Creating a new industry doesn’t happen overnight, yet soybean producers have been part of a movement to develop a new domestic fuel resource that can offset imports and add value for soybeans and other oilseed crops. Biodiesel holds promise for both additional farm income and greater energy independence, yet it could be cut off at the knees before the industry can even get going.

The U.S. Environmental Protection Agency has proposed to require just 1.28 billion gal. of biodiesel under the Renewable Fuels Standard for 2014. That significant cut in biodiesel demand could have a chilling effect on the industry and soybean producers. Coupled with uncertainty about an extension for the $1/gal. biodiesel tax credit, the outlook is cloudy.

The U.S. produced nearly 1.8 billion gal. of biodiesel in 2013. If just 1.28 billion gal. are required in the RFS for 2014, the biodiesel industry would see a 40% reduction from last year’s production.

“Moreover, since refiners can carry over excess 2013 production into 2014 for RFS compliance, the market could be closer to 1 billion gal., or almost half of our 2013 production,” says Anne Steckel, vice president of federal affairs, National Biodiesel Board. “That would be devastating for the industry and for biodiesel producers across the country. It’s difficult to predict the impact that would have on soybean markets, but clearly, biodiesel provides a solid market for excess soybean oil. With the industry contracting to that extent, it would certainly soften those markets, as well.”

Mike Cunningham, a soybean producer from Illinois, is a director on the board of the American Soybean Association. He also serves as treasurer of the NBB. If the EPA’s proposal sticks and there is a large carryover of soybean oil, soybean prices could fall by as much as $0.25 to $0.50/bushel, Cunningham says.

And the country as a whole will be missing an opportunity to diversify its fuel supply and create jobs, he adds.

Lewis Bainbridge, a soybean producer from South Dakota and a director on the United Soybean Board, adds: “The EPA’s proposal could contract the industry. Reduced demand for soybean oil could reduce farm-gate prices.”

Making a statement

Soybean producers were among the thousands of individuals and organizations submitting letters to the EPA during the 60-day comment period that ended Jan. 28.

“We will continue to pound Capitol Hill, write letters and encourage other farmers to contact their representatives in Congress to explain the detrimental effects this proposal could have,” Cunningham says.

Bainbridge points out that farmers helped grow the biodiesel industry and that USB checkoff dollars have gone toward educating the public about the fuel’s value.

“Biodiesel is important throughout the economy,” Bainbridge says. “And it’s important to point out that our work in developing demand for biodiesel also kept soybean meal prices lower for livestock producers.”

Input from soybean growers, people in the biodiesel industry and others could pay off.

“EPA Administrator Gina McCarthy said publicly that she has heard the concerns of biofuels stakeholders and that the final rule will reflect that,” Steckel says. At the same time, the NBB has not received indications that the agency is adjusting the proposal.

“While we are pleased that the agency is listening, we are also urging all biodiesel supporters to maintain their advocacy to ensure that the administration continues to hear about the very real damage this proposal would cause,” Steckel adds. “We certainly think that setting a biodiesel volume for 2014 that is consistent with last year’s production represents manageable growth in the RFS.”

Tax credit support

Biodiesel supporters will need to keep up their efforts through spring at the very least, since the EPA’s ruling is not expected to be finalized until late spring or early summer. The industry also is encouraging grassroots and political support for extension of the expired biodiesel tax credit.

Sens. Maria Cantwell, D-Wash., and Charles Grassley, R-Iowa, have introduced a bill, S. 2021, that would extend the tax incentive until 2017, providing the certainty the industry needs to attract capital and plan for production expansion.

“The tax incentive clearly stimulates additional production and has a positive impact on jobs and economic activity, both in the refining sector and the feedstock sector,” Steckel says. “This marks the third time in five years that this incentive has expired. This uncertainty is incredibly disruptive, not just to biodiesel plants across the country, but also to our bipartisan goals of creating jobs in new domestic energy industries and boosting energy security by diversifying our fuel supplies.”

Soybeans could face additional price pressures if the RFS for biodiesel is cut as severely as currently proposed.

Biodiesel producers, many of them small companies, are reluctant to add new jobs when there is a strong likelihood that the incentive will disappear, Steckel adds. “Many are forced to cut back production when the incentive expires, causing job losses and even plant closures.

“Unfortunately, the outlook for an extension is just not clear,” Steckel continues. “We know the biodiesel incentive has strong bipartisan support in the House and Senate, but it’s a victim of the continued gridlock in Congress, so we will keep pushing and calling on lawmakers to pass it as quickly as possible.”

Axing that tax incentive will impact more than farmers. “This will hurt the rural economy, because it will reduce farm income,” says Cunningham.

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