June 13, 2007

 

Soaring soybean oil prices may dampen growth of biodiesel

 

 

Rising soybean oil prices may put a squeeze on the booming biodiesel industry, which relies heavily on the oil to make the renewable diesel fuel additive, the US Department of Agriculture said in its monthly crop report released Monday (June 11).

 

The USDA said escalating prices have obstructed the profitability of some biodiesel plants, which at most, accounts 80 percent of the operating cost.

 

Industry experts say biodiesel plants make a profit if soybean oil prices are 34 cents per pound or less.

 

On Monday, soybean oil for July delivery was trading at nearly 35.5 cents per pound on the Chicago Board of Trade as the market are expecting increased prices, said Fred Seamon, a Board of Trade agriculture analyst.

 

Soybean oil for December 2008 delivery was trading at just under 38 cents a pound, he said. The record price for soybean oil was set in 1974, when the July contract price exceeded 45 cents a pound.

 

The US biodiesel industry consumed about 202.54 million pounds of soybean oil in April, a huge jump from the 96.28 million pounds refined into biodiesel from the same period last year.

 

Seamon said the high soybean prices will slow down the biodiesel industry.

 

Monte Shaw, a spokesman for the Iowa Renewable Fuels Association, an industry trade group, said only one of four to five biodiesel projects planned have moved forward because of profitability concerns due in part to higher input costs.

 

Shaw confirmed that plants using soybean oil as their sole feedstock are finding it a challenge to make a profit.

 

Of the 148 commercial biodiesel plants in the US, about 63 utilize soybean oil as the primary feedstock, according to the National Biodiesel Board.

 

Biodiesel plants are located in 41 states which have an annual production capacity of 1.39 billion gallons.

 

Although larger, new biodiesel plants also can refine animal fat or use corn, canola, cottonseed and palm oil, their profitability relies on pricing of those oils which Seamon says are soybean oils' benchmark for pricing most other fats.

 

The strong oil prices also are contributing to anticipated higher soybean prices, the USDA report said.

 

The average soybean prices for 2007-2008 are projected at US$6.65 to US$7.65 per bushel, up 15 cents on both ends of the range due to "stronger soybean oil prices", the report said.

 

Soybean ending stocks for 2007-2008 are projected to be 320 million bushels, or nearly 50 percent lower than the 2006-2007 stocks due to massive shift to corn planting, the USDA said. Soybean acres planted are expected to be down by 8.5 million acres and yields to be slightly lower than last year, said Mark Ash, a USDA soybean and oil crops analyst.

 

On the other hand, the report said global oilseed production for 2007-2008 is seen at 399 million tonnes, down 5.4 million tonnes from 2006-2007, the first year-to-year decline since 1995-1996, the USDA said.

 

The decrease is also due to 10 million tonne-drop of world soybean output to 225 million tonnes and partly because of a decline in soybean acres in the US, said Ash.

 

Brazil and Argentina are expected to increase record high soybean production as Brazilian crop is projected at 61 million tonnes, up 2 million from the revised estimate for 2006-2007. The Argentina crop is projected at 47 million tonnes, 0.5 million from earlier estimates.

 

Seamon said the demand for edible oils in China and India is expected to continue to increase and the increasing demand from the biodiesel industries in the European Union and the United States for soybean oils is expected to continue to pressure world stockpiles.