AgMRC: biodiesel profitability turns corner

Posted October 15, 2009

After six months of negative net returns, the model developed by the Agricultural Marketing Resource Center for a hypothetical, single-feedstock biodiesel refinery using soybean oil, showed a return to the black in September.

Biodiesel revenue for September showed $3.02 per gallon, the soybean oil cost was $2.35 per gallon, natural gas 3 cents per gallon and methanol cost 9 cents per gallon. AgMRC's model plant showed a total breakeven cost per gallon, including variable and fixed costs of $2.96 per gallon. The net return over variable costs was 32 cents per gallon, and the net return over all costs for September was 6 cents per gallon.

The net return over all costs had ranged between a negative 2 cents to negative 22 cents per gallon from April through August, with May being the poorest month. However, the net return over variable costs remained in the black throughout the entire period, with May being the lowest month at 4 cents per gallon.

The overwhelming impact of soybean oil prices, which amount to close to 90 percent of the overall cost of biodiesel production, is shown in the comparison of September's improving numbers with the poorest month, May 2009. The biodiesel revenue for that month was actually slightly higher than September at $3.10 per gallon. However, soy oil was 38 cents a gallon higher at $2.73 per gallon, natural gas remained the same at 3 cents per gallon and methanol cost was lower in May at 6 cents per gallon. AgMRC's model plant showed a total breakeven cost per gallon, including variable and fixed costs of $3.32 for that low month of May 2009. The net return over variable costs was 4 cents per gallon in May and the net return over all costs was a negative 22 cents per gallon.

It should be noted that the model indicated negative net returns over all costs for the latter half of 2007 turning to positive in March of 2008 until March of 2009. During that year, biodiesel revenue started at $5.16 per gallon, peaked at $5.51 in June 2008 and dropped to $2.68 per gallon when the net return over all costs dropped into the red. EIA reports the spot diesel price at Chicago a year ago in October, 2008, was $2.85 cents per gallon.

While the AgMRC data may provide a trendline for an Iowa-based hypothetical soy biodiesel plant, it doesn't illustrate the entire picture. Last month's return to the black in the AgMRC profitability chart showed a biodiesel breakeven cost of production of $2.96 and an Iowa-based biodiesel price of $3.02. That compares with U.S. DOE Energy Information Agency reports of Chicago spot prices for No. 2 diesel that averaged $1.74 per gallon during September, putting biodiesel at uncompetitive price even with the $1 per gallon blenders tax credit. It does however, give an indication that the pressure on the biodiesel industry may be letting up, particularly for those plants that have successfully transitioned to multi-feedstock capability, producing ASTM quality fuel while blending in lower cost, waste-based feedstocks with soybean oil.

Agricultural economists specializing in biofuels at Iowa State University update the prices and costs on a monthly basis on their Biodiesel Profitability Chart. The chart uses a hypothetical 30 MMgy soy-based biodiesel plant built in 2007. Basic assumptions about fixed and variable costs and efficiency rates are provided. The spreadsheet calculates revenue per gallon of biodiesel produced, cost per gallon, return on equity, and more. Price data for the hypothetical plant is taken from publicly available sources, with all prices all based in Iowa starting with April 2007. The spreadsheet also allows individuals to change multiple variables reflecting an actual situation to see how the calculations play out.

To access the Biodiesel Profitability Chart visit: http://www.agmrc.org/renewable_energy/biodiesel/profitability.cfm . The AgMRC also provides balance sheets for soy oil and soybean supply and demand, with relevant biodiesel data points, under the "prices, trends and markets" tab.