While general construction remains challenged, isolated opportunities still exist. Take the biomass energy market, for example. Plants that consume wood products to produce energy are increasing in number due to concerns over foreign oil dependence and the resulting government subsidies.
Riverdale Environmental Services, Granite Falls, MN, recognized the potential in this market several years ago. The company started as a land clearing business. However, its primary focus evolved into management of biomass materials as it searched for better utilization of the material it was generating.
"There was increased pressure - especially from the governmental work we were doing - to better utilize the material," says Joshua Streblow, Riverdale Environmental Services. The firm's involvement in biomass started with a regional plant that was coming on line. "We researched that sector, saw where it was headed and made the jump."
Land clearing is now a small segment of the company's business. "We keep it going to generate a portion of our feedstocks, but we are focusing more upon management" says Streblow. "There are real opportunities out there, but it is still a very young industry."
Riverdale Environmental expects to process 100,000 to 120,000 tons next year with its Vermeer tub and horizontal grinders. "The plants have a desire to work with companies who can give them a complete package so they can focus on what they do," Streblow notes.
However, he emphasizes that the biomass market is not one to go into if you're looking to get rich quick. "It is very consuming," he points out. "To do it just on the value of the biomass based on your own activity is pretty tough.
More demand to come
Dozer Enterprises, Bear Lake, MI, started out as an excavation business that performed land clearing. Then it, too, changed its business model to pursue the biomass energy market.
"We were burying a lot of trees and burning them," says Joe Miller, president. "Then we got into the chipping. That took off and about three years ago we switched everything over from excavating to chipping. We have 15 full-time and two part-time employees."
Before the economic downturn, the company was providing 3,000 tons of biomass wood chips to two plants every week using its Morbark Model 40/36. "Right now, we're down to 1,000 tons a week just because they aren't using the power at the plants," says Miller. "The plant is only running at about 40% capacity, where normally it runs about 80%."
Even so, Jerry Morey, Bandit Industries, sees the decline in demand in some regions as the exception. Most areas have actually witnessed robust growth. "As the years pass, the bio-energy market is going to be called on more and more to meet the demand," he predicts. "More biomass plants are going into operation."
Ed Dodak, assistant regional manager, Midwest sales, Morbark, sees big potential for other land clearing contractors if they are already set up with the right equipment, such as a cutter, a skidder, trucks and trailers. "We expect biomass to grow more in the next five years. There are more requirements for plants to go green and start burning wood again," he states. "Biomass has really taken off. We have sold 13 or 14 new machines here in Michigan last year. They are all feeding power plants."
Proximity to plants drives all
"One of the key factors in providing biomass chips and making it economical is the distance from the source to the plant that is using it," says Mark Ferguson, Fecon.
The whole profitability model centers around transportation costs. "Transportation can be a significant portion of your overall cost structure," says Streblow. "With your cost structure, 75 or 100 miles is really going to be your target on the outside. The closer you bring it in, your profitability really skyrockets."
The size of the job also impacts the allowable distance from the plant. "If it is a big job, we will go 60 miles," says Miller. "If you go much more than that, with the cost of fuel, you are basically losing money."
In some cases, plants that desperately need wood will help offset the cost of transportation, effectively increasing the possible work radius from the plant.
There are other opportunities to cut operating costs and increase the maximum working radius. For example, Fecon has developed a bio-harvester that allows one person to simultaneously fell, chip and convey the chips into a wagon. "You eliminate several operators and machines, thereby reducing your costs and essentially expanding your radius by a significant amount," says Ferguson. "Maybe you can deliver it 120 miles and still be profitable."
Where to start
In order to break into the biomass energy market, Ferguson recommends first identifying the sources that are accepting biomass chips. This can be done by researching the market via the Internet.
"The biomass and energy markets have a lot of websites," says Dodak. Your local dealer can also be a good resource. "Most of the time, your local equipment sales representative knows the local chip buyers in the area."
"In addition, the USDA (U.S. Department of Agriculture) has a real thorough website that lists certain opportunities available for these types of contractors," says Morey. "They usually list plants that are going into operation or that are under construction."
It's important to understand the market and develop a plan. "Because the market is relatively new, you need to do as much research as possible and as much networking as possible," says Ferguson. "Go to trade shows. Talk to the end users. People are going to approach this from different angles. Different things appeal to different people and there are a lot of aspects of this market to get into."
Your local dealer can also be a wealth of knowledge and has the expertise to get you on the right track. "The dealer network is going to be a great place to start because they can identify facilities that are in demand of product," says Todd Roorda, Vermeer Mfg. "They have a pretty good ear to the ground as far as what is going on in a market and how the markets are changing."
MATERIAL PRICES VARY
As with any commodity, supply and demand play a large role in biomass material pricing. "The price for biomass is still very competitive," says Joshua Streblow, Riverdale Environmental Services. "It is becoming an increasingly valuable commodity, but it is very opportunistic right now."
The terms of material acceptance and reimbursement will also vary with each plant. Some plants have inspectors who either accept a load or refuse it. "Some will take the material, and then screen it and pay for what is usable," says Todd Roorda, Vermeer Mfg. "Of course, the more non-usable you have, the less you are going to get paid. So obviously, you want to supply as high a percentage as you can of usable material."
You can get an idea of biomass material prices via the International Wood Fiber Report. "It gives pricing throughout the whole country," says Ed Dodak, Morbark.
Right now, there is new income coming from the Biomass Crop Assistance Program (BCAP). "This [government subsidy] program provides financial assistance for producers or other entities that are delivering biomass material or product to these facilities," explains Jerry Morey, Bandit Industries. "Producers will be eligible for a dollar for dollar match up to $45 per ton."
"This is a subsidy program that was funded at the end of 2009," says Dodak. "Monies are beginning to flow on the market now. You have to qualify to get that money. The land that the timber is coming off has to qualify, and then the mill has to qualify. It is a two-year program."
Visit www.usda.gov for a nationwide list of BCAP-qualified plants.