NBB In Sight

Mr. and Mrs. Supply and Demand
By Joseph Jobe | June 01, 2005
Supply and demand, the fundamental pillars of capitalism, are two fickle forces that can sometimes be compared to a husband and a wife. They can rarely agree on the same thing at exactly the same time. About the time the husband is convinced of the wife's point of view, the wife changes her mind.

In the biodiesel supply and demand relationship, demand is winning, at least for the moment. March was a breakout month for biodiesel. In fact, the market forces at work could almost be characterized as the "perfect storm" for biodiesel demand. Farmers began heading back to the fields and requested biodiesel. The forms for the biodiesel tax credit became available from the IRS, which boosted biodiesel purchases among petroleum distributors. And state biodiesel laws designed to stimulate demand had significant impact in Minnesota, Illinois, Texas and other states. In fact, when I visited a terminal in Alton, Ill., that carries a biodiesel blend at a price lower than petroleum diesel, there were fuel trucks lined up around the corner waiting to fill up with biodiesel. It was quite an experience.

None of this is necessarily cause for concern. Keeping the peace in the house of supply and demand is a process of give and take, and it tends to work itself out. Since the beginning, the National Biodiesel Board has taken the approach of building demand by reducing barriers in the marketplace. We believe that if you build demand, the market will meet that need. But the reverse is not necessarily true. If you build supply, demand will not automatically be there.

Consumers can be assured that any biodiesel shortage is likely to be short-term, and the market will react and correct itself. Because of the recent demand shock, a significant supply response has already begun. Current market conditions have triggered biodiesel investments among businesses that were previously on the fence in making investment decisions. According to biodiesel suppliers, we will have at least an additional 100 million gallons of capacity on line by the end of 2005, including large plants like the new SoyMor plant in Minnesota, which will have 30 million gallons of capacity by June 2005, and smaller plants, like American Ag Fuels in Ohio, which will begin producing 1 million gallons annually around the same time. Other states are also adding to the nation's biodiesel pool. Many proposed plants, as outlined in this issue of Biodiesel Magazine, are readying to join those plants already producing or nearing the construction finish line.

The sharp increase in demand for biodiesel shows that the tax incentive has been hugely successful. The desired effect was to increase demand for biodiesel, thus stimulating the economy, reducing emissions and increasing our energy independence. The good news is that it's working, to the benefit of all Americans.

Biodiesel, while not the single solution to our energy needs, is one of the building blocks for diversifying our energy portfolio with domestic and renewable products. We will continue working on stimulating demand through pursuing an extension of the federal tax incentive and other means.

In the free market marriage of supply and demand, harmony will be achieved.

Joseph Jobe
National Biodiesel Board
Executive Director
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