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Drop in Bean Acres Puts Squeeze on Biodiesel

Farmers are planting more corn, which is causing price of soybean oil to rise.

The larger than expected increase in corn acreage this year may help hold down food prices, but its bad news for biodiesel manufacturers who depend on soybeans for feedstock. Biodiesel plants in Iowa and elsewhere have been struggling in recent months as the price of soybeans and soybean oil has risen significantly. Some biodiesel makers have switched to animal fat for making biodiesel fuel.

Now USDA's June 29 planted acreage report shows farmers nationwide have planted 92.9 million acres of corn this year, 19% more than last year and 3% more than USDA's survey had projected in March. The demand for ethanol has led U.S. farmers to plant the most corn since 1944.

Ethanol boom means fewer beans

However, the ethanol boom is putting the squeeze on biodiesel. The extra corn acreage means that farmers planted 15% less land to soybeans in 2007.

"The price of soybean oil is almost to the point where it is not economically feasible to make biodiesel," says Dan Holesinger, manager of Clinton County Bio Energy in eastern Iowa. "We've been running at the break-even point for he last several months. We have to look at all our options, and one might be just not producing."

According to the Iowa Renewable Fuels Association, there are 11 biodiesel plants in the state with a production capacity of around 198 million gallons per year. Three more plants are under construction that will have 120 million gallons of production capacity in total. So pretty soon, Iowa is going to have a biodiesel production capacity of nearly 320 million gallons per year.

Will biodiesel plants shut down?

The U.S. biodiesel industry is already struggling to break even with the price of soybean oil near the break even point. Production of biodiesel tripled for two years in a row, from 25 million gallons in 2004 to 75 million gallons in 2005 and then to 250 million gallons last year, according to the National Biodiesel Board.

It's not certain that biodiesel production in 2007 will top last year's, says Joe Jobe, chief executive for the NBB. If crude oil and diesel fuel prices remain relatively high, we will still be producing biodiesel," he says. "If diesel prices decline and go back below $2 per gallon, biodiesel plants will be shutting down."

Food companies which use soybean oil for baking and other food manufacturing will also have to pay more. "This kind of a move in soybean prices will probably cause a pause in the whole soybean processing area," says Cal Meyer, a vice president of Ag Processing Inc., which operates six soybean processing plants in Iowa, including one at Sergeant Bluff which produces biodiesel.

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