Editor's Note

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Our cover story this month highlights the serious-and seriously atypical-market conditions that U.S. biodiesel producers are up against.

Soy oil is very pricy, even as the nation sits on near-record soybean stocks. As staff writer Jerry Kram describes in the feature, "A Hard Row to Hoe" on page 42, this is a tough situation for the whole industry. Producers and developers have to deal with the fact that soy oil prices are inflated-some say without cause-based on anticipated demand, while feeling the added pinch of surprisingly affordable diesel fuel.

At press time, soy oil was at a 10-year high of about 30 cents per pound. As Kram explains, 2003 was the last year that America saw prices this high, and that was the result of a bad crop, low stocks and high demand. Back then, it wasn't perceived or anticipated demand that sent prices soaring. It was the real deal.

The market is controlled by greed and fear, though, and with 1.2 billion gallons of U.S. biodiesel production capacity under construction, it's no wonder we're seeing proactive markups on raw materials. After all, once those plants come on line, current stocks will start drying up fast. Meanwhile, we're seeing a serious trend toward more acreage going to corn and less to soybeans in what one USDA economist says could be a "new era" in which soybean acreage is indefinitely reduced to 70 million acres per year or less.

With this austere picture in mind, it's clear that U.S. biodiesel producers need to embrace a plethora of low-cost feedstocks. A growing number of producers are turning to animals fats, but that's no panacea either. This issue of Biodiesel Magazine includes a pair of features on rendering companies with bold ideas about our industry's future. "Clearly Biodiesel," a story about Wisconsin-based Sanimax Energy on page 60; and "Recycling for Renewables," a profile on Illinois-based Kaluzny Brothers Inc. on page 68, provide valuable insight about the role of animal fats in the North American biodiesel market.

The cost of animal fats is generally 10 cents (or more) per pound cheaper than virgin soybean oil, and many people believe rendered feedstocks could provide a good chunk of the biodiesel industry's perceived raw material demand. Of course, these feedstocks come with unique process challenges, and their lower cost can't be taken for granted. Biodiesel demand in Europe, for example, is having a tightening effect on the global price of yellow grease. Likewise, the prevailing price of animal fats shot up this spring simply based on news that Tyson Foods and ConocoPhillips had formed a renewable diesel partnership.

That basically means fears about renewable diesel production adversely affecting the biodiesel industry have already been confirmed, even before a single large-scale renewable diesel plant is on line in the United States. The first of these facilities will be built at ConocoPhillips' petroleum refinery in Borger, Texas, where a $100 million capital investment is underway to outfit the complex with thermal depolymerization capabilities. Of course, the concern here is that ConocoPhillips will receive the $1-per-gallon blender's tax credit that oil companies are now eligible for. I won't get into this debate again-check out the "Controversy Brews over Blender's Credit" feature on page 52-but I will say I have a tough time believing there's little money in this game for ConocoPhillips. A spokesman for the oil company says in the story, "Even with the credit, the economics are marginal." The last time I checked, however, oil companies like ConocoPhillips didn't make brash, shortsighted $100 million investments based on marginal economics. I'll let you read the story and draw your own conclusions.

Tom Bryan
Editorial Director
[email protected]