Biodiesel Fuel Manufacturers Face Price Squeeze

The United States Department of Agriculture (USDA) issued, on June 29, its estimates of farm acreage amounts planted in various crops. The report indicates a price squeeze for manufactures of biodiesel fuel. Biodiesel fuel is seen as an important renewable alternative to traditional gasolene.

According to the USDA report, U. S. farmers planted 92.9 acres of corn this year, up almost 19% over last year, and 64.1 million acres of soybeans, down 15% from last year. The shift in crop emphasis has been brought about by the increased demand for corn in the manufacture of ethanol fuels. The result has been an increase in the price of soybeans. Since soybean oil is the basic raw product used in manufacturing biodiesel fuel, manufacturers are scrambling to find ways to produce their product while still earning a profit for their work.

According to an Iowa State University study, cited by an article in the online version of Wallace's Farmer, the breakeven point for using soybean oil is 30 cents a pound. The price for the oil is already at or above that price. A chart in the Wallace's Farmer article shows that Iowa, one of the primary states for the manufacture of biodiesel fuel, saw its own crop acreage for corn increase by 13.5% and its soybean acreage decrease by almost the same amount.

Another study by Iowa State University projected the affects of biofuels on U.S. grain, oilseed, and livestock markets. The study found that there will be more of an impact, at least in the short run, on the biofuel industry. For example, corn acreage is seen as increasing to nearly 94 million acres by 2011 compared with the estimated 92.9 acres this year. To make up for the increase in corn acres, soybean acres are projected to decline. The study suggests that farmers, given the choice between corn and beans, will choose corn because it produces more energy value per bushel compared with soybeans As soybean acres decline, the price for soybeans and the soybean oil by-product will increase, leading to the price squeeze facing manufacturers.

Biodiesel manufacturers are attempting to meet the price challenge by finding other products to use in their production process. According to Wallace's Farmer, manufacturers are using animal fats, waste grease from restaurants in addition to soybean oil, and are testing the corn oil that is a by-product of the ethanol industry. The magazine quotes Don Holesinger, the manager of a biodiesel plant in Clinton, Iowa, "The price of soybean oil is almost to the point where it is not economically feasible to produce biodiesel."

According to Wallace's Farmer, the increased price for soybean oil is not the only problem facing biodiesel manufacturers. They must also contend with foreign competition and tax issues. On the foreign front, increased biodiesel production by European countries, especially Germany, is leading to an increased worldwide demand for soybean oil-a demand that can cause more problems for U. S. biodiesel fuel manufacturers. On the domestic front, the Bush Administration has extended a tax credit of $1.00 per gallon to the diesel industry. That credit was formerly reserved for the biodiesel industry. In response, the biodiesel industry is asking Congress to approve a subsidy of 43 cents per gallon for biodiesel fuel, although prospects for passage of the subsidy seem dim.

One other factor is the price at which traditional gasoline and diesel fuel are selling at the pump. The chief executive of the National Biodiesel Board, Joe Jobe, told Wallace's Farmer that if the price of diesel goes below $2.00 a gallon, "biodiesel plants will be shutting down."

Sources:

www.usda.gov/nass/PUBS/TODAYRPT/acrg0607.txt
magissues.farmprogress.com/WAL/WF08Aug07/wal007.pdf
www.card.iastate.edu/publications/DBS/PDFFiles/07sr101.pdf