FutureFuel uncertain whether its Batesville, Arkansas, plant will continue producing biodiesel
Biodiesel and chemical manufacturer FutureFuel Corp. is unsure about its future in the biodiesel space, according to information in its Form 10-K Annual Report filed March 14 with the U.S. Securities and Exchange Commission.
“There currently is uncertainty as to whether we will produce biodiesel in the future,” the company stated. “This uncertainty results from changes in feedstock prices relative to biodiesel prices and the lack of permanency of government mandates including the blenders’ tax credit, the small producer’s tax credit, the [Renewable Fuel Standard] program, and the California [Low Carbon Fuel Standard] program credits … This uncertainty also results from government mandates that strengthen markets that we compete against, including renewable diesel and electric vehicles.”
FutureFuel opened its biofuels-business segment in 2005. The company has a multifeedstock biodiesel production facility in Batesville, Arkansas, with a demonstrated capacity of 59 million gallons per year (mgy).
Last year, FutureFuel’s biodiesel plant produced nearly 50 million gallons.
“This scale and the design of our plant in Batesville allows us to process a wide variety of feedstocks and continuously achieve high biodiesel yields,” FutureFuel stated in its 10-K annual report. “Combined with the synergies of operating a shared chemical manufacturing facility, this has allowed us to be consistently successful in a highly competitive market.”
In FutureFuel’s 8-K report filed the same day, CEO Tom McKinlay shared his perspective on the company’s financial performance over the past year.
“The results for the financial year 2022 reflect positive developments within our chemical segment, which were unfortunately offset by negative external factors impacting our biodiesel segment,” he said. “In our chemical segment, we experienced positive results particularly due to strong prices for our glycerin and growth of higher-value products in our production mix. In addition, three new products from both new and existing customers were trialed in our plant, which had a further positive impact during the fourth quarter. The results for the biodiesel segment were severely impacted by low volumes in the first half of the year and unprecedented volatility in the heating-oil futures market in [the second quarter], which resulted in a basis-risk loss of $10.5 million. In contrast, the fourth quarter showed very positive contributions when the plant operated at full capacity and good margins were achieved.”
The company noted in its 10-K Annual Report that renewable diesel is a rapidly growing and competing biofuel with biodiesel.
FutureFuel noted how biodiesel is made through transesterification of feedstocks like animal fats, vegetable oils and used cooking oil while renewable diesel is manufactured through hydroprocessing of the same feedstock.
“Renewable diesel, unlike conventional biodiesel, meets the fuel specification requirements of ASTM D975 (petroleum diesel fuel) and ASTM D396 (home-heating oil) and can be used as a direct substitute without requiring the need for petroleum-diesel blending,” the company stated. “As a result, renewable diesel trades at a premium price to conventional biodiesel based on fungibility with petroleum diesel, better cold-weather performance and generation of a higher number of RINs on a per-gallon basis.”
FutureFuel continued, “Renewable diesel operational capacity in the U.S. is approximately 1,623 [mgy] with that figure expected to increase significantly in the next five years. This total is significantly greater than current biodiesel feedstock consumption and will require an increase in the supply chain to meet that demand. That increase is presently being driven by price (feedstock prices have also increased significantly since the beginning of 2020); and the economic benefits in California under the Low Carbon Fuel Standard where almost all domestically produced and imported renewable diesel is sold and used.”
The future for biodiesel, according to FutureFuel, will be driven by feedstock availability, its market price compared to renewable diesel, and state and federal regulations and incentives.
“The total current U.S. production capacity for biodiesel is in excess of the current RFS2 mandate for 2022 and 2023,” the company stated. “Excess production capacity over the annual mandates could result in a decline in biodiesel prices and profitability, negatively impacting our ability to maintain the profitability of our biofuels segment and recover capital expenditures in this business segment.”
In addition to competition from renewable diesel, FutureFuel pointed out the competition from within the biodiesel sector itself regionally and nationally, and with foreign imports.
“The principal methods of competition in the biodiesel industry are price, supply reliability, biodiesel quality, and RIN integrity, i.e., the degree of confidence the market maintains in the validity of a biodiesel producer’s RINs,” it stated. “The number of operational biodiesel plants has dropped significantly in the past three years, but these have tended to be smaller, simpler plants with limited access to feedstock. Additionally, we compete with numerous other smaller producers and emerging renewable diesel and cellulosic-based biodiesel technologies.”
The company noted it could give no assurance that biodiesel would not be supplanted by renewable diesel eventually, but added that given the inherent differences in the production processes, it is not economically feasible for FutureFuel to retrofit its operations to manufacture renewable diesel.
“Our continued production of biodiesel may be limited, in part, by our ability to source feedstock given competitive growing renewable diesel markets, or, in a worst-case scenario, eliminated entirely, in the event Congress eliminates the federal mandate of the RFS2,” FutureFuel stated. “If biodiesel feedstock costs do not decrease significantly relative to biodiesel prices, we could realize a negative gross margin on biodiesel. As a result, we could cease producing biodiesel, which could have an adverse effect on our financial condition.”
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