Soy Biodiesel: Is There a Future in the United States?


Since the early years of this century (2002-2005), there appeared to be a tremendous future for refining crude soybean oil into a diesel fuel. Those were the days that crude soybean oil was selling for $1.88/gallon and diesel fuel was just under $4.00/gallon. It was particularly attractive for oilseed crushers to refine, obtain government subsidies, and sell the refined biodiesel to the transportation industry. There was much excitement for oilseed equipment suppliers like Insta-Pro.

What happened? In 2007-2008 the demand for vegetable oil for food uses as well as soybean meal dramatically increased from China and India, followed by dramatic price increases for the bio-refiners main feed stock (crude soybean oil). Bio-refineries suddenly had costs for crude soybean oil of $2.65-$2.95/gallon while petro diesel was costing users just about $3.00/gallon. In addition, soybean meal prices more than doubled, due to increased costs for soybeans.

The United States food industry, as well as the world food industries objected to these increases, touting that it was wrong for traditional food inputs such as soybeans, corn, and other edible vegetable oils were being used for fuel. These factors led experts and government agencies to believe current and future food supplies were being threatened by using these crops to aid the internal combustion engine, jet fuel, and power plants.

Many small and medium size refiners were caught in a price squeeze they could not overcome. Meanwhile states such as Minnesota, Pennsylvania, and Massachusetts, as well as many other states mandated that from 2%-5% soy bio-diesel be blended with regular petrol diesel. Large and medium size refineries were able to use volume efficiencies as well as pipelines to move the bio-refined oil efficiently to east coast markets (with the aid of some government tax credits). These groups prospered. Adding some additional pressure on supply and price increases the US Midwest corn and soybean areas experienced 2 years of serious droughts.

Over the past 3 years the federal government has struggled to come up with a coherent biofuel policy as well as any subsidized dollars to encourage more use and refinery development. Congress is still debating on the potential use of $1.00/gallon tax credit for crude vegetable oil refiners. Unless some clear action is finalized by the federal government, the soy (vegetable oil) biodiesel industry will remain in the control of the large bio-refiners. Current crude soybean oil prices are averaging $3.00/gallon, while petrol diesel is selling for $ 3.91/gallon.

It appears in the short term, the values for soybean oil are favoring the use in human food. New discoveries of petroleum oil are being found every month, thus keeping the conventional diesel fuel competitive for the transportation industry.

I would guess the global demand for food (particularly in China, India, and Africa) will pressure soybean oil prices so that the US soy biodiesel industry will continue to need some government assistance to stay viable.

So, does the U.S. have a future in soy biodiesel? World politics, middle-east turmoil, emerging economies, and a better than average US crop forecast could create a favorable market for soy-biodiesel. Bio-refiners using soybean oil have a chance to be profitable with or without government assistance if these events in June 2014 occur.

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