Farmers High on Soy, Biodiesel Makers Not so Much, Brazil and S.A. Boom, Alabama Gets Texas Oil

The economics of soybean oil for biodiesel has committed market suicide. Even with rising gas (and diesel) prices, it is nearly impossible to make a profit from biodiesel production with soy oil as the feedstock. At least that is the conclusion of someone a lot closer to the ground than I am. The Farmers' Guardian published a story dated March 14, 2008 saying, "Two years ago soy oil was in the low 20s (cents per pound),"” says Ed Ulch, a soybean farmer from Solon, Iowa. "Now it’s 52 cents per pound. The break-even price for these biodiesel plants is 43 cents."

Now, in truth, I don't necessarily subscribe to the above stated conclusions, but considering other feedstocks (as the story goes on to discuss, including using rapeseed (canola), animal fats and waste fryer grease) is an essential strategy for survival of the many biodiesel production facilities that are still springing up like toadstools all around the world. Indeed, biodiesel producers have to realize that even if they find a much cheaper feedstock today, the demand for their product is rising so fast that the primary feedstock of tomorrow will rapidly rise in price, too, in all likelihood. By all means we need to turn more attention (and quickly, I might add) to jatropha, neam, and perhaps even cellulosic biodiesel (umm, I think that one would be one we'd have to call "synthetic diesel" according to the technical definitions that exist today). But beyond that, we need to turn our eyes (again, rapidly) toward the one biological source that appears to hold the most promise, which is algae.

On the other hand, the evidence is in that at least some biodiesel facilities are grinding to a halt as a result of the rising price of soy oil. The Albert Lea Tribune (in Minnesota) reports that the Board of Governors of SoyMor Biodiesel LLC are suspending the production of biodiesel at this time in hopes of preserving the longer term health of the company that employs 30 people. This source quotes soy oil pricing this way: "The Chicago Board of Trade closing price Friday for March soybean oil was 62 cents per pound; January soybean oil closed at 64 cents." Which a SoyMor spokesman called 10 cents too high to be viable. (Seems that the SoyMor spokesman and Mr Ulch, at least, can agree.) Yet they remain optimistic in the true tradition of mid-Western farm communities. Board Chairman Gary Pestorius, is also quoted as saying, "High prices cure high prices."

Clearly there are signs that businesses still have faith that soy can be a viable route for biodiesel. In South Africa, EngineeringNews (of South Africa) reports a R1.5 billion (US$213 million) biodiesel plant has been announced, claiming expected operational date some time in late 2009. Investors in this company are mainly from Australia, and have not yet sold an interest [as required by law] to South Africans, but, "Rainbow Nation Renewable Fuels (RNRF) was in the "final stages" of applying for a licence from government to produce 288-million litres a year of biodiesel from a R1.5-billion plant it was building at Coega in the Eastern Cape." Although the company has targeted domestic crops of soy from the South African nation as their eventual feedstock, they anticipate that they will initially be importing much of the required 250,000 tonnes a year since the entire domestic soybean crop is approximately just 300,000 tonnes per year according to the Engineering News report. Another company, LG Biodiesel has announced what, "they believe is a first in South Africa, a fully self contained and mobile Biodiesel manufacturing unit." It may well be the first in South Africa, but there are numerous versions available around the world. However, "the news" IS what you can get reported, so I guess it is newsworthy, or at least the price of R80,000 (which is just US$10,000) does seem like it might be viable for the purpose for which it was intended, which is to provide locally generated fuel for local electric generation in "off grid" remote locations. Provided local farmers are willing to grow the oil crops necessary, this really is likely to be the long term hope for eco-friendly modernization in much of Africa. While these mobile, trailer mounted units can provide fuel to power electric generators in isolated regions, they could also be used to accelerate development of villages as suburbs of the larger metropolitan regions too, temporarily extending the reach of electric services in advance of the arrival of a more interconnected power grid. There are those, too, who see the future of electric power as residing in distributed generation capabilities in general, and the addition of "smart grid" architecture is a hot topic in Europe at the moment.

Reportedly Brazil is considering advancing the target date of B5 manadatory blending to 2010. The report from Rio de Janeiro says (via the Estado newswire service, according to the CNN.com website, which came from the Dow Jones newswire service)(sorry, I like to have more direct resources, but although I am sometimes re-published in Brazil, I don't read Portuguese myself) Mines and Energy Minister Edison Lobao wants to push up the starting lines for 3% biodiesel blends as a mandatory regulation for Brazil as early as July this year, with another increment to 4% next year before the 5% in 2010. According to this story, the country now consumes 840 million liters with the current regulations that require all diesel to be blended at least as B2 (2% biodiesel), so that would boost domestic consumption to 1260 million liters per year. The Minister indicated that this level was not a problem for the country since current capacity it to produce 2.5 billion liters per year, which, according to my math says that they could theoretically bump that up to 5% immediately without creating a shortage.

Ah, but THEN the newswire story goes on to say that: "Much of Brazil's biodiesel output capacity lies idle, however, due to high prices of raw materials, such as soy oil." You see? I told you.

Ah, BUT, that's not the whole picture, and as I suggested above, let's now turn our eyes to algae.

Last month PetroSun BioFuels, Inc., a wholly owned subsidiary of PetroSun, Inc. (Other OTC:PSUD.PK - News), acquired an 87.5% ownership interest in Fleet Biodiesel, Inc. located in Bridgeport, Alabama. This facility is located with access to the Kentucky river, and is currently producing at about an annual rate of 720,000 gallons according to the news release from Petrosun. Now, if everybody else is moaning and groaning about biodiesel being squeezed out of the market by rising soy prices, what does Petrosun know that everybody else does not? Petrosun has also (and more recently) announced that they are opening a facility near South Padre Island (South East of Houston, TX), that will be producing algae, and from that, algal oil. Indeed, production plans for the Bridgeport facility are to boost production to 2.4 million gallons per year, using algal oil. The open pond method being employed by Petrosun allows them to get started with a huge facility (well, huge compared to anything anyone else in the continental United States is operating currently) (to the best of my knowledge, though if you know about one that is larger, please tell me about it). The photo at the top of this article shows some of the ten acre open pond cultivation areas, in full bloom on the left and not active on the right.

Petrosun says they expect to be operational by April 1st, 2008. The "farm" as they call it has 94 ponds of five acre size and 63 ponds of ten acre size on the 1,831 acre site. By Petrosun's calculation that is 1,100 acres under "cultivation" in the ponds. With their commitment to the Bridgeport facility I don't know how much oil they will have left over, but their press release tantalizingly promised, "PetroSun will conduct algae-to-jet fuel and algae-to-bioplastics research and development projects." If that's true, I applaud their aim, and will look forward to meeting and talking with them.I don't know where I found the self-restraint to avoid mentioning politics this week, except that it is already Tuesday, and I still haven't submitted this to my editors, so, I will postpone politics and entertainment "bon mots" until next time.

Love,

Stafford "Doc" Williamson

p.s. Oh, yes, part of the reason I have been so slow getting this week's musings together is that I have been working on a government bid, and revamping my "printer supply" shop at http://www.sav-mor-on-ink.com/ , where prices are better than ever to the public and the corporate and government trade has been isolated out of sight (more or less).

Imperium Delays IPO; Fed Rate Cut Still Coming; Bartiromo, Gates, Soros, Dell, Bono at WEF Summit; Obama Doubles Clinton; Kennedy X2 Endorse Obama

Imperium Renewables, the Seattle based firm with the largest US based biodiesel plant (at Grays Harbor) has delayed plans for an IPO citing "market conditions". This move was widely anticipated after the departure of their CEO. However, another interpretation has also been put forth which is that because of the tripling of biodiesel production capacity in the US, and the rise in Soy Oil prices there just is not enough available feedstock to supply additional plants at this time. Indeed the Greentech Media article that summarizes these facts proclaims "Feedstock Shortage" in its headline.

Of course, the "not enough" feedstock is not really the problem at all. The problem is that feedstocks for the popular, cheap and easy method of making biodiesel, using a catalyst, and ethanol (or methanol) to esterify vegetable oil needs cheap vegetable oil to keep it cheap (which is to say, competitively priced). Biodiesel as an industry has become its own major competitor. According to the same Greentech Media article, Soy Oil cost just US$ 0.27/lb. (or US$ 540/Ton) back in August of 2006, while the December 2007 price has soared to US$ 0.44/lb. which comes out to US$ 960/Ton. That's a 56% increase in less than 18 months.

Few will question that when cooler heads prevail that we will be seeing a lot more of jatropha and other non-edible oils becoming more important rapidly over the next few years. Off to a slower start may be the algadiesel based on the oil content of the fast growing green plant. But let us not neglect, either the use of genetic engineering and "synthetic biology" in which microbes are being grown specifically to produce "long chain alcohols" (butanol, for example) from cellulosic sources. Since, as far as I know, the oil content of algae is of no particular interest to these microbes that are producing butanol from the cellulose and lignin of plants (5 carbon sugars, as opposed to the 6 carbon sugars of glucose and sucrose) it would well behoove those working in these to areas to start talking and experimenting cooperatively and collaboratively. Wouldn't you agree?


I always find it incredible that occasions like a G8 meeting or this week's World Economic Forum annual Summit in Davos, Switzerland, produce a horde of, often unruly, protestors who are AGAINST globalization. There is entirely too much of the "us" (whoever "we" are) against "them" (and it matters little which "they" anyone refers to, since being "not us" is perceived as being inherently a bad thing). Globalization is about spreading the wealth. That is not to say that I don't recognize that some exporters of jobs aren't doing it to "exploit" the cheap labor in other parts of the world, but driving down costs while increasing profits is the aim. The idea that all CEO's and boards of directors of major multinational conglomerates somehow match the moustache twisting, black hat image of 19th century melodrama villains is a little far out there.

The industrial revolution of the 18th and 19th centuries were building on ancient knowledge that had been ignored (if not outrigh suppressed) for anything up to a couple of thousand years. Unrestrained by public opinion, or the threat of exposure to public criticism, the so-called "Robber Barons" were indeed almost incomprehensibly callous in their tactics and even occasionally completely immoral in their practices. But major publicly held corporations do tend to have to answer for their actions and even their motives to the media and the public. The collapse of Enron is the prime example in recent times, though there have been others too.

My wife (I blame her NYC upbringing) tends to see corruption and conspiracies lurking around every corner, even brazenly in plain site. She is not entirely wrong, but I hope she is not right as often as she believes she is. (That's dangerous talk to put in print, so I'm hereby claiming temporary insanity in case we ever find ourselves in court.)

The fact is that I hope that the majority of businesses and business people have in mind to make their living by an ethically sound set of business practices to make the world a better place for themselves, their family and ultimately the world entire. Now all of that is preamble to the fact that I was teaching a class on industrialization last week, combined with the fact that I have been paying attention to a gentleman who I know only through internet correspondence as S. Kumar. S. Kumar is a resident of India, and seems to know a good deal more than I do about how to make money on the internet. The combination of these two factors, along with my long support of micro-credit as a means of bringing about some greater degree of equality globally, have led me to a new paradigm that I hope some readers will find interesting.

NEW PARADIGM

Global Village Cottage Industry is not as catchy a name as I would like it to be, but it does describe this concept that borrows a little, too, from Isaac Asimov's writings. Examples have been cited in literature about microcredit that speak of an "instant phone company" when a small, and previously isolated village suddenly gains access to market information because a microloan allows one villager (or that that villager's family) to acquire a cell phone. Suddenly the local basket weavers can access information from an uncle or a cousin in a larger town or city to discover what the market price of baskets (or whatever commodity) may be that week, and therefore better able to either price their own labors locally, or to attempt to calculate the costs/benefits of providing their own transportation and/or wholesale to the big city markets.

It is, in fact, possible now to earn several hundred dollars per week from a modest web presence, some of which can operate on "autopilot" for years drawing a few dollars a week, while others, which might require more human intervention and attention to keep it "tuned" to the market. For those villages where average wages are about US$1 per day or less, facilitating a micro-economy of internet information brokerage could well represent a doubling of the village's total net income. In remote villages where impoverished populations are isolated additional challenges and difficulties might also need to be addressed. Items like how to connect to the internet via phone lines, much less high-speed data lines could be a really difficult feat, especially at moderate costs. Just supplying power to a computer or two might require a generator or a solar panel (charging all day just to run the computer for a few hours at night) perhaps.

It is of no particular consequence to the owner of the web site, nor to its' users whether the owner may be in New York City, or Elberta, Alabama, or Mumbai, India, though server space on a direct high speed optical connection to the backbone of the net may be more expensive than a server in a basement in Siberia somewhere. Nor am I advocating that this should be the only industry in town, for we saw what can happen to a New England milltown when competition closes the mill. But it is possible to establish this kind of "cottage industry" virtually anywhere, and by capturing even a miniscule percentage of the worldwide traffic for certain items of ecommerce, it becomes possible to generate a modest income by American or North American standards, but that same very modest income to us, might represent full-on luxurious to an otherwise impoverished family in an isolated and economically disadvantaged community.

Just to be clear, here, let me state that I am not talking about publicizing the basket weaving skills of the locals, although that too could be one way to monetize a web presence. I mean that merely becoming a source of information that attracts people, one has the opportunity to earn a living by having once gained their trust, to refer them to other information of value, which might include pure information ("how to's" or houseplans) or access to money saving opportunities, like sales at Amazon.com (collecting affiliate commissions on sales made because of their referrals). At the same time large organization in the retail field like Wal-mart, K-Mart/Sears, Circuit City, and so on, are also placing retail advertising wherever they can "capture eyes", so merely having traffic to your sight could make you eligible to earn from the "publishing" of some of that advertizing content as well.

CNBC's Maria Bartiromo, who had a rather rapid rise to national television stardom just a few years ago had an interesting program this Sunday with an array of movers-and-shakers for guest. Not the least of her interviews was a satellite link to Texas (Ms. Bartiromo was in Davos covering the World Economic Summit) with former President of the Federal Reserve Bank in Dallas, Mr. Robert McTeer. Mr. McTeer claims that he had been advocating "strong action" to avoid recession, meaning at least 50 basis points (0.5%) cut in the Fed Funds Rate. Mr. McTeer, with better comic delivery than most economic heavy-weights, joked in poker playing terms that they saw his bet and raised him a quarter, which resulted in the Fed Chairman Bernanke's cut of 3/4's of a percent in the first cut issued by the Fed outside its regularly scheduled meetings since 1971 according to Ms. Bartiromo's Wall Street Journal Report program on CNBC.

Mr. McTeer, however, was not impressed with the tax rebate giveaway the politicians were putting together. He didn't mention, but I think that I did (with respect to one of Congressman Ron Paul's policies about expansion of the money supply), that the M4 money supply was increased by fiat in December by more than US$ 40 billion. (Yes, "Billion," though the "funny money" auctions, as Congressman Paul might call them, were not until this month and next, I believe.) Mr. McTeer also said that he felt that the economic effects of the US$ 150 billion giveaway by Congress and the President in the form of direct rebates to taxpayers (plus business incentives and tax breaks) [and the probable "piling on" of some "tasty" pork by the Senate, as Donna Brazile on This Week with George Stephanopolous put it] was unlikely to be necessary considering the cooperative spirit of the Fed and it's quick action. Mr. McTeer did suggest, however, that he felt it was a good possibility that there may be an additional 0.25% interest rate cut coming, and that could happen as soon as the next regularly schedule Fed meeting.

And in the rest of the class of "heavy-weight" Maria found Michael Dell, Bill Gates, and Bono promoting Bono's "RED" campaign to pay for HIV/AIDS drug treatments for Africans. Another interesting picture on the World Economic Forum website was one in which I believe I saw Bill Gates on stage with the Chairmen and CEO's of BOTH Pepsi and Coca-Cola. Nor would it be prudent to ignore that George Soros was also present at the summit. Mr. Soros is, I understand, also scheduled to appear on a CNBC European broadcast in a debate on economic policy in which the resolution he speaks to is something to the effect that their needs to be, "a new sheriff in town," on the world economic stage, because central bankers have, "lost their way."


Speaking of, "lost their way," the anticipated boom from computer telephony integration (or "CTI" as it was called in the comupter and communications industries) never really took place (except behind the scenes where it ended up crashing some of my early retirement dreams as Lucent Technologies stock took a dive at the turn of the century) although the anticipation of it may have inspired physicists to postulate "dark energy" because most of the fiber-optic cable that was laid in preparation for the explosion of demand remains "dark" (unlit by the necessary lasers to make it useful) because bringing it on line would cause existing tariffs to drop like stones to virtually nothing and it is hard for communications companies to continue to charge premium rates for guaranteed premium grade "quality of service" when there is no shortage of bandwidth for everyone everywhere. (It's another one of those "corporate inertia" things I spoke about last week that I find so annoying, everyone is so worried about preserving today's established markets that they stifle the evolution of new markets and new technologies to protect the old territories.) But the convergence we are now seeing is one of cell phones with video displays also accessing web based data and gradually creeping in is the GPS integration of local commercial information as well.

Things do not always work out the way we expect or plan them to. I predicted the future of the internet quite a number of years ago. Projecting the number of subscribers was not my field (and still isn't), but technology was, (and is), so I predicted several things. I expected to see a proliferation of "virtual reality" sights. That has been slow in coming about, but one example does stand out. I believe the most prominent example today is "Second Life", which is a really interesting phenomenon itself, because although it strongly resembles the Dungeons and Dragons romantic sword and sorcery roll playing games of the 1980's and 1990's, this seems to be a place to meet and greet real friends (new and old). I won't try to pigeonhole the D&D crowd but I will say that computer game players started out as the more geeky among us, and while one cannot know how many still are, the mere fact that these communities of online folks interact socially makes them seem to have more adventurous and more gregarious natures than those nerds and computer jockeys of old.

Now I have to admit I was more than a little bit spoiled by my early computer experiences. Mind you, I admit that I am discounting [naturally enough, I THINK] the Timex/Sinclair 1 kilobyte "toy" computer, which introduced me to programming but never did a single useful thing in its life with me. So I have had some optimistic views on the future of computers and the internet. At that same IBM and IEEE sponsored speech I gave in Toronto many, many years ago, I showed a picture of a video watch, or rather a mockup of a video watch that I predicted would be the future common access and interface device to the internet and most people's computer experiences. Along with that I predicted that it would be a voice interactive experience, which is to say that like the denizens of Star Trek we would just speak to the computer, and receive much of what we wanted back in the form of voice response as well, supplemented by screen graphics only when really needed. Video is a terrible waste of bandwidth, especially if all you are sending is the graphics to represent text that conveys the information.

Well, through a series of semi-disasters I just received on my desktop a Gateway GT5404 computer with Microsoft's VISTA Home Premium operating system. It has 1 GB of RAM, 250GB of SATA hard drive and a Pentium Dual-Core CPU, which is a 64 bit processor that handles two 32 bit streams at 2.8 gigahertz. Both a sticker on the machine itself and the software reporting the type of system it is emphasize that “dual stream” feature. The sticker says, “2 x 2 MB L2 cache.” The software says that it is “rated” 2.80, but then goes on to explain that it is 32 bits at 2.8 GHz and another 32bits at 2.8 GHz. This operating system also contains the speech recognition features that became standard with Windows XP editions. I am not, by any means, holding my breath, but I am hoping that this will become a feature of my computing in the very near future. This XP machine on which I am working (a Dell, by the way, but "only" 1.6 GHz, and 768 MB of RAM) can barely handle my 9 windows of Word, Internet Explorer and Outlook email if Outlook is attempting to download new messages (as it does several times an hour). Therefore speech recognition would be totally impossible since I would have long since forgotten what it was I intended to say LONG minutes before the operating system got around to attempting to copy my words to the screen (or execute the commands if that is what the words were). The dual execution scheme on this new Gateway might be the answer to this kind of problem, but I am fearful of getting too excited about it. I was doing voice/speech recognition work on an IBM XT computer back about 1986, and even though that was "discreet speech" (un-connected, distinct words with "pre-trained" vocabulary) the progress in this field has been of dire disappointment to me over the last 21 years, especially relative to the increase in computing power. For a comparison (you can do the math if you like) my old IBM XT type (actually from Matsushita) operated at 10 megahertz and had 1 megabyte of total RAM (even the hard disk was 10 megabytes total capacity).

Please wish me luck on that front.

Amazing political news: Caroline Kennedy wrote a endorsement for Senator Barack Obama, published by the New York Times newspaper, in which she said, "I have never had a president who inspired me the way people tell me that my father inspired them." The Times also reports that Senator Ted Kennedy is slated to provide his endorsement of Senator Obama on Monday (January 28th, 2007).

Not so amazing political news: Senator Obama won the Democratic Primary election in South Carolina. What was surprising, perhaps, was that Senator Edwards, who was born in South Carolina did so poorly. What was almost more surpising was that Senator Obama's vote count was 55% for Senator Obama, and just 27% for Senator Hillary Clinton. And talk about "globalization", it is certainly NOT a one way street. That article link above about the South Carolina election results is to a Korean newspaper website that just happened to be one of the top results on my Google search terms.


love

Stafford "Doc" Williamson