Food for Fuel, Again.

Well, it’s March, and the biodiesel tax credit has been in limbo for it’s third month, with no real idea when it will be reinstated.

Given the media hype in the recent past about renewable fuels causing food prices to skyrocket, you’d think that the market would breathe a huge sigh of relief and that commodity food prices would have plummeted to the bottom.  After all, almost 85% of the biodiesel plants in the USA are either idled or out of business. So where’s the pressure to keep price up, right?

Well, as of today, soybean oil is $.40 /lb. That’s $3.00 per gallon. Waste Vegetable Oil (WVO), another biodiesel feedstock, is $.26 / lb, or $1.95 per gallon. The average price per gallon for biodiesel right now is just slightly more than petroleum diesel, at around $2.25. What were prices for soybean oil and WVO back in March of last year? Around $.32 / lb for soybean oil, and around $.21 lb for WVO.

So who’s driving the price of raw feedstock materials up?  Not biodiesel, that’s for sure.   To me, it looks like the agricultural and food industries, just like they were before. They are currently exporting oils to Asia and South America. That’s good for everybody, except biodiesel. But yet the public perception when I talk to people is that we’re driving the price of food up.   Alternative feedstocks, such as algae oil, hold high hope for renewable fuels.   It provides a cheaper feedstock for us, and shuts up the critics of current feedstock supplies, unless they find something wrong with algae…

Soybean Oil Price Graph 2009

The Food for Fuel Myth – Part Deux

Watching the soybean oil and yellow grease prices today, I am struck by the fact that we’re supposed to be in the “Memorial Day Squeeze” right now with gas prices peaking and all energy costs surging. Instead, while it’s true that gas and diesel prices are up about 20 cents since the beginning of the year, it’s nowhere near as much as predicted.

Why? Because we still have a surplus of crude here in the US, with tankers of it parked out in the Gulf of Mexico. So why is soybean oil at .41/lb ($3.11 per gal) and Yellow Grease at .28/lb ($2.13 per gal)? Greed.

I don’t hear the media chiming away at the party line about how biodiesel and ethanol are driving up fuel prices this year. Again, why? Because most of the biodiesel and ethanol plants are shut down in 2009 because feedstock prices are too high, and fuel prices are too low. So apparently the “Food vs. Fuel” argument has lost a good bit of its steam. It’s not true this year… It wasn’t true last year. It was just circumstances that permitted the Ag industry to jack up prices and make extra profits. Good for you guys.

Now as the government claims to be pushing renewable fuels and trying to save the environment and become less dependent upon foreign fuel imports, we have no resources to do it that are priced reasonably.

The problem appears to be obvious. So why is nothing being done?

Somebody help, please…

Biodiesel $1.00 Tax Credit Not Working

It’s pretty obvious by now, to everyone except Washington, that the $1.00 per gallon tax credit for biodiesel producers isn’t working. What it has seemed to accomplish however, is to drive the cost of soybean oil up by $1.00 per gallon. Bravo. As of today, soybean oil is $.37 per pound or $2.77 per gallon. Diesel is $1.45 per gallon at the rack (before taxes). The math is pretty simple.

So after all this talk of making a “green” economy, biodiesel and ethanol plants are shutting down because they can’t compete with petroleum (again) and the Ag companies are raking in cash.  What’s the best part?  The biodiesel companies have to file all the paperwork with the IRS and wait a couple of months to get their subsidy back!  The Ag companies get their cash up front, and have no extra paperwork to file for it.   Nice.

Seems like we never learn.

What should they do? Well, for starters, the tax credit should be indexed against the market. Having a flat $1.00 per gallon credit just doesn’t make sense. Second, the credit should be given in such a way that it provides incentive for CONSUMERS to purchase biodiesel instead of to the producing companies or feedstock suppliers.   Less paperwork for us, direct benefit to the consumer (who’s the one actually using the fuel).

Alternatively, in an environment where Ag companies are used to price supports and price fixing, it’d also be nice to see a fixed price per gallon for inedible soybean oil that is specifically used for biodiesel, and mandatory allotments that must be sold. (Think tobacco, and it doesn’t sound that harsh.)

Whatever the solution, what we’re currently doing isn’t working. Everybody seems to be getting fat except the industry that is supposed to benefit from it.   Don’t believe me?  Ask any biodiesel producer about the wonderful US EPA Renewable Fuel Standard and RIN credits.  As a biodiesel producer who typically sells pure biodiesel, we don’t get a penny of the RIN credits unless we actually blend the fuel down to B80 (80% biodiesel / 20% diesel) or less (which means we have to become a petroleum blender).  The credit ends up getting passed on to, you guessed it, the petroleum industry for all their “hard work” in blending the fuel and selling it.   Again, great work Mr. Bureaucrat, you’ve stuffed more money in the Big Oil’s pocket once again.

Hey, I’m ready for that “Change” everybody was singing about back in November.  It can start any time.