July most profitable month ever for biodiesel

By Luke Geiver | August 31, 2011

If Iowa State University’s Agricultural Marketing Resource Center’s Biodiesel Profitability model for August 2011 is even 75 percent accurate, then the summer of 2011 has been the most profitable the U.S. biodiesel industry has ever seen. According to the model’s chart labeled “Monthly Biodiesel Costs and Returns per Pound of Soybean Oil Processed,” May netted biodiesel producers a 43 percent return on equity. Previously, the highest equity return occurred in August 2008. But for this June, the model showed that equity returns had almost doubled, reaching 73 percent. As for the month of July, equity returns were at an all time high of 80 percent. Biodiesel Magazine spoke with Ann Johanns, an author of the recent model, and asked her if the numbers and charts included truly revealed that the biodiesel industry is more profitable than ever before. Johanss’ reply was, “You would be right.”

The original modeling developed at ISU was based on ethanol production, Johanns said, pointing out that soon after the ethanol model came out, the demand for the biodiesel model was overwhelming. The current model was formed by the perspectives of a number of various industry experts, and now, each month Johanns’ enters certain variables into the model. The main variables that change from month to month are the prices of biodiesel, soybean oil, methanol and natural gas. While the information entered into the model is not secret, she said that her team adds value by pull all of the information together into one model. But she also says that the model itself can vary at times. “If we get suggestions that come in, or as technology has gotten better,” she explained, “we kind of change those.”

She said right now the biodiesel prices she has in the model are the highest she has ever seen, and although Johanns said that she is curious to see if there are some costs in the model that her team isn’t taking into account, the model does indicate producers are receiving high profits.

One particular chart, titled the “Biodiesel Revenues, Costs, and Profits” chart, showed that the total cost to produce a gallon of biodiesel was roughly $4.75 to $4.90, and the revenue per gallon of biodiesel was nearly $5.50. In addition to those numbers, the same chart also showed that starting in May, the net return per gallon (roughly 50 cents) was higher than it had ever been dating all the way back to June 2007. While the model is based on a biodiesel facility typical in Iowa, and only factors in soy oil as a feedstock, the numbers overwhelmingly show that 2011 has been an positive year for those producers who were able to remain in operation following the difficult times of 2009 and 2010. The reasons behind this extraordinary profitability for the biodiesel industry this year are that both the RFS2 mandate and the biodiesel tax incentive have been operating in the same calendar year for the first time ever, and RIN prices are holding strong.


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