat. Soybeans require no new equipment and, because soybeans follow a schedule slightly different from corn’s, producers can leverage equipment more efficiently.
• Economic viability: Producing value-added products like meal cake and oil from soybeans will augment the producers’ existing cash flow and improve profit potential.
• Quality of life: The crushing enterprise will generate local sales and sales tax and create new jobs, providing an economic multiplier impact for the community.

Farmer Adoption and Direct Impact

Producers have expressed eagerness to adopt the business plan and establish the crushing facility. In addition to being well received by producers and the local community, the project received $100,000 in seed money from the Colorado Department of Agriculture, awarded to the County Administration (county commissioners were signatories for the application). Other partners are Rocky Mountain Farmers Union and three local cooperatives, Holyoke Co-op, Grainland Co-op and Amherst Co-op. The cooperatives have offered existing infrastructure, including storage capacity for soybeans, meal and oil; weight scales; and feed mill, sales staff and other support needed.

Future Recommendations or New Hypotheses

The project offers these recommendations to communities or groups of producers looking to establish an oilseed crushing venture:

• Small-scale ventures have lower transportation and marketing costs than large-scale facilities.
• The venture should have a dependable customer base for its products and not depend on one customer to sell its products, nor can it sell its products at below-market prices.
• Minimizing transportation costs can maximize profits.

Dissemination of Findings

The results of the project have been disseminated to producers in Holyoke, Flagler, Monte Vista, Eads, Dove Creek, Burlington and other locations in Colorado as well as Riverton and Wheatland, WY. It is estimated that at least 100 producers and professionals have learned directly about this project.

iCAST has partnered with Colorado State University Extension to develop a mobile working demonstration unit. An order has been placed for a Komet 59G oilseed crusher to be skid-mounted by engineers from Colorado School of Mines, and information dissemination materials have been developed by two interns from CSU

As a result of the outreach, iCAST has developed a business plan for a canola seed crushing business for producers in Riverton, WY, and has attracted a $300,000 Value-Added Products Grant from USDA’s Rural Development for the Colorado Potato Administrative Committee. The grant provides working capital for a canola seed crushing facility being established by the Monte Vista Cooperative.

Cooperators

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Research

Participation Summary
Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.