4266 wrote:The wholesale number refers only to the product immediately after production. Basic economics always states that transportation costs and otherwise are added to the RETAIL value which as high as it is, will always be competitive with oil costs.
Not sure what you mean by this. Wholesale prices, like retail prices may or may not include transportation costs from the point of purchase (as in "only $19.99 plus shipping an handling). Here is my point (and I'll use your numbers). The production cost for the Baldwin producer is about $115/ton. The going wholesale price in Maine is $165/ton. Assuming that number is FOB Baldwin, ME the pellet guys make a margin of $50/ton or about $1200 per truckload. Next come the steps from plant to consumer. As the going retail price is $265/ton (FOB your friendly pellet supplier's dock), there's $100/ton available to pay to transport the pellets from Baldwin to a distribution center (or directly to a retailer), pay for fees to distributors that broker the relationship between mfgr and retailer, and provide the retailer a margin for his/her efforts. I'd guess a retailer would want ~$50/ton, an intermediate broker ~$20/ton, and transport/storage/etc. to be $20-30/ton (remember: this crap gets burned four months a year but is produced year-round, so someone's gotta pay to store it). Beautiful! If Mainers will buy pellets for $265/ton, everyone makes money! Ok, so let's try to expand the business to Michigan:
The latest retail pellet price in MI I can find is $189/ton.
http://www.woodpelletprice.com/index.ph ... tstart30=0
So that means that you have a spread of $74/ton ($189-115) to (a) provide a profit for the pellet mill in Maine, (b) transport the product to MI, (c) absorb brokers fees, (d) store the product as needed, and (e) provide the retailer a mark-up. Considering the spread doesn't appear to cover even needed retailer, broker and storage considerations, it doesn't matter how efficient the Mountain Division or even Maine's entire integrated, green, pie-in-the-sky transportation network is.... the numbers don't work! Even if the retail price in MI was the same as ME, a Maine producer would be hard pressed to penetrate that market.
I appreciate you posting the link to the Baldwin guy's website. They talk about distant markets, but it's apparent (to me at least) it's the local, i.e., non-rail market they are going after. Some excerpts:
a state-of-the-art wood pellet manufacturing facility -- located 28 miles from downtown Portland, ME!
F.E. Wood & Sons is excited to be dealing with a strong network of local businesses to deliver this quality product to our market -- Maine!
F.E. Wood & Sons is looking for active partners in the local and national distribution channel. If you are a local business owner who needs a high quality, low ash content pellet fuel supply, give us a call or e-mail, and we can discuss plans for the future! Remember: We are located only 28 miles from Portland, ME! This is a great opportunity to reduce transportation costs, and get access to the quality fuel that your customers need!