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Commodity Prices a Speed Trap for Biodiesel Production

Some already are labeling it the “Great Biodiesel Shutdown of 2009,” but whatever you call it, America’s effort to supplant petroleum-based diesel with renewable biofuel is having a breakdown this year – and whether it’s just a flat tire or a major engine blowout remains to be seen.

Biodiesel producers are closing, cutting back, consolidating or suspending operations throughout the nation as the industry reacts to a series of financial pressures that suddenly have made production of the fuel an unprofitable venture.

Chief on the list of problems is the soaring, record price for soybeans, feedstock for 80% of biodiesel made in this country. Now going at about $11.50 a bushel, soybeans are twice what they cost a little more than a year ago. The price for soybean oil, actual feedstock for biodiesel, is at the same level – and there is no relief in sight, although some hopeful experts think the market may be “leveling off.”

But still, at these prices, the basic cost of soy-based biodiesel exceeds $3 per gallon before refining and transportation. Even with the $1 per gallon tax credit that biodiesel blenders receive from the federal government, there is an actual loss per gallon at today’s pump prices.

Many biodiesel makers say soybean prices are being driven up by speculations and futures markets, but others acknowledge some systemic problems – including reduced soybean supplies in South America due to a major drought in Argentina, Paraguay and southern Brazil. Others mention the strong increased demand for soybeans as a food product in the Asian market, particularly China.

Other factors in the industry’s financial storm include recent tariffs imposed on U.S.-made biodiesel by the European Union (enacted to counter the favorable U.S. tax subsidy); the general level of crude petroleum prices in recent months; the overall downturn in the economy; and last but not least: the Environmental Protection Agency’s proposed rule for the Renewable Fuel Standard (RFS-2) which requires renewable fuels to meet certain greenhouse gas emission targets. The initial RFS-2 data shockingly was a blow to biodiesel, although further review is underway through the EPA because of strong industry reaction to the rule, which could terminate federal support for biodiesel.

Joe Jobe, CEO of the National Biodiesel Board, recently summed it up by saying the industry – already slumped to 2006 output levels – needs the RFS-2 support. He added: “America is at risk of going backwards in energy security. A review of the March biodiesel production numbers shows commercial biodiesel production fell to 30 million gallons. If this continues, it will reduce industry production to half of the 700 million gallons produced in 2008.”

Jobe said at least 20 of America’s 176 biodiesel plants already have gone out of business and that almost all others have curtailed or stopped productivity. “We are at risk of losing the only domestically produced homegrown fuel for diesel engines,” he said in a statement. He later added: “We’ve got to have the RFS to help feather out this bust cycle, this downturn that we’re in, so that the industry doesn’t just wither away.”

Increasing the supply of other feedstocks for the near term is simply not an option, according to those in the industry. Animal fats – including tallow, choice white grease and yellow grease – already are at capacity, as is waste vegetable oil. Other sources – like rapeseed, canola, field pennycress, jatropha, flax, sunflower and palm oil – remain years away from producing the volume necessary to fill the gap. And algae, touted by many as the source of the future, is still in its experimental phase.

The whole dilemma is encouraging to proponents of non-food biofuel, who argue that the whole biodiesel/soybean problem is proving their central point – that using a food crop to produce biofuel will not remove demand for the food crop, but merely displace the crop to be grown somewhere else, frequently at a higher cost or at the cost of a rain forest or other carbon-digesting biomass. But there is nobody in this camp vocally in favor of totally ending soy-produced biodiesel until this “golden day” arrives! That would be ceding to the greater enemy, petroleum and fossil fuels!

If there’s a clear winner in all this, it is the lowly soybean – and the people who grow them at today’s prices. Only a very small percentage of the annual crop goes into biodiesel. The rest serves humanity in many ways, in food and industry.

One of mankind’s oldest friends, the soybean’s been with us for at least 5,000 years from its origins in Asia. And as underscored by today’s clamor, it’ll undoubtedly be with us forever.

And after all, nobody can blame the soybean for our problem. It just does what we tell it to – and apparently extremely well!

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