Model plant shows brief return to profitability

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After six months of negative net returns, the hypothetical soy biodiesel plant in Iowa developed by the Agricultural Marketing Resource Center showed a return to the black in September, albeit just barely at a net return over all costs of 6 cents per gallon, before dipping back into the red in October. If crude oil stays high and soy oil prices don't increase greatly, it indicates the economic pressures on the biodiesel industry may be lifting. The numbers also show just how critical it has been for the biodiesel industry to improve its efficiency and incorporate as many lower cost waste-based feedstocks as possible.

Biodiesel revenue for September showed $3.02 per gallon and actually increased to $3.12 per gallon in October. However, soybean oil costs increased more, from $2.35 per gallon of biodiesel produced in September to $2.55 per gallon in October, which was still lower than the year's high of $2.73 per gallon in May 2009. Natural gas prices, at 3 cents per gallon of biodiesel produced, have stayed at that level for the last six months. Methanol costs have been creeping higher, from a spring low of 6 cents per gallon of biodiesel produced to 9 cents in September, and 10 cents in October.

AgMRC's model plant showed a total breakeven cost per gallon, including variable and fixed costs, of $2.96 per gallon for September, which rose in October to $3.17 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 per gallon over all costs in October dropped back into the negative at minus 5 cents per gallon, while the net return over variable costs was 21 cents per gallon.

The numbers illustrate the summer of struggle for biodiesel. 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. The importance of keeping fixed costs as low as possible was demonstrated in the values for net return over variable costs, which 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, amounting to nearly 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. 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.

The downturn followed almost a year of positive returns. Much of 2008 saw net returns over all costs starting in March of 2008 through 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. The Energy Information Administration reported the spot diesel price in Chicago in October 2008 was $2.85 cents per gallon.

While the AgMRC data may provide a trend line 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 EIA reports of Chicago spot prices for No. 2 diesel that averaged $1.74 per gallon during September, putting biodiesel at an uncompetitive price even with the $1 per gallon blender 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 the 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, and actual numbers can be substituted on the "Economic Model" tab of the spreadsheet. Price data for the hypothetical plant is taken from publicly available sources, with all prices based in Iowa starting with April 2007. To access the Biodiesel Profitability Chart, visit www.agmrc.org and follow the links on the left to renewable energy/biodiesel/profitability.