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Biodiesel tax credit delay could cost soybean farmers

When the U.S. Senate goes back to work in Washington next week, soybean farmers hope that it will quickly restore a biodiesel tax credit worth $1 a gallon.

Ohio Soybean Association president Jeff Wuebker estimates that failure to renew the tax credit, which expired at the end of 2009, will cost him about $12.50 an acre on his soybean crop. That's the number he comes up with when he multiplies a 50-bushel yield by the 25-cents-a-bushel estimated increase in soybean value from its use as a feedstock for biodiesel fuel.

"If we don't have something to use this additional oil we have, it could get worse than 25 cents," said Wuebker, who farms 1,300 crops acres and farrows 1,800 sows with his brother, Alan. Their diversified western Ohio farm also sells wheat, alfalfa hay, straw and feeds about 60 dairy steers.

Many biodiesel plants including the largest in Wuebker's state, one in Cincinnati run by the German firm, Peter Cremer, have stopped making the fuel.

Wuebker's estimate of the potential loss, which would come on top of price declines from a bearish week in commodity futures, is more than twice as much as the $5 an acre cost of signing up for the USDA's new ACRE program that some producers pondered last year. (That's roughly the amount farmers in ACRE give up in the form of lower direct payments).

Yet Wuebker isn't certain that the biodiesel tax credit issue is on farmers' minds.

Late last year the House of Representatives passed a tax bill that extended several tax credits important to businesses, including the biodiesel credit. But the Senate, caught up in the contentious health care debate and a partisan dispute over extending the estate tax, failed to act.

So Wuebker's state organization, the American Soybean Association and others are urging farmers to contact their senators.

Earlier this week former Congressman Charlie Stenholm, a Texas Democrat, told reporters at the American Farm Bureau Federation meeting in Seattle that he expects the biodiesel tax credit to be renewed quickly after members of the Senate return to Washington.

The most likely method would be an amendment to an appropriations bill, which would be in effect only this year.

Farmer leaders in the soybean industry are asking farmers to tell members of Congress that they support two stand-alone bills that would put the tax credit back into effect for five years. In the Senate, Senator Maria Cantwell (D-WA) and Senator Chuck Grassley (R-IA) have introduced S.1589 to do that. In the House, a similar bill, H.R. 4070, has been introduced by Representative Earl Pomeroy (D-ND) and Representative John Shimkus (R-IL).

(The Senate bill has seven cosponsors; the one in the House, 17. You can see if your members of Congress are among them by going to the Library of Congress website, www.thomas.gov, and typing in the bill number.)

Another Ohio farmer, Rob Joslin, recently became president of the American Soybean Association and has made restoring the tax credit an urgent task.

Demand for soybean oil has already been hurt as the food industry switches to other oils that don’t have transfatty acids when used in processing. That has resulted in a loss of demand for 2.8 billion pounds of soybean oil, Josling said.

"The only significant sizeable demand industry to make up for it has been biodiesel," Joslin said.

The loss of the tax credit could also lead to higher fuel costs for all of us, another 25¢ to 35¢ a gallon, according to one Department of Energy estimate, Joslin said.

At Peter Cremer, an oleochemical producer in Cincinnati with capacity to make 60 million gallons a year of biodiesel, "the plant has been shut down for biodiesel pending resumption of the tax credit," say Mack Findley, vice president of sales. "I don't know of much production anywhere in North America."

The economics of making biodiesel were suffering even before the tax credit expired, Findley said. U.S. production dropped from about 850 million gallons in 2008 to 300 million gallons in 2009. The European Union, which had been a good market, slapped a tariff on U.S. biodiesel. The EPA has delayed implementation of a new mandate to use the fuel in this country. And the price of soybean oil is still 35-40 cents-a-pound, higher than the 20-25 cent range of four years ago.

All this means that the margins for biodiesel are poor.

"Even after the blenders credit, it's more expensive than diesel fuel," Findley said.

Still, some markets, including school districts, urban transit and agriculture, have been willing to pay modest premiums. But the loss of the tax credit adds another $1 a gallon for 100% biodiesel on top of that.

Peter Cremer makes other products from vegetable oils, but biodiesel is on hold for now.

"The blenders credit is just one more tough thing for the biodiesel industry," Findley said. "We're a resilient group. I've been in this since 1991. It’s never been easy in the biodiesel industry."

Findley is optimistic that the credit will be restored. And so are soybean association leaders. But just in case, they’re urging farmers to contact members of Congress.

As Joslin puts it, with the Senate not renewing the credit late last year, "we've disrupted the supply chain. We've set a whole series of dominoes in place that are detrimental to our industry and our country."

When the U.S. Senate goes back to work in Washington next week, soybean farmers hope that it will quickly restore a biodiesel tax credit worth $1 a gallon.

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