Joe Jobe wasn’t bluffing when he told Canadian Renewable Fuels Summit delegates that his industry was about to come to a “screeching, screaming, crying, kicking halt.”
That was the message the chief executive officer of the U.S. National Biodiesel Board delivered in a Dec. 2 speech in Vancouver when he told delegates the industry would shut down if it didn’t get an extension of its $1 US per gallon blender’s tax credit.
The credit expired without being renewed Dec. 31 and, as predicted, the U.S. biodiesel industry has ground to a halt.
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“Production has really gone down to zero. They’re not really producing any fuel,” said NBB spokesperson Michael Frohlich.
That is having both a direct and indirect impact on Canadian canola growers.
The direct impact comes from Archer Daniels Midland temporarily shutting down its canola biodiesel plant in Velva, North Dakota, in response to the lost tax credit.
That plant consumes about one million tonnes of canola a year, 65 to 70 percent of which comes from Canada.
The indirect impact stems from what the biodiesel shutdown could do to soybean prices, which have a big influence on canola values.
The American Soybean Association says biodiesel demand elevates soybean prices by an estimated 25 cents (US) per bushel.
If that market dries up, it would cost U.S. soybean growers $825 million annually.
In 2007-08, the U.S. biodiesel industry consumed 16 percent of U.S. soybean oil production. Sales dropped to 10 percent in 2008-09 due to slumping profitability in the biodiesel sector.
The United States Department of Agriculture forecasts an increase to 12 percent in 2009-10 but the way 2010 has begun could put a crimp in that estimate.
It is not profitable to produce biodiesel without the tax credit, so the only companies operating are those with long-term supply commitments.
Legislation to extend the credit was passed by the U.S. House of Representatives in early December but the Senate has been tied up with the health care bill and couldn’t get to it.
“We have the support. It’s not that Congress doesn’t want to do it. It was a matter of running out of time,” said Bob Callanan, spokesperson for the American Soybean Association.
Frohlich expects the extension will likely be included in a jobs bill, energy package or stand-alone tax incentives legislation that will go before the Senate in mid-February or March.
In the meantime, his members are idling their plants and reducing their costs.
“We haven’t seen a surge of layoffs begin yet but it’s only a matter of time, I’d say. Some time in that February period, you’ll see a cascading effect of layoffs if action isn’t taken,” said Frohlich.
“They’re kind of hanging on by a thread.”
The good news is there is a “very real possibility” that the new U.S. renewable fuel standard could be in place by the end of February, which will create a mandated market for 2.5 billion litres of biodiesel.
“There is the potential for this to be one of the strongest years yet,” said Frohlich.
