Feasibility of On-farm Processing of Canola, Soybean and Sunflower into Biodiesel

Abstract

The high volatility of fuel prices has forced farmers to consider alternative sources of energy for daily farm activities. Therefore, farmers are contemplating purchase of small scale biodiesel processors for on-farm use. However, they are uncertain about the economic cost and benefits of processing oilseeds into biodiesel on-farm. They are interested in moderating the risk of the increasing fuel prices by growing and processing small to moderate amounts of canola, sunflower or other oilseed crops. Therefore, in order to provide more information to potential investors about their investments, a Microsoft Excel based feasibility template was constructed to form a budget and project the cost and return for determining the economic feasibility of on-farm biodiesel production from canola, soybean and sunflower. Five feasibility measures were calculated including internal rate of return, net present value, return on assets, return on equity and payback period which were compared for five different potential scenarios. Three scenarios-100% canola, 100% sunflower and 50% canola-50% sunflower appeared profitable at baseline assumptions and prices. The breakeven biodiesel prices of $3.20-$3.30/gal for these scenarios at baseline were not competitive with the current biodiesel price of $3.08/gal at market. Therefore, the investments are not economically feasible unless producers anticipate an increase in the biodiesel price in future. Two scenarios-100% soybean and 50% canola-50% soybean had significant negative returns and did not prove profitable even at baseline assumptions and prices. The negative returns with soybean and its combination with canola was due to the low oil content of the soybean. Results of the sensitivity analysis show that the baseline scenario (100% canola) was sensitive to oil content, biodiesel prices, scale of equipment, canola yield, cost of production, cost of equipment, purchased oil prices and electricity cost. It was not sensitive to interest rates and maintenance cost. 100% sunflower and 50% canola-50% sunflower scenario were sensitive to biodiesel prices, purchased oil price and yield of the crops.