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Biodiesel may be derived from oilseed feedstock (virgin oil) or recycled vegetable oil. In cases where oilseeds are used, it is important to understand the economic factors of oilseed processing and how they relate to the overall economics of biodiesel production.

Oilseed Processing Economics

The economics of an oilseed processing operation are substantially influenced by oilseed prices, vegetable oil revenues, oilseed meal revenues and labor costs.


Costs for an oilseed processing facility can be grouped into three general areas; 1) seed costs, 2) labor costs and 3) all other costs (equipment, maintenance and operating). Seed costs typically account for 80 to 90 percent of the total operating cost for an oilseed processor while labor costs account for 5 to 10 percent. Other costs including equipment, maintenance, and minor costs often account for less than 5 percent of total costs.

Seed Costs

Oilseed processors have little control over commodity prices. In some cases, oilseed processors can utilize futures and options contracts to help manage the price risk associated with oilseed markets. Processors can also contract directly with growers to ensure a local supply and a fixed price. These contracts are typically one growing season in length. The short duration make it difficult to ensure a local supply of seed over longer periods of time. Oilseed processors may also choose to be a buyer in the cash market, which allows processors to purchase seed when it is profitable but does not require them to purchase seed. However, the cash market does not guarantee an available supply of oilseed feedstock. Most oilseed processors employ a combination of these tools to secure oilseed feedstock for processing. Historical oilseed prices can be obtained from the USDA National Agricultural Statistics Service. Montana specific prices are available at:

Labor Costs

Labor costs for small to medium scale oilseed processors involve two key issues. The first is that one employee can operate a 1 ton press or a 15 ton press. Increasing the size of the press doesn’t change the amount of labor that is required to operate a press by a substantial amount. This fact is critically important to understanding the role of labor costs in oilseed processing. One hour of a worker’s time utilizing a 5 ton per day press will result in about 0.21 tons of processed seed. The same worker with a 10 ton per day press can process 0.42 tons. The larger press reduces the labor cost by 50 percent. Purchasing a press that is sized appropriately can help ensure the best overall value.

The second key issue is the cost of labor. Nearly all commercial oilseed operations have employees. The company can easily determine the cost (per hour) of hiring an employee and utilize this cost in helping to determine the appropriate size of press to purchase (spending more money on a larger press will reduce labor costs). However many smaller oilseed processors opt not to employ labor and provide the labor themselves. It is much more difficult to assign value to labor in these situations. The value of proprietor’s time is the opportunity cost of his or her time. If the proprietor hired an employee to help run his farm so that he could operate the oilseed press then the value of the proprietor’s time is the cost of the hired employee’s time. Some proprietors view their enterprise as a hobby or something they do in their spare time. In these cases, proprietors often place a very low opportunity cost on their time. Whether the labor is hired or not does not affect the fact that as the value of labor increases, the more financially attractive larger capacity oilseed presses will become.

Equipment and Operation Costs

Equipment and operating costs do not comprise a large portion of total costs but still need to be managed. Capital equipment purchases are commonly a large upfront expense for potential oilseed processors. It can be very tempting to purchase the least expensive equipment that is available. A better financial decision will also consider the labor costs associated with operating a press and the oil recovery efficiency of the press. These factors can have a large impact on the financial viability of the press over its life. Other costs like maintenance and electricity are typically a very minor part of total costs.


Oilseed processing produces two marketable products, oil and meal. Both are important revenue streams for an oilseed processor. For each 100 lbs. (35 percent oil content) oilseed feed stock, approximately 70 to 75 lbs. of meal and 20 to 25 lbs. of oil are produced. About 5 lbs. is lost during processing, mostly due to moisture reduction. Oilseed meal prices vary depending on the type of oilseed processed. Soybean meal is the most valuable while sunflower meal is often the least valuable. Recent prices have ranged from $200 to $350 per metric ton. Oil prices also vary depending on the feedstock. Peanut oil is the most valuable while soybean oil tends to be the least expensive. Recent prices have ranged from $3.75 to $6.00 per gallon. Meal prices also vary depending on the feedstock. Recent oilseed meal prices have ranged from $120 to $320 per ton. Current prices for both can be found at: www.ers.usda.gov/Briefing/SoybeansOilcrops/data.htm.
Current market prices will determine which product will contribute more revenue to the operation.

Biodiesel Economics

Potential biodiesel producers should have a basic understanding of biodiesel economics. The economics of biodiesel are dominated by two factors, cost of vegetable oil and biodiesel revenue.

Input & Operations Costs

The cost of purchasing vegetable oil typically accounts for 65 to 90 percent of the total costs of producing biodiesel. Labor costs may account for 3 to 10 percent of total costs. Methanol costs can account for 12 to 18 percent of total costs (larger operations may utilize a methanol recovery system that lowers this to 7 to 12 percent of total costs). Equipment costs vary substantially for small scale producers, but rarely exceed 15 percent of total costs (and may be much lower). Labor costs decline as the size of the operation increases, but even small operations rarely have labor expenses over 5 percent of total costs. Other costs (catalyst, electricity, maintenance, etc.) are commonly less than 5 to 8 percent of total costs.


Sales of biodiesel are the main revenue stream for biodiesel producers. From 2002 to 2011, the average retail price per gallon premium for biodiesel over petroleum diesel has been $0.58 in the Rocky Mountain Region based on data from the Clean Cities Alternative Fuel Price report. Biodiesel producers will typically generate 95 percent or more of their revenue from biodiesel sales. In cases where the biodiesel is not sold but instead used directly by the producer, the value of the biodiesel is captured by reduced diesel fuel purchases. In cases where biodiesel is being sold, additional revenue may come from the sale of glycerin. Unrefined glycerin is produced as a byproduct of the biodiesel production process. In some cases it refined for use in the production of cosmetics, soaps or other products. In other cases, it is used or sold as an unrefined product for use as a boiler fuel. In either case the revenue generated by this is very low (often less than $0.50 per gallon). Some producers compost their glycerin. This can be an effective disposal tool but a producer needs to keep in mind the volume they will be composting (about 10 to 20 gallons per 100 gallons of biodiesel produced). Small scale biodiesel producers may have difficulty finding a buyer or a use for this product. Careful planning for glycerin management should not be overlooked. Subsidies have been available periodically for biodiesel production. These subsidies have included grants for equipment purchases, tax credits and per gallon payments. If a biodiesel producer is able to obtain a subsidy of some type the revenue percentages mentioned above will be affected.

Oilseed Processing & Biodiesel Business Plan Software

Potential oilseed processor or biodiesel producers should develop a business plan and some projections on the financial viability of the proposed operation. Larger operations often hire specialist to help prepare this analysis. This is a great option for many businesses but may be impractical for small operations. Potential small scale biodiesel producers can utilize software developed at MSU to help create individualized financial projections. The software is free and available at: www.ampc.montana.edu/energyinformation.html.

The software allows users to enter equipment, labor, oilseed, oil, methanol and other costs specific to their operation. It also allows for vegetable oil, oilseed meal, biodiesel and glycerin revenues to be entered. Based on the user provided information the software generates basic cash flow and financial information. Changing allows potential processors to get a feel for the implications of changing market conditions.