A new soybean crushing plant in the heart of dairy country will help farmers boost milk production.
Benchmark Ag LLC plans to build a $14 million expeller plant to manufacture highbypass protein soybean meal — a specialty dairy cow feed — in Cannon Falls, Minn. The plant will supply feed to milk producers in southeast Minnesota and west central Wisconsin.
High-bypass protein soymeal can bolster dairy profits by raising milk output three to five percent. Although it’s not a new product, “Minnesota dairy producers don’t have a ready source now,” says Dennis Timmerman, AURI project director.
“I think this is a golden opportunity for investors as well as for soybean producers and the dairy industry,” says Benchmark Ag President Dewayne Bloem, a grain industry veteran and former Land O’ Lakes executive. “For investors, it offers the prospect of a good return; for soybean producers, an alternative market close to home; and for dairy producers, huge transportation savings.”
The expeller plant will crush about four million bushels of soybeans a year, producing 96,000 tons of specialty soymeal and 4.3 million gallons of partially-refined soybean oil, says Joe Mooney, Benchmark Ag founder and chief executive. The business, located near major dairy centers in two states, will tap a nearby market of more than 500,000 dairy cows, Mooney says.
Benchmark Ag just finished a feasibility assessment, funded by AURI and the Minnesota Soybean Research and Promotion Council. The company has purchased a 14-acre building site in the Cannon Falls industrial park. Now, the management team — including Mooney, founder of several successful computer companies, Bloem and Mooney’s longtime business partner, Dick Parry — is preparing to raise $7 million in equity capital.
A growing market
The venture evolved from a 2007 AURI report that identified niche market opportunities for Minnesota soymeal. Nobody was manufacturing high-bypass protein soymeal in Minnesota, Timmerman says.
The dairy feed is specially processed so amino acids in the meal resist breaking down in the rumen, or first chamber of a cow’s stomach. That allows most of the protein to pass into the animal’s intestines where nutrients can be more easily absorbed. About 60 percent of amino acids in high-bypass protein soymeal “bypass” the rumen, compared to 40 percent in conventional soymeal.
About a quarter of Minnesota and Wisconsin dairy farms use high-bypass protein soybean meal, the USDA estimates — a market of roughly 185,000 tons per year, according to the AURI report. And demand is expanding, Bloem says, as dairy industry consolidation creates larger, more sophisticated operations. “We see this as a growing business — and a real advantage to dairy producers.”
Location, location, location
Today most high-bypass protein soymeal used in southeast Minnesota and west central Wisconsin comes from crushing plants in Mason City, Des Moines or Ralston, Iowa, 120 to 250 miles south, says Bob Carlson, a leading oilseed industry consultant.
Freight charges, which add $10 to $20 per ton to the feed cost, discourage use in this region, says Carlson, who prepared the Benchmark Ag feasibility study. Minnesota and Wisconsin dairy farmers told Carlson they might use high-bypass protein meal if they didn’t have to go so far to get it. “Or they said they used to use it but didn’t anymore because it costs too much to go and pick it up.”
Benchmark will have a significant “competitive advantage in lower freight costs,” Carlson says. Shipping meal from Goodhue County, instead of central Iowa, could save local dairy farmers as much as $500 per load, according to the company. “That’s a huge savings per cow,” Bloem says. “We believe we will have a tremendous transportation advantage.”
The 20,000-square-foot Benchmark plant will use a mechanical processing method, called expeller pressing, which squeezes the oil out of the seed, leaving soymeal with a high-oil content of 5 to 7 percent. By contrast, most large soybean crushing plants use solvent extraction, a chemical process that maximizes oil yields.
“Expeller plants cater to niche markets,” Bloem says, producing less soy oil than solvent plants but higher-value meal. Expeller-pressed, high-bypass protein soymeal is worth about $50 per ton more than conventional soybean meal, he says. Although expeller plants operate on thinner margins than solvent plants, “the premium for highbypass protein meal is enough to make this investment look very good,” Carlson says.
Benchmark Ag expects about $44 million in annual revenue, says Parry, Benchmark chief financial officer and former asset manager for Miles Homes. About 75 percent of projected revenue will come from sales of high-bypass protein meal to the dairy industry, Parry says. Benchmark will also market soymeal to hog and poultry farmers, but that product sells for less than the dairy feed, he says. About a quarter of the revenue will come from soybean oil, which will be marketed through distributors for industrial and food products.
The limited liability company has raised $275,000 in seed money and is now seeking $7 million from investors to build the plant. The rest of the $14 million project will be debt financed, Mooney says. Benchmark will also secure $1.3 million in state and local tax breaks through JOBZ, a rural economic development program. The business will create at least 16 new jobs in Cannon Falls, he says.
A challenging time
No doubt, starting a new business in the current economic climate is tough, Carlson says. The recession, credit contraction, investor wariness, volatility in commodity markets, faltering demand for soy oil to make biodiesel — all add to Benchmark’s challenges, he says.
In addition, “the dairy industry is getting pounded pretty hard,” says Mike Youngerberg, Minnesota Soybean Growers field services director. Milk prices crashed in mid- 2008, falling from a profitable $20 per hundredweight to less than $12 by early 2009 — below breakeven for most producers.
Still, Youngerberg says, high-bypass meal “can improve feed efficiency” for dairy cows, which helps the bottom line. And milk prices — always cyclical — are expected to recover next year when Benchmark breaks ground on the new plant, Mooney says. He’s projecting an annual average of 25 percent return on investment.
An experienced entrepreneur, Mooney has launched several computer companies, starting with Benchmark Computer in 1972, when data had to be entered on paper punch cards. He sold that company a decade ago and “retired for about six weeks.” Since then, he has started three new software businesses. “I like the front end, developing companies, getting things started.”
Mooney has been working on the Benchmark Ag venture for about 18 months. Initially, he was more interested in producing biodiesel from soy oil. But he shifted course after spotting a more promising opportunity to supply dairy feed to an underserved region. This is his first foray into agribusiness, and “it’s been intellectually rejuvenating for me,” he says.
Adds Bloem, who will run the new company: “I’m excited; this project has a lot of legs, and should be good for all involved.”