Adjustments to the Renewable Fuel Standard (RFS) at the end of 2013 set up an environment for a stable long-term outlook for biodiesel demand, according to a new report from the Rabobank Food & Agribusiness Research (FAR) and Advisory group.
“We saw a record level of biodiesel production in 2013 due to the expiration of the one dollar per gallon tax credit on biodiesel production and an anticipated soybean shortage in 2014,” notes report author and Rabobank analyst Al Griffin.
According the Rabobank U.S. Biodiesel Outlook, the U.S. biodiesel industry is expected to remain commoditized with tightening margins and periods of negative returns. The industry players best positioned for success are those focused on becoming the low cost producer, gaining access to multiple feedstock sources, and accessing adequate working capital to withstand volatile margins.
“Increases in biodiesel production will bolster demand for soy oil, corn oil, canola oil, yellow grease, and palm oil, along with other, less common inputs,” says Griffin. “With biodiesel feedstock being split roughly evenly between soy oil and all other sources, the fats and oils sector will benefit from intensified production.”
A key to the future of biodiesel is the advanced biofuel component of the (RFS), which is primarily fulfilled by biodiesel. While the advanced biofuel requirement could be met using sugar and sorghum-based ethanol, domestic production of both is limited and attaining economically competitive imports is challenging. Far more significant in supporting biodiesel production is the fact that future increases in the use of ethanol are “constrained as a result of infrastructure.”
This snag, acknowledged by the United States Environmental Protection Agency (EPA), is generally referred to as the “blend wall.” Although the EPA has signaled that it will adjust its original RFS mandate levels during 2014, biodiesel will be less impacted than the other categories.