FocusSoybean fall provides some biofuel relief

23 June 2008 23:46  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)-- Economic conditions are easing for some - but not all - US biodiesel producers as prices for feedstock soybean oil continued their retreat from a near-historic highs, industry sources said on Monday.

Drier weather in the US midwest and a cooling of tempers in the Argentinean grain export-tax debate helped bring soybean oil prices down to 63 cents/lb (€889/tonne) on the Chicago Board of Trade on Monday’s settlement, down by 5% from a near-record high of 66 cents/lb on 12 June.

The situation should result in biodiesel production and distribution costs of about $4.40/gal, according to analysts. With the US Energy Information Administration (EIA) pegging petro-diesel prices at an average of $4.65/gal at the pump for this week, biodiesel producers could realise a profit margin of up to 24 cents/gal, analysts said.    

But while this represents a break in a two-year march of price hikes, the latest slide in soybean oil prices might be too little, too late for some of the smaller players running solely on bean oil, said Jon Scharingson, director of marketing at Renewable Energy Group (REG). Most of the smaller suppliers have either shut down or sent workers home and decreased production rates, he said.

“With the prices moving over the past week, the challenge for many of the biodiesel producers that can only work on soybean oil is that there’s a decision that has to be made whether to bring your people back in to run things,” he said. “Guys don’t want to do that based on what might be a short window of profitable operations.

“We’ve seen a couple of dips in soybean oil in the past 90 days, but we haven’t seen people getting back in the game. People getting back in the game are those that can run stock other than soybean oil,” he said.

The overall industry is running at 15-20% capacity, analysts said. Scharingson said REG, which runs off bean oil, animal fat and other sources, is running at 220m gal/year, or 70% of capacity. 

The volatility of soybean oil prices has been a major stumbling block for suppliers. The commodity, which accounts for about 80% of production costs, has risen 7 cents/lb since May and 33 cents/lb since January 2007.

Opportunities are still available for producers with diversified raw material sources, one analyst said.

“Biodiesel people are making money right now,” the analyst said. “Companies that have mixed cheaper stuff such as tallow, they’re making a little bit more.”

Soybean-based B100 biodiesel was assessed on Thursday at $5.50-5.75/gal free on board (FOB) midwest for domestic and $5.40-5.75/gal FOB US Gulf for export, according to global chemical market intelligence service ICIS pricing.  

($1=0.64)

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By: Ben Lefebvre
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