Today, the well-known physics phrase could apply to the growth of the biofuels industry. As biodiesel and ethanol production ramps up, requiring ever-increasing feedstock supplies, it’s having some profound effects on the agricultural sector—including upward pressure on prices.
“We know that rapid build-up of the biofuels industry has been disruptive to those in the agricultural processing industry,” says Peter Golbitz, president of Soyatech LLC. “We also know that, long term, if biofuels are going to be a major source of fuel in the U.S., then it is going to create an unprecedented demand for agricultural products.”
Soyatech organized Soya Summit 2006: Food and Energy for the 21st Century, where leaders from the food and fuel industries came together to exchange information on supporting both industires’ continued development. The summit was held Sept. 18-20 in St. Louis, Mo. About 250 people from 18 countries attended the conference, Golbitz told Biodiesel Magazine in a telephone interview.
The conference was the first of its kind, says Jacob Golbitz, director of research for HighQuest Partners and brother of Peter Golbitz. HighQuest Partners is the parent company of Soyatech. Conference-goers attended parts of the event as a group but were also devided into two separate tracks, each with relevant information on food and energy issues.
The event didn’t have a pro-biodiesel agenda, Peter Golbitz says. Rather, the focus was on asking the hard questions, such as how to deal with an impending marketplace disruption. “Our goal was to facilitate honest discussion,” he tells Biodiesel Magazine. “… It was not a ‘rah-rah’ event.”
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While technology can help expand agricultural supplies somewhat, ultimately supplies are limited. Golbitz says it’s not as simple—as some on the energy side have claimed—to just grow more corn, soybeans and other biofuels feedstocks. “The reality is that just because it is a renewable resource doesn’t mean it is an unlimited resource,” he says.
The summit surpassed expectations, especially considering it was an inaugural event. Soyatech is already planning a second-annual gathering, which Golbitz says could be held in the United States some time in fall 2007. Worldwide interest in this topic has prompted plans for smaller regional meetings rotating through South America, Asia and Europe, he says.
Price Effects
A former ConAgra Foods vice president of economic research was one of two general session speakers at the Soya Summit. Bill Lapp—now president of Advanced Economic Solutions, a consulting company for the food industry—spoke about recent strong increases in demand for commodities because of the ethanol and biodiesel industries.
For about 20 to 25 years, the agricultural and energy markets were fairly stable with only one- or two-year ups or downs, Lapp told Biodiesel Magazine in a telephone interview prior to the conference. Then, around January 2001, dynamic forces hit the market to change that. In the past four years, there has been global economic market growth of about 5 percent a year for a total of 20 percent, he says.
In recent history, crude oil and energy prices tripled, while prices for agricultural products stayed basically stable. That, along with support for the biofuels industry from the government, has led to dramatic growth in capacity. “Profit margins have yet to diminish despite big, big increases in the amount of investment and the amount of production,” Lapp says.
While the biggest impact to the agricultural industry will fall on ethanol’s shoulders, biodiesel comes into play as well. In the coming year, Lapp says there will be about a 50 percent increase in the demand of corn for ethanol, and nearly double the demand for soybean oil and other oils for biodiesel. “Now we are starting to see a tremendous boost in the demand for … corn and soybean oils, and other vegetable oils,” he says. “It’s starting to make an impact for supply and demand for those products, and soon will be having an impact on those prices.”
While markets are always dynamic, the growth of ethanol and biodiesel represents some of the biggest changes to hit the agricultural marketplace in years. Besides laying a foundation for higher prices, it has created more volatility in the market. Continued profitability of the industries will drive the potential for importing biofuels, Lapp says.
Although rising commodity prices aren’t necessarily bad, it is important that the industry understands the implications. “The economics will drive it where it has to go,” he says.
One of the greatest unknowns is energy prices. Several analysts are concerned that the market is only one small disruption away from surpassing $100 per barrel. “There’s a lot of question marks about where crude oil is going to end up—whether it’s going to be $45 or $95—18 months from now,” Lapp says. “That will dramatically impact the profitability of producing both ethanol and biodiesel.”
New Sources of Biodiesel
During one of the energy track sessions, Eric Bowen, vice president for energy and director of biofuels for Sigma Capital Group, talked about biodiesel feedstocks. While the U.S. industry is dominated by soybeans, rapeseed is the main player in Europe, he tells Biodiesel Magazine. Bowen also included palm oil, canola, animal fats, yellow grease, jatropha and algae in his presentation. “Everyone acknowledges that with the growth the industry has seen, there’s only so much of those ‘traditional feedstocks’ that are available, and the growth of the industry will require additional feedstocks,” he says.
Biodiesel producers can use other feedstocks in their business models. However, new feedstocks pose a potential threat to the established biodiesel industry, especially when they are less expensive or have better fuel characteristics, Bowen says.
As an alternative feedstock, palm oil has made the largest short-term contribution to the industry. It’s the second-largest oil crop in the world, following soy oil. “Palm is already contributing a good portion of biodiesel to the European market, and we’re only beginning to see palm biodiesel here in the United States,” Bowen says.
Soy oil, on average, produces about 50 gallons of biodiesel an acre, while palm oil produces more than 600 gallons an acre. Soy oil is also more expensive at $400 per metric ton, compared with about $500 per metric ton for palm oil, Bowen says. In addition, the soy-oil market is dependent on the soy meal produced for animal feed. “Planting additional soya only gets you so far because the oil components won’t work unless there is a market for that meal,” he says.
Of course, palm oil does come with some disadvantages. Besides the political risk of supporting palm oil biodiesel production in the United States, it has a high cloud point, it is not a domestic product, and palm plantations are often under pressure for cutting down rainforests, Bowen says.
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