Prairie Pride and Tenaska Biofuels enter into tolling agreement

Posted August 12, 2009

Competing against the vertically integrated, multinational giants is nearly impossible for independents in the agriculture and energy sectors. As such, Tenaska Biofuels LLC of Omaha, Neb., and Prairie Pride Inc. of Deerfield, Mo., have sought to integrate their businesses for a stronger position in the marketplace by applying a traditional partnership template to biofuels.

Tolling agreements in the energy sector basically work in the following way: a party supplies fuel to a power plant, for instance, which converts it to electricity, the fuel supplier then takes the electricity and markets it. The power plant is basically rented by the fuel supplier to convert its product into a different commodity.

Tenaska Biofuels will purchase soybeans and deliver them to Prairie Pride, which owns a soybean crush facility and a 30-MMgy biodiesel refinery. Tenaska will then market the soy meal, oil and biodiesel produced. "So basically we will provide Prairie Pride with the raw materials and also market its fuel," said Brian Engel of Tenaska Biofuels, a subsidiary of Tenaska Inc. "Our business model involves building relationships so several different companies can take advantage of the benefits offered by the virtually integrated model. We're bringing independents together to do similar things that the multinationals do."

The agri-giants have been around for over 100 years in many cases and are completely integrated, Engel said. "They have elevators, terminals, processing plants, packaging brand names, and that is what you have to compete against."

Feedstock procurement requires expertise in risk management and hedging, which require significant capital-these are all assets that Tenaska brings to the partnership, along with several years' experience in marketing biodiesel. The companies will cooperate to purchase the soybeans.

Once the beans are processed, Prairie Pride will assist in the marketing of the meal and hull pellets, while Tenaska BioFuels will market the oil. "We are providing the 'fuel'-in this case soybeans-to be processed into marketable commodities," said Dave Neubauer, vice president and general manager for Tenaska Biofuels. "By drawing on Tenaska's experience in energy tolling, we are confident that the concept can help expand Prairie Pride's business."

Kent Engelbrecht, commodity manager for Prairie Pride, added, "This partnership will allow us to begin immediately to bid for soybeans and to offer soybean meal and pellets for delivery within the next 30 days. With harvest quickly approaching, we want to be fully functional as soon as soybeans become available."