World Grain - August 2012 - 72

BIOFUELS QUARTERLY: BIODIESEL BREAKING POINT

this year has reached 445.9 million gallons, according to the EPA. Capacity will not constrain production, Rabobank said, since the industry has had idle capacity for years. Total capacity in the U.S. is estimated at 2.9 billion gallons. Feedstock availability will be the most important issue for future biodiesel production, according to the report. A mandate of 1.28 billion gallons of fuel will require an oil input of 9.73 billion pounds, assuming use of 7.6 pounds per gallon. That amounts to a 1.4-billionpound increase from 2011 levels. The EPA breaks down the total oil requirement by type with virgin vegetable oil providing 47%, or 4.56 billion pounds; yellow grease and rendered fats providing 30% or 2.888 billion pounds; and corn oil (mostly from ethanol) providing 23% or 2.28 billion pounds. The breakdown is in line with historical averages, Rabobank said, but the report noted that the history of biodiesel production is relatively short and 1.28 billion gallons of fuel represents a signiﬁcant increase over average production in the last several years. “The volume increases required from each individual feedstock in future years will inevitably cause dislocations affecting other consumers of oils and fats,” the report said. OIL IMPACT U.S. biodiesel producers are demanding more soy oil at a time when crush margins are falling. Distillers grains production that is replacing soy meal, a gain in market share by Argentina, China’s demand for unprocessed soybean imports and over-capacity have hurt crush margins, Rabobank said. Three U.S. soy crush plants have shut down since 2010. According to a U.S. EPA and U.S. Department of Agriculture (USDA) analysis, increased soy oil use for biodiesel will be offset by reduced exports. Rabobank said. However, the magnitude of the shift will tighten global vegetable oil balance sheets that are already at their lowest levels since 1976-77.
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“To increase production, the biodiesel industry will have to compete with growing emerging market countries for soy oil,” Rabobank said in its report. To meet increasing soy oil demands, there is little that can be done on the supply side. With the exception of one region in Brazil, there are few other areas to increase soybean acreage, the report said. While there is excess crush capacity in the U.S. and China, increasing the crush will exacerbate the glut in protein meal created by distillers grains, Rabobank said. Canola could be one source of relief for increasing vegetable oil demand. Increased end-user demand and favorable economics have led to record canola production in Canada. The USDA estimates the 2011-12 crop at 14.165 million tonnes, an increase of 182% over 2001-02. Oil yields are higher from canola at between 42% and 44%, compared to soy at 19%. Thus, incremental production increases add more to the oil supply than incremental increases of soy production. This could push U.S. wheat growers toward a canola rotation. Canola is approved by the EPA as a feedstock for biodiesel, but because of its higher price compared to soy, it is not a biodiesel producer’s ﬁrst choice, Rabobank said. Corn oil, extracted by dry mill ethanol producers, will be another source of oil for biodiesel. Rabobank said U.S. dry mills are now producing 1 billion pounds of corn oil, a rate that could increase to 2.2 billion pounds by 2013. At that amount, corn oil could account for 280 million gallons of biodiesel production. It’s uncertain what rate of corn oil extraction producers will want in order to maximize proﬁt from both distiller’s grains and the corn oil, the report said. Currently, de-oiled distiller’s grains are not selling at a signiﬁcantly discounted price and corn oil is selling at a discount of 10¢ per pound to edible corn oil. Another feedstock option are rendered fats, produced at a rate of about 10 billion pounds per year. Roughly 20% to 30% of biodiesel is made from

rendered fats and oils. However, unlike other feedstocks, rendered fats cannot be increased in response to increasing demand for biodiesel. Rendering production volumes are driven by animal protein production, which has been on a downward trend since 2006, Rabobank said. Biodiesel producers will have to compete with other end users such as the pet food and livestock industries, if it wants to increase the use of rendered fats. “Use of rendered fats and oils in biodiesel is complicated by the fact rendered products have a higher cloud point than soy, corn or canola oils, meaning that it does not ﬂow as well at cold temperatures,” Rabobank said. “Players in the rendering industry say that biodiesel is unlikely to be maintained at greater than 30% of production for an extended period of time, while the U.S. EPA places the ﬁgure at 50%.” OUTLOOK Finding feedstock to produce 1.28 billion gallons of biodiesel will be tricky. With 95% of dry mill ethanol plants implementing corn extraction, that market will tap out at 300 million gallons of biodiesel production. The rendering industry estimates it will only supply about 400 million gallons of biodiesel production. The remainder will have to be derived primarily from soy oil, Rabobank said. Other possibilities including canola oil, but its price premium to soy oil is a limiting factor. Palm oil can be a biodiesel feedstock, but the EPA has rejected it, eliminating it from the renewable fuels program. Increased biodiesel production will absorb an incremental 635,000 tonnes of vegetable oil supply from 2011 to 2013. At the same time, global overall vegetable oil supply and demand are growing at around 5 million tonnes per year. Rabobank concludes there is not enough vegetable oil to supply the growing biodiesel production mandate.
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