Economists foresee bleak growth in biodiesel

As the price of soybeans for the fuel goes up, even soaring petroleum costs may not help the industry

Willie Nelson may want to stick to his music. Biodiesel, the fuel additive that the singer has tried to make famous, is eating the dust of corn ethanol.

Biodiesel is made primarily from soybean oil, and the price of soybeans is up as farmers put more and more land into production of corn, the more lucrative crop of the two.

That is cutting the profit out of biodiesel production and could stunt the industry’s growth for a long time to come.

A new study by economists at Iowa State University suggests the biodiesel market won’t grow substantially unless the government requires its usage or adds more subsidies.

“In our projections, we can’t see why anyone would build a biodiesel plant right now unless you are speculating on a biodiesel mandate,” says Bruce Babcock, director of Iowa State’s Center for Agricultural and Rural Development.

Even an increase in petroleum prices, which raises the price of gasoline and conventional diesel, wouldn’t help much. Farmers would plant still more corn and fewer soybeans. And that shift, from corn to soybeans, pushes up the price of soybeans further, making biodiesel production even dicier.

Des Moines Register