Analysts weigh market reaction to E.P.A.’s biodiesel proposals

Discussion of the Environmental Protection Agency’s May 29 bio-massed diesel mandate proposals was first order of business for the edible oils and shortening panel at the Sosland Purchasing Seminar on June 1. The previous Friday, May 29, the E.P.A. announced renewable fuel standard requirements for biodiesel at 1.63 billion gallons in 2014 (the actual production for that year), 1.7 billion gallons for 2015, 1.8 billion gallons for 2016 and 1.9 billion gallons for 2017. The news rallied the soybean oil futures market on May 29 and June 1.

Matt Beeson, founder of Beeson & Associates, who presented the edible oils and shortening outlook that provided the basis for the panel discussion, noted given the slow progress in developing cellulosic biofuels to supplement corn-based ethanol, bio-mass-based diesel has been required to fill the gap ensuring renewable fuel standards are met.

Mr. Beeson said between 20% and 25% of the nation’s soybean oil supply already is used in the production of biodiesel. He noted despite the market’s reaction, the E.P.A. biodiesel mandate proposals were actually smaller than many thought they might have been.

But the high volume already devoted to biodiesel manufacture makes the soybean oil market highly sensitive to increased demand from that sector. Steve Freed, vice-president, ADM Investor Services, noted adding a couple hundred million lbs of usage for biodiesel would push soybean oil ending stocks lower toward the 1-billion-lb mark that would be historically tight.


Dave Reeble, president, Moving Parts L.L.C., indicated despite considerable discussion in the trade before the E.P.A.’s announcement, given the 2½c-per-lb rally in two days, the market exhibited greater surprise than he and other analysts had anticipated. At the same time, he affirmed the market was justified in its concern over supply.

Paul Meyers, chief agricultural economist, Foresight Commodity Services, Inc., noted the E.P.A. proposed a biodiesel mandate for 2015 only 5% higher than what was produced in 2014. Mr. Meyers thought after the price-run-up, the soybean oil market would pull back realizing the E.P.A. announcement was not as bullish as many seemed to have thought.

Brian Harris, vice-president, Global Risk Management Corp., said the 100-point-plus run-up in soybean oil futures prices on May 29 was validation of market concerns over supply, but he added the extension of the rally into June 1 was probably overdone.