Concerns expressed by traders center on a potential shift in demand from biodiesel to ethanol due to year-round E15 sales. That is a questionable conclusion. Consider:
- Separate products with different applications. Ethanol and biodiesel are distinct biofuels with different uses and markets: Ethanol is primarily blended with gasoline for use in standard gasoline engines. Biodiesel is typically blended with petroleum diesel for use in diesel engines. This fundamental difference makes a direct substitution between the two unlikely in most applications.
- Potential market impacts. While the products aren’t directly interchangeable, there are some potential indirect effects to consider:
- Fuel blending choices: Refiners and fuel blenders might adjust their overall biofuel strategy, potentially favoring increased ethanol blending if E15 becomes more widely available year-round.
- Feedstock competition: Both ethanol (from corn) and biodiesel (often from soybean oil) compete for agricultural resources. Increased demand for corn-based ethanol could impact crop planting decisions and prices.
- Policy uncertainty: The combination of year-round E15 approval and the upcoming change in administration adds complexity to the biofuels policy landscape, which could affect investment decisions in both ethanol and biodiesel sectors.
- Market reaction may be premature. The sharp drop in soyoil prices likely reflects short-term market uncertainty rather than a definitive shift in demand. Several factors suggest this reaction may be overblown:
- Infrastructure limitations: Widespread adoption of E15 will take time due to the need for compatible fuel pumps and consumer education.
- Separate mandates: The RFS has separate volume requirements for different biofuel categories, including biodiesel.
- Diesel market stability: Demand for biodiesel is also driven by the diesel fuel market, which has different dynamics than the gasoline market.
