The current economic environment has been devastating for many regional scale producers of biodiesel. Two basic facts:
– Diesel prices across Wisconsin now average $2.54 per gallon for on road use.
– The cost of soybeans continues a pattern of volatile commodity pricing. From $.31 per pound earlier this year, the price has fallen to $.17 per pound. At 7.68 pounds per gallon, that means the cost of soybean oil alone almost equals the current retail price of diesel.
Here are some additional costs for biodiesel producers:
– Additional input costs (catalyst, alcohol)
– Production costs (labor, energy)
– Plant overhead (electrical, maintenance, insurance)
– Interest payments on loans
Bottom line, faced with very cheap petroleum diesel, regional scale biodiesel producers based on virgin oil as their feed stock find themselves in an noncompetitive situation.
There are only a few viable strategies for biodiesel producers:
– Build or engineer the plant to use less costly feedstocks (e.g. waste vegetable oil, corn oil as a byproduct of ethanol production). This assumes access to capital to upgrade existing facilities, and the availability and affordability of alternate feedstocks.
– Tap into large sums of money, either through investors with deep pockets, or through loans with banks or other financial institutions. Insulated by money, national scale producers can not only stay afloat, but acquire smaller, struggling producers to build efficiency of scale and reduce their costs. Mandated EPA blender credits provide volume to these large scale, national companies
– Temporarily close down your plant to reduce the hemorrhaging and wait for conditions to change
The combination of these factors is leading to a rapid consolidation of the biodiesel industry, with regional producers getting acquired and merged into larger operations. Some recent examples:
REG (Renewable Energy Group) acquires assets of bankrupt KiOR
REG acquires Imperium
Cenex Harvest States was buying Patriot Renewable Fuels
While impacted by the affect of these economic forces on its biodiesel production partners, Bring It Home Biofuels Co-op has no debts that it must repay, and no plant operation it has to operate at a loss to bring in that revenue. In times like these, not having physical assets and debt ensures survival.
We will continue to work at our mission to source biodiesel for our members. At this stage, our main approaches are to:
– Partner with regional scale producers with an operational and financial model capable of riding out this storm
– Collaborate with other local initiatives that have a shared mission and a complimentary business model.
More on this as we move forward.