Buried in thisnews from last week—about a Northwest biofuels company that has withdrawn its IPO because of financial and personnel problems—there’s a cautionary tale about biofuels more generally. As far as I can tell, the long-term financial prospects for biofuels firms—which as recently as last year looked incredibly bright—seem to have dimmed.
The reasons likely have nothing to do with financial mismanagement or even technical barriers. The problem is more straightforward: the main biofuels feedstocks—including soybean oil and corn—have gotten much more expensive over the past few years.
As recently as late 2006, for example, soybean oil traded for less than 25 cents per pound. But like crude oil, the price of soybean oil has skyrocketed. In fact, soybean oil futures recently squeaked above 50 cents per pound. And with oilseed costs soaring, it looks like some biodiesel firms are having a hard time living up to their profit projections.
In addition to affecting the biofuels industry, this trend has broader implications for consumers. Now that we’ve started to think of it as perfectly normal to power our cars with food, we’ve hitched food and fuel prices together. OIlseed prices no longer follow the lead of agricultural markets, but instead tango with crude oil. And as crude oil has sashayed northward, it’s carried soybeans and palm oil with it, in an unsettling pas de deux. (Ok, I’m done with the dancing metaphor.)
In a way, biofuels firms’ earlier success may have contributed to their current problems. At the rate they were growing, it was more or less inevitable that the rising price of feedstocks would start putting the squeeze on profits. There’s no blame implied in these comments; just an observation that it’s all too easy for success to sow the seeds of its own undoing.