Propel’s commitment to alternative fuel access and sustainability includes economic sustainability. As a retailer, Propel purchases biodiesel at wholesale prices, and sells to our customers at margins equal to or less than traditional 
petroleum retailers. As wholesale costs rise for biodiesel, Propel is committed to offering clean fuel access at a reasonable price point. And our fuels and vehicles team is aggressively looking at biodiesel supply options that meet our quality, cost and sustainability parameters.
There is one main factor driving the current pricing increase: the price of vegetable oil. In the past 12 months, March 2007 to March 2008, prices have jumped 90% for soy oil.
For biodiesel producers, between 80% – 90% of the input cost of biodiesel production is vegetable oil, like canola and soy oil. And vegetable oil is currently selling at a price equivalent of between $180-$190 per barrel. This is an increase is due to speculation, not market demand. Global demand for consumable veg oils has risen at a consistent 3% level for over two decades and continues at this level. There has not been a significant demand increase, or supply decrease, that explain the price run up in veg oils. Commodities across the board have risen at the same pace- petroleum, minerals, and all agricultural products. On the upside, current economics benefit USA farm communities.
Propel is dedicated to providing the most sustainable and renewable fuels that meet our cost and quality standards. We are working hard to open markets for new feedstocks and technologies that offer viable alternatives to petroleum. Together with you, we are pioneering new ground, creating economic opportunities, and building a sustainable future for our children. We will keep you informed as biodiesel prices change. If you have any questions don’t hesitate to write us. Thank you for your commitment to clean and renewable biodiesel.
We’d also like to credit Becky Lyle, a WA small farm owner, and NW Biodiesel Network, for the ongoing discussion of feedstock costs. Join the NW Biodiesel Network email list, visit http://www.nwbiodiesel.org/mail_list.htm.
Speculators.. Aren’t they wonderful? I guess since their housing bubble has imploded it’s time to wreck havoc on another industry.
Just my thoughts on that.
FYI
Low grade gasoline here in Texas is 2.99 a gallon. Diesel is 2.65… Bio is very rare here. Hopefully, that will change soon.
Roger that, Shawn. It’s a shame – and almost sacrilegious – that “going green” is being turned by many into either Just Another Marketing Gimmick or Just Another Investment Bandwagon. Very short-sighted, especially in the case of the latter. There is way more at stake here then making a quick buck in the market. But greed always wins. No wonder I’m a misanthrope.
More detailed information on grain speculation:
NGFA Opposes CFTC Plan on Position Limits
AgWeb.com Editors
The National Grain and Feed Association (NGFA) has notified the Commodity Futures Trading Commission (CFTC) that it opposes “at this time” an agency proposal to establish a new “risk-management exemption” on the size of speculative positions that index and pension fund traders can hold or control in agricultural futures or options contracts.
It was the third statement in two weeks in which the NGFA has alerted the CFTC and the CME Group of major underlying concerns over the lack of consistent convergence (narrowing) between cash and futures prices in delivery markets during the futures delivery period, and the dramatic adverse impact it is having on grain elevators, feed mills and grain processors that traditionally have used futures markets to offset price risk inherent in cash markets. Such traditional hedgers have seen a dramatic increase in recent months in the amount of money needed to finance to margin requirements on outstanding futures contracts.
“In this environment, the marketplace is ill-equipped to efficiently absorb more investment capital and perform its core function of serving as an efficient tool for businesses hedging physical grain purchases, particularly when virtually all of that investment capital is long-only and a large share of open interest essentially is ‘not for sale’ for long periods of time,” the NGFA’s statement said.
The CFTC’s proposal would create an additional federal speculative position limit exemption for “risk-management positions” held by index and pension funds. The agency proposed to define “risk-management position” as a futures market position held as part of a broadly diversified portfolio of “long”-only or “short”-only futures positions based upon either:
1) a fiduciary obligation to match or track the results of a broadly diversified index that includes the same commodity markets in fundamentally the same proportions as the futures or futures-equivalent position; or
2) a portfolio diversification plan that has, among other substantial asset classes, an exposure to a broadly diversified index that includes the same commodity markets in fundamentally the same proportions as the futures-equivalent position.
Further, the CFTC’s proposal would require that the futures market positions be passively managed by the fund, be unleveraged and not be carried into the delivery month. Persons taking a “short” position in futures markets are those who have sold futures or options contracts, or initiated a cash-forward contract sale, without offsetting that market position by purchasing an offsetting futures contract in the underlying commodity. Those with “long” futures market positions have bought futures or options contracts and own the underlying cash commodity, but have not yet offset that with a cash market position.
Noting that agricultural futures markets were established with the economic purpose to serve as efficient, central public pricing and hedging vehicles for grains and oilseeds, the NGFA said that, “[u]ntil that (economic) purpose is fulfilled, we believe it is inappropriate to establish a direct, new route to the marketplace for more investment capital which could exacerbate current problems.”
The NGFA also urged the CFTC to evaluate any future requests from index and pension funds for exemptions from federal speculative position limits in the same light. Speculative position limits are the number of outstanding agricultural futures contracts that an individual trader is allowed to possess.
The NGFA also recommended that the CFTC and the exchanges examine several specific issues pertinent to creating a potential risk-management exemption for funds. The recommendations were in addition to the analysis the NGFA recommended that the CFTC and the exchanges undertake in a previous statement to the agency in which it urged the CFTC to delay, for at least six to 12 months, its proposal to increase significantly speculative position limits on agricultural futures contracts.
The NGFA said the following specific issues related to creating a risk-management exemption warrant further study before the CFTC takes action:
· The potential impact such an action could have on convergence in grain and oilseed futures contracts.
· The potential impacts on agricultural futures market volatility.
· The projected impacts on agricultural futures market volumes if funds are allowed to engage directly in futures trading in the commodity exchanges with positions exceeding speculative position limit levels.
The NGFA asked that there be an examination of whether such an action would attract more investment capital than might occur under the current regulatory approach.
· Whether there is evidence that creating a risk-management exemption for funds would allow speculative investors to take larger positions on the “short” side of the market and result in better balance in futures markets. In this regard, the NGFA asked if any index or pension funds – or swaps dealers hedging over-the-counter transactions with such funds – have taken short futures market positions.
The NGFA also asked for information on how long funds or swaps dealers hedging over-the-counter transactions with such funds typically hold their long positions before offsetting those futures market positions in one delivery month while simultaneously initiating a similar position in another delivery month – a process known as “rolling” a futures market position.
* The impact of the CFTC’s previous issuance of “no-action letters” to funds allowing them to exceed speculative position limits.Specifically, the NGFA asked whether any of these market participants have responded by taking “short” positions in agricultural futures markets after being granted such an exemption. The NGFA also asked the CFTC if it envisioned issuing more “no-action letters” at the request of funds, given current agricultural market conditions.
* Information on the volumes of over-the-counter business being hedged in agricultural futures markets by swaps dealers under the hedge exemption granted to swaps dealers in 1991.
* Whether there are instances in which firms normally classified by the CFTC as commercial hedgers engage in over-the-counter transactions with an index or pension fund, or similar entity, and then hedge futures on the exchange. The NGFA also asked if such transactions are reflected in the “index” category of the CFTC’s Commitments of Traders report – which reports futures market activity by various classes of market participants – as well as whether any additional volume of investment capital is being categorized as “commercial” rather than “index” because of the way funds or other products are designed. “Answers to these questions should help all market participants determine whether a hedge exemption for index and pension funds is advisable, and under what conditions exemptions should be granted.
If your business requires an input prone to significant price swings (e.g., jet fuel for United, canola oil for Propel), why are futures not purchased to buffer the possibility of future price increases? This strategy is called hedging, and the purpose is to limit variability. If prices go up, the future is worth more, and the end price to the consumer can remain flat because of the $$ made on the futures purchase. Propel, other biodiesel retailers, and biodiesel manufacturers all share responsibility for not hedging their future increase in feedstock prices.
The way out of this is to support de-centralization of most everything. Big Oil has so much control over our lives because most of us just can’t go out and drill for oil and then refine it. We have to support efforts to buy locally and encourage farmers to produce both food and fuel crops. I enivison a day when the E. Washington farmers growing hay to be shipped in huge bales to feed cattle in Japanese feedlots switch to growing canola to turn into biodiesel. What we are doing is not sustainable and until people realize that, we all need to learn to live differently, we have an uphill struggle on our hands.