Oilseed markets could get a much-needed lift once the United States establishes long overdue biodiesel blending requirements in the coming weeks.
The U.S. Environmental Protection Agency has committed to releasing its Renewable Fuel Standard volume obligations for 2014, 2015, 2016 and 2017 by June 1.
The volumes were supposed to be released by November 2012. Fuel blenders have been operating in a void through 2014 and half of 2015 because of the lengthy delay.
The standard established a one billion gallon floor for blending bio-diesel, and the EPA is responsible for adjusting that volume each year based on a variety of factors.
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The last time that happened was 2013 ,when it established a biodiesel mandate of 1.28 billion gallons.
Ben Evans, spokesperson for the National Biodiesel Board, said the industry has essentially been put on hold while it awaits the EPA’s announcement.
An EPA plan that called for increased biodiesel mandates through 2017 would inject lifeblood into the bio-diesel sector and the soybean and canola industries that supply it with feedstock.
“If we get growth in the RFS, it will clearly be healthy for biodiesel producers as well as feedstock suppliers,” said Evans.
“The biodiesel industry is a great market for those oils, and you would see very healthy markets.”
The biodiesel board estimates that 54 plants have been idled or shut down over the last couple of years.
“The lack of policy is the most pressing concern, and the reason those plants are no longer operating,” he said.
Evans said the biodiesel sector has been hit harder than ethanol by the absence of fuel standard volume obligations.
It is a much smaller and younger sector than ethanol, and there is no relief in the form of export demand.
U.S. biodiesel used to be shipped to the European Union, but tariffs have become too high.
By contrast, the U.S. ethanol industry shipped 836 million gallons worth $2.1 billion to international markets last year, helping offset the sluggish domestic demand.
The list of idled biodiesel production facilities includes Archer Daniels Midland’s canola biodiesel plant in Velva, North Dakota, which buys Canadian canola.
Kent Engelbrecht, biodiesel trade manager for ADM, recently spoke about the impact the delay is having on the sector at a news conference hosted by North Dakota senator Heidi Heitkamp.
“With favourable economics and a reliable RFS, 2014 was poised to be a break-out year for biodiesel, until the 2014 RVO (renewable volume obligation) intervened,” he said.
“And with the subsequent expiration of the biodiesel tax credit, we were forced to cease or slow production at all our facilities, including Velva.”
The biodiesel tax credit he referred to is a $1 per gallon blender’s tax credit that expired Jan. 1.
The U.S. Congress has a habit of reinstating the tax credit toward the end of the year and making it retroactive for the entire year.
Evans said that is frustrating for the biodiesel industry because it is hard to plan for growth when it is uncertain whether the tax credit will be in place, especially when combined with the lack of fuel standard volume obligations.
“Those two things together have really undermined the industry and made it hard for producers to survive,” he said.
Evans believes the tax credit will eventually be reinstated, and once biodiesel producers can see what fuel standard volumes the EPA has established through 2017, he thinks half of the idled plants will start up production again, creating a new source of demand for canola and soybean oil.
Engelbrecht said the industry requires that certainty before it can run at full capacity and make further investment in plants.
“We believe the market can get back on track, but it needs a clear signal from EPA that it can count on a reliable, consistently growing RFS,” he said.
