Biodiesel in Brazil: A Rising Tide? Part II: At the Right Price

In this report, the publisher will address the principal questions related to the price and cost of Biodiesel in Brazil. In other words, can Biodiesel compete on price with fossil fuel based Petro-Diesel (Diesel fuel derived from petroleum)? By analyzing the supply chain, including the costs and profit for each link in the chain, the publisher determines if Biodiesel can be produced in Brazil at a price that is economically viable. If Biodiesel can be produced at an economically viable price, then the publisher can conclude that Biodiesel remains a candidate to be a good investment opportunity.

Report Insights
- Acquire a deeper knowledge of the key drivers of the Biodiesel industry and how they enable or challenge Biodiesel’s success in Brazil.
- Determine if the Brazilian Biodiesel industry can compete with the Petro-Diesel industry and present solid investment opportunities.
- Know the participants and understand the economics of the Biodiesel and Petro-Diesel supply chains in Brazil.
- Learn the price of crude oil that allows Biodiesel to remain competitive with Petro-Diesel in the short-to-medium term.
- Explore the strategic goals that each member of the Biodiesel supply chain must achieve for Biodiesel to be competitive with Petro-Diesel.
- Understand how issues such as currency fluctuations, price of crude oil, transportation costs, and others influence the Biodiesel supply chain.

In part one of the publisher's three part series on Biodiesel in Brazil, the publisher identified the key drivers that may be creating a Rising Tide in the Biodiesel industry:
-- The demand for Biodiesel
-- Impact of the “Food vs. Fuel” debate
-- The consumer price of diesel fuel
-- The price of feedstock
-- The price of Methanol and Glycerin
-- Availability of non-food chain feedstocks
- In the first part of the series, the publisher concluded that the Brazilian government is creating a real opportunity for the Biodiesel industry and should remain highly motivated to continue these initiatives.
- Also in the first part of the series, the publisher concluded that Brazil has sufficient arable land available for both biofuel and food production. And, agricultural producers for the biofuel and food supply chains can co-exist in Brazil without threatening the Amazon and other reserves.
- In this report, the second of the three part series, the publisher examines the economics of Biodiesel production in Brazil. Specifically, they analyze the Biodiesel and Petro-Diesel supply chains to determine if Biodiesel can economically compete with Petro-Diesel.
- Given that Biodiesel is a functional substitute for Petro-Diesel that does not offer any benefits to the consumer that motivates the consumer to pay a premium for Biodiesel, the consumer price of Biodiesel must be equal to or less than Petro-Diesel.
- With the consumer price of Biodiesel equal to the consumer price of Petro-Diesel, the members of the Biodiesel supply chain must earn sufficient profit to justify their participation in the Biodiesel supply chain. With the cost of vegetable oil contributing roughly 80% to the cost to produce Biodiesel, the cost of the feedstock is vital to the success of the industry and individual companies.
- Methanol (in some cases Ethanol) is the most expensive raw material in Biodiesel after the vegetable oil. Glycerin is a by-product of the Biodiesel production process and Biodiesel refiners earn revenue by selling the Glycerin. The profitability of Biodiesel refiners can be meaningfully affected by the cost of Methanol (or Ethanol) and the selling price of Glycerin.
- In summary, the publisher expects that the consumer price of Petro-Diesel, the price of Biodiesel feedstocks, and the price of Methanol and Glycerin will remain within ranges that allow Biodiesel to economically compete with Petro-Diesel. SHOW LESS READ MORE >

Review: Food vs. Fuel

Executive Summary

Introduction

Supply Chain Analysis

Petro-Diesel Supply Chain
- Refiner
- Feedstock Supplier: Independent Oil Company

Biodiesel Supply Chain
- Distributor/Reseller
- Refiner
-- The Price of Methanol & Glycerin
- Feedstock Supplier: Farmer

A Comparison of Petro-Diesel and Biodiesel Gross Margins
- Are the Margins of the Supply Chain Participants Sustainable?

Can Biodiesel Compete with Diesel Today?

Farmer: Next Steps
-- Feedstock Harvest Cost Reduction
-- Kilograms per Hectare – Oil Content per Kilogram
-- Fertilizer Improvements
-- Plant More Non-Food Chain Feedstocks
- Results of Next Steps for Farmer

Other Supply Chain Influences
- Transportation Costs
- Crude Oil Price & Currency Fluctuation
-- Consumer Prices of Diesel Fuel Around the World
-- Global Demand for Energy and the Affect on Crude Oil Prices
-- Crude Oil Price and Currency Fluctuation Scenarios

Summary

Appendix A: Earnings of Diesel Supply Chain Participants

Appendix B: Cosan – Comparable for Mature Biodiesel Company

Appendix C: Financial Results for Jatropha Farmer

Appendix D: Improving Oil Yield and Productivity/Hectare