Buried in thisnews from last week—about a Northwest biofuels company that has withdrawn its IPO because of financial and personnel problems—there’s a cautionary tale about biofuels more generally. As far as I can tell, the long-term financial prospects for biofuels firms—which as recently as last year looked incredibly bright—seem to have dimmed.
The reasons likely have nothing to do with financial mismanagement or even technical barriers. The problem is more straightforward: the main biofuels feedstocks—including soybean oil and corn—have gotten much more expensive over the past few years.
As recently as late 2006, for example, soybean oil traded for less than 25 cents per pound. But like crude oil, the price of soybean oil has skyrocketed. In fact, soybean oil futures recently squeaked above 50 cents per pound. And with oilseed costs soaring, it looks like some biodiesel firms are having a hard time living up to their profit projections.
In addition to affecting the biofuels industry, this trend has broader implications for consumers. Now that we’ve started to think of it as perfectly normal to power our cars with food, we’ve hitched food and fuel prices together. OIlseed prices no longer follow the lead of agricultural markets, but instead tango with crude oil. And as crude oil has sashayed northward, it’s carried soybeans and palm oil with it, in an unsettling pas de deux. (Ok, I’m done with the dancing metaphor.)
In a way, biofuels firms’ earlier success may have contributed to their current problems. At the rate they were growing, it was more or less inevitable that the rising price of feedstocks would start putting the squeeze on profits. There’s no blame implied in these comments; just an observation that it’s all too easy for success to sow the seeds of its own undoing.
Jeremy TF
This is indeed most unfortunate, and further reason why we (as consumers of biofuels) should work to purchase our fuels from only those sources that are working hard to control their source material.I heat my home with B99.9 that is refined in Salem, Oregon, using stock that is primarily waste vegetable oil (WVO). As rapeseed prices had risen, the refinery has been relying increasingly on WVO as the the main fuel stock for their biodiesel.Whatever the case, the refinery is working hard to use only locally sourced fuel stock, whether it’s local rapeseed, or increasingly, locally sourced WVO. Regardless, they are focusing on the local economy for fuel source. While WVO likely will not be able to supply 100% of their stock needs if the demand for biodiesel continues, it’s important to know the source of a refinery’s fuel stock. We need to be diligent in purchasing only from those suppliers who are working to insulate their prices from global economic shifts by sourcing locally. If a company is shipping soy from the midwest (or even worse, overseas), then profit is likely their primary motive, not fuel sustainability, climate change or the health of local economies.
Levin
In the longterm, biofuels will be an essential and lucrative component of any sustainable economy. Whether or not they are derived from food is another question.Various technologies are being developed to produce biofuels from non-food substances such as animal byproducts and cellulose, by companies such as Benefuel and Changing World Technologies. Denmark is aiming to increase its reliance on wind power from 20% to 40% of its electicity needs, by using excess winter wind energy to create cellulosic ethanol. Nik Blosser shed some light on commodity prices in a recent editorial about 2008 being “the year of the smear”. (http://www.sustainableindustries.com/columnists/13062592.html)”Australia is to blame. First, they have a record drought that reduced their commodity crop yields by percentages never seen before. This caused worldwide commodity prices to increase, which affected the cost of, well, just about everything… But… biofuels get blamed for everything nowadays, including the cost of corn tortillas in Mexico and pasta in Italy. The fact that oil is at or near $100 a barrel and transportation costs can be a significant portion of commodity pricing has nothing to do with it, of course.”World commodity markets are notoriously difficult to predict. While it’s easy to see correlation (soybean oil prices have gone up, as biofuel facilities have expanded during an Australian drought), causation is more difficult to assign (did that new midwestern biofuel plant drive the worldwide price in November up by 1 cent, or 2?).