With demand for fuel pellets up, these brothers are grinding wood as fast as they can

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Posted: Thursday, February 27, 2014 12:00 am

FREMONT, Neb. — Chad and Jeff Schoeneck are typically thinking about barbecues this time of year, but not necessarily because they've had enough of winter.

The brothers own and manage Horizon Biofuels, which produces two lines of wood pellet products — one used to flavor food cooked on grills and another that's burned in pellet stoves for heat.

Late February is when they're usually finishing building their inventory of fuel pellets used primarily by residential customers in Iowa, Kansas, South Dakota and southern Minnesota. This year, however, thanks to severe cold snaps and big swings in the supply and price of propane, demand remains unusually high for the fuel pellets.

“We're pelleting as fast as we can grind the wood, and we're bagging as fast as we can pellet,” said Jeff Schoeneck, Horizon Biofuels' general manager.

Demand is so high, the company has run out of the bags for pellets and had to use the bags for its animal bedding product.

The plant in the old Golden Sun Feeds mill on the south edge of town has dry storage capacity for almost 2,000 tons in towers that used to hold animal feed. It sat empty for 11 years before the Schoenecks bought it to manufacture wood heating fuel pellets using waste lumber from local manufacturers and discarded pallets from other businesses within a 30-mile radius of Fremont.

Before turning a focus to wood pellets at the Fremont facility, Horizon Biofuels was originally formed to develop biodiesel. Then, speculative commodities trading “bankrupted the industry,” said Chad Schoeneck, the 45-year-old plant manager and Army-trained heavy diesel mechanic.

He worked with his 50-year-old brother, Jeff, a University of Nebraska-Lincoln engineering grad, at Jeff's wastewater treatment business before they started Horizon Biofuels.

The six-year-old company has posted sales increases of 10 percent to 12 percent each year and expects the demand for fuel pellets to result in a bigger increase in 2014.

For now, the storage towers at the old Golden Sun Feeds mill are mostly empty and production of the company's Pitmaster Select smoking pellets is on the back burner.

Freight costs for fuel pellets, which are packaged in 40-pound bags and stacked a ton to a pallet, are usually too uneconomical for the Fremont plant to ship as far away as Wisconsin, but local suppliers there have had a tough time maintaining inventories.

That's prompted the Fremont plant, the only one of its kind in Nebraska, to fill the void for retailers in the Badger State.

“We didn't run completely out, but the manufacturer we were getting pellets from couldn't keep up with deliveries,” said Mike Kraus, whose wife owns Nature's Heat in Necedah, Wis., about 90 miles northwest of Madison.

Kraus said the store was supposed to be getting two to three semi loads a week from its usual supplier. Increased demand pushed shipments down to a single load a week.

“It was the good fortune of Google that I found (Horizon Biofuels), and they actually had supply on hand,” he said.

As retailers in Wisconsin have struggled to keep up with demand for wood fuel pellets, so have consumers struggled to keep up with record-high propane prices.

Data from the U.S. Energy Information Administration shows prices on Feb. 17 averaged $3.34 per gallon of propane, compared with average prices of $1.56 per gallon during the same period last year. Prices have come down considerably from an average residential price-per-gallon of $4.49 reported on Jan. 27, but supply remains tight.

Despite the current high demand for fuel pellets, the alternative heat source remains far less costly than a comparable amount of propane, according to the EIA. Assuming a retail price of $200 for a ton of pellets, the same amount of heat generated by propane costs three times as much at current prices.

A typical pellet stove features a storage bin that holds pellets and an auger that feeds pellets into a burn pot, where they are ignited. Since the pellets are dense and low in moisture, they burn slowly, and a large fan blows hot air warmed by convection throughout the area to be heated.

Since most homes use pellet stoves as a secondary heat source, a 2,000-square-foot home in Nebraska consumes about two tons of pellets through the winter, said Clem Schweers, general manager of Omaha-based stove dealer AG Heat.

So far, Horizon Biofuels has shipped about 150 tons, or 7,500 bags, of pellets to Necedah. It has also shipped to other retailers in Wisconsin — typically independent hardware stores.

The spike in demand has not been limited to Wisconsin.

A spokeswoman from Lowe's said wood pellets have been hard to find across the northeastern part of the country where pellet stoves tend to be more popular. She said pellet stoves are also popular in Arizona, and the Pellet Fuels Institute, an industry trade group, names case studies from states across the country where wood pellets are in use.

Horizon Biofuels has a client who, after dropping a truckload of soybeans at Archer Daniels Midland Co. a few blocks away, then loaded the trailer with fuel pellets to heat his hog confinement.

All of Horizon's products — it also produces a line of animal bedding — are made of wood and timber that otherwise would go to waste.

The hardwood cherry, mesquite, pecan, mulberry and maple that go into the smoking pellets are sourced from orchards that tear out old trees to make way for new ones, for instance, or from companies that want only the trees' thick, hardwood trunks for lumber.

Other local manufacturers send their waste trimmings from two-by-fours and wood pallets to the Fremont plant since that's cheaper than sending waste to a landfill.

At the plant, wood is sent through a series of three grinders before reaching the consistency needed to compress it into pellets. An elaborate conveyor system carries pulverized wood resembling coarse sawdust into pellet mills that use 20,000 pounds per square inch of pressure and heat of about 210 degrees Fahrenheit to form pellets.

The smoking pellets undergo the same process but require different blends of wood for each variety of pellet. Consumers need a special kind of grill that burns pellets for heat, like those made by Setzer Manufacturing in Beatrice, Neb.

Owner Mark Setzer said the company is shipping out grills from its Blaz'n Grill Works line every day as the trend toward pellet barbecue grills continues. Setzer's grills function like a heating stove, with an electric auger that feeds pellets into a receptacle in which they're burned. The smoke imparts its flavor into whatever is being cooked.

Neither of Horizon Biofuels' lines of pellets contains added chemicals.

Jeff Schoeneck said he expects to begin building inventory of smoking pellets soon for grilling season.

Chad Schoeneck said the plant is capable of producing 1,000 tons of pellets a month, but the plant with its current staffing of five (including the brothers) averages about 400 tons a month.

“We don't want to bring extra guys on for a few weeks and let them go,” he said. “It's a long learning curve and the market has to be there.”

With the current demand, Chad Schoeneck said, “I could charge retailers over $650 a ton for product, but we're not doing that.”

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