Biodiesel developments and concerns
With ample supplies of reasonably priced feedstocks, a blenders’ tax credit, and fuel industry acceptance of the product, biodiesel producers in 2013 experienced the best profits since late 2011. Favorable profits led to a sharp increase in production in 2013. However, unsettled government policy issues cloud the industry’s future for the year ahead and possibly longer, and are causing uncertainty in the industry. In this article, we provide more detail on these developments and implications for the biodiesel industry. Biodiesel has advantages over corn-starch ethanol because (1) it is an advanced biofuel and can play a role in helping to meet government-mandated levels of advanced biofuels blending, and (2) it does not have a precise blend wall, although there has been some talk by users that 10% biodiesel and 90% conventional diesel fuel may be a realistic upper limit on the market for now. A disadvantage of biodiesel is that its production cost per gallon has been relatively high when compared to conventional diesel fuel. To help make it competitive and feasible to blend with diesel fuel, it has had a $1.00 per gallon tax credit.
When compared with other motor fuels, biodiesel has a relatively short history dating back only to the mid-2000s. Figure 1 shows its estimated profitability in recent years, as well as total costs and total revenue for typical plants using soybean oil as a feedstock. The data shown in the chart are from the AgMrc model, using soybean oil as the feedstock. The model is available at: (http://www.agmrc.org/renewable_energy/biodiesel/tracking_the_profitability_of_biodiesel_production.cfm)
Soybean oil is the most common feedstock for biodiesel although corn oil, animal fats, and small amounts of oil from minor oilseeds also are used. Costs and profitability vary somewhat, depending on which feedstocks are used in its production.
As shown in Figure 2, feedstock costs are the largest expense of producing biodiesel, by a wide margin. Soybean oil feedstock costs declined from a monthly average of $4.26 per gallon in April 2011 to $2.97 per gallon in November 2012. The reduced cost resulted from a decline in the soybean oil price from $0.56 per pound in April 2011 to $0.39 per pound in November 2013. From mid-November to late January, soybean oil prices declined by an additional 5% to 6%, further reducing the cost of biodiesel production. Soybean prices declined by a much smaller amount during the same period because of increased demand for soybean meal. Strong protein meal demand allowed soybean meal to carry a higher portion of the value of soybeans than in a number of previous years.
U.S. Biodiesel Production Trend
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