The biofuel sector is rapidly growing, and so are the opportunities for market participants, including biofuels producers, investors and feedstock suppliers.
This report focuses on:
- US feedstock capacity, supply and demand
- Feedstock price trends and drivers
- Biofuel margins in relation to credit programs
There is near-term risk for lower prices in the renewable fuel feedstock markets due to production interruptions at renewable diesel production facilities and near-term weakness in the soybean oil, energy and renewable fuel credit markets. Fastmarkets Agriculture holds a long-term view that market fundamentals are supportive of historically higher prices with continued volatility based on growth of renewable diesel and sustainable aviation fuel (SAF) production around the globe.
Animal fats used cooking oil (UCO), and distiller’s corn oil (DCO) prices have all come off of their late summer highs, driven by lower soybean oil (SBO) futures. The SBO market was trading in the mid-70 cents per pound range in late October and November before collapsing to the lower 60s in early December. The move down was prompted by the EPA’s release of Renewable Volume Obligations (RVOs) at lower-than-expected numbers on December 1st.
US production and capacity
Additionally, some renewable diesel plants have produced below capacity to start the year, which runs contrary to what many traders and producers were expecting. As a result, there are long positions in the current market that will need to be liquidated in short order.
Historically, sellers holding animal fats, or any other biofuel feedstock, could sell product into the feed or oleochemical sector, but the high prices relative to corn and soybean oil have driven many buyers into the palm oil and palm derivate markets.
However, the short-term lack of demand will be mitigated by eventual fixes and the continued expansion of the renewable fuel industry in the United States and around the globe. The planned capacity in the United States is set to grow 50 percent over the next twelve months, from 2.4 billion gallons to 3.6 billion gallons by December.
Production estimates to affect feedstock prices and biofuel margins
The added production across several different facilities is bullish for feedstock prices. However, the increase adds supply to the renewable fuel credit pools. The added supply has already had the effect of lowering prices of California Low Carbon Fuel Standard (LCFS) credits and the influx of Renewable Identification Numbers (RINS), which are credits generated under the federal Renewable Fuel Standard (RFS) on the added production could weigh on RIN prices and therefore biofuel margins, capping the price of feedstocks in 2023.
Weather and war will play a large part in determining prices in the second quarter and second half of 2023. Dry weather in South America and any heightened disruption to the supply chain in the Black Sea region could send commodity prices higher and in turn, pull biofuel feedstock prices along for the ride.
Managing high volatility
To effectively mitigate the financial risks that come with such high volatility, planners, traders and buyers in the biofuel space must monitor the credits and feedstock markets daily and have access to verified, accurate data and analysis, as well as spot prices, reports and news.
Our platform is designed to survey the full spectrum of traders, buyers and brokers to capture the best price points and ensure a robust assessment of market trends. We help you navigate all the uncertainty within the market today so that you can make the right business decisions.
With methodologies and pricing processes that align with core IOSCO principles, Fastmarkets has an unmatched product breadth and geographic reach.
