Biodiesel Mandate a Bad Idea

Implications: The biodiesel mandate sought by the biodiesel sector would be a bad idea.  The U.S. lacks sufficient oils and fats to produce more than about 700 million gallons of biodiesel annually with major disruptions of vegoils to the food sector and over supplies of protein meals.  However, investors have announced plans to buil over 3 billion gallons of annual biodiesel capacity.  Rather than passing a biodiesel mandate which would cause major distortions to the food market the Congress should simply continue current biodiesel blending credits and allow the market to function. 

Analysis: The biodiesel industry is seeking a federal biodiesel usage mandate of from 1 to 3 billion gallons annually. The industry wants a mandate because investors have built far too much biodiesel capacity in the U.S. and much more is planned. The National Biodiesel Board indicates investors plan to build about 3.1 billion gallons of annual biodiesel capacity. Ti o operate that much capacity at 100% would require about 10.5 mmt of oils and fats. That is equal to about 95% of total U.S. vegoil production this year in the U.S. Obviously this cannot occur if the nation is going to have sufficient vegoil supplies for the food sector. Expanding the crush of oilseeds to supply a lot vegoil would flood the market with protein meals which would depress protein meal prices and probably make oilseed processing unprofitable. Importing a lot of vegoil also does not make sense considering it currently is priced at around $107/barrel and the U.S. already is a large net importer of vegoil. Rather than imposing a mandate the Congress should simply continue current biodiesel blending credits and allow the market to function. The companies which built too much biodiesel capacity will have to suffer the consequences of their bad decisions