Are Landlocked Soybean Crush Facilities Destined to Survive?
Pressure on the Federal Reserve is easing prices in the start of 2023, especially in the fuel corridor, according to Jordan Fife, President of BioUrja Trading.
With planting season around the corner, Fife says diesel in particular looks to be more reasonable for producers this year, as it’s trading 10% off from its peak a few weeks ago, and it’s given back almost all the gains it’s had over the year.
As more renewable diesel crush facilities open in 2023, he foresees more diesel and profit in the industry. However, Fife is not certain the crush locations reflect the greatest diesel needs, nor where the crush money will be made.
“The crush facilities on the West and Gulf Coasts are still on track to be built and will be profitable because that’s where it’s going to be most consumed,” Fife says. “A lot of people looked at the smaller, landlocked facilities and said, ‘Does that make sense? Will that be a profitable venture?’ I think those location will go away, and I’m not sure they should have been there to begin with.”
Despite thinking the crush hype has “crashed”, Fife feels renewable diesel is here to stay and will likely maintain momentum on the coasts.
On the Gas Front
Gas prices tell the same deflating story. The AAA reports the gas average on Monday is $3.28, down from $3.30 one year ago, which Fife says sets off alarms in the markets.
“Gasoline demand is down 20%,” Fife said of the market report on Friday. “Blender input—the amount of ethanol blended into gasoline—was also down 14%. This is pointing to just how awful gasoline demand is right now.”
According to Fife, once those data points are pushed lower, they won’t get “warmer”.
“Nobody ever says, ‘I didn’t drive for five days because it was below 25 degrees outside and now that it’s up to 40, I’ll drive twice as much,’” Fife says. “Once you lose that demand, you never gain it back.”
On the other hand, he feels there are positives to these demand drop-offs. Due to the cold wind that moved across the U.S. this week, Fife says refineries moved to reduce production 40%, leaving the Gulf production to slow or even shut down, in some cases.
“If we didn’t have that shift in production, we would have had enormous supply build-ups,” he says.
The International Energy Agency estimates that the U.S. will be 600,000 barrels per day above the oil supply demand. Fife says this will further add to the stock, which is “nothing new.” However, once COVID-19 cases peak and settle in China, he foresees a return of a bullish oil market.
“Personally, I think we’ve seen peak oil prices for the time being,” says Fife. “I don’t think we’re going to the $150 per barrel that others had predicted.”
Fife’s peak-price assumptions are based on multiple factors, including:
• Increases in product availability
• Upticks in production wells
“Deflation is not a great thing if you’re trying to sell corn, beans, etc., but it is good for the overall economy,” he says. “We want these things to happen so the fed can take its foot off the pedal.”
Up the “E”
Despite high amount of available crude oil, Fife is bullish on E15.
While companies like Pilot are working to ensure E15 is made available at each station, the E15 markets don’t always sway these companies to blend. But that’s not Fife’s only reason for leaning bullish.
“There are more people putting money into E15 right now—they’re putting money into infrastructure and availability right now,” says Fife. “We’re seeing a lot of E15 in Iowa, Nebraska and Minnesota, but not in the Gulf, Houston or New York. You need those huge driver centers to latch onto it.”
Once the larger U.S. cities connect with E15, Fife says that’s when renewables will have their moment.
More on fuel:
This Researcher Looks to Uncover Renewable Diesel Source in Unique Place
John Phipps: It's Now Less About the Supply of Oil, And More About Refining Capacity in the U.S.
