Biodiesel

So far this year we have noticed a a few hurdles as it pertains to the plausibility of biodiesel for everyday use.  "RIN Gate" has been a terrible setback for us so far this year as the EPA has mandated all the majors to guarantee the viability of every blended gallon they sell.  This shouldn't be that big of an issue, but what we are seeing in the market place is all the majors only doing business with major biodiesel producers such as ADM or Cargill....this is killing the little guy.  We have a great company we use out of High Hill, MO who has had to shut down production because we can not sell their RINs forward to lock in a price to sell to our customer.  We could take the chance of purchasing the product and hoping someone buys our RINs off us once they are transferred from a K1 to a K2, but then we are running the risk of the value dropping significantly or even worse - not being able to sell them at all.  We are having our producer complete their RIN Attest right now in hopes this solves the problem and I will be sure to revert back one to process is completed to let you all know how it has changed the situation.  The main concern with all this is the fact that biodiesel has, again, become a lucrative blending option for those customers using biodiesel.  On closing Friday we saw the market finish with RINs trading on the high side at 1.45.  This brings a blended value up to 2.175.  We saw the NYMEX settle HO out at 3.1889 and Group 3 Platts Avg. end at 3.1152.  Assuming you have a Platts contract with a supplier at Platts previous day Avg. + 2.75 you would see your diesel price at 3.1427.  Assuming basis stays on this consistent level (or goes higher) and RIN values do not drop below the 1.45 (or you can sell them forward) you can purchase biodiesel and generate a blended competitive advantage at HO + 2.10/gallon.  This is incredible because right now, we are seeing offers at HO + 1.75 delivered.  At HO + 1.75 your economics would play out as listed:

Biodiesel cost - 3.1889 + 1.75 = 4.9389
RIN value = 1.45*1.5 = 2.175
Blended biodiesel cost = 2.7639
Diesel cost = 3.1152
B5 Blend = 3.0977 (.0176 savings)
B10 Blend = 3.0801 (.0351 savings)

These savings are not only savings on the side of wholesale, but also a competitive advantage for the jobbers in this area.  I'm excited to get back to moving the volume we had last year, but until RIN Gate gets settled we are at the mercy of the market.  The indication we received at HO + 1.75 isn't something that gets thrown around very often as the majors are sending teams of people into different biodiesel facilities to Vett their operations and make sure the RINs are valid and their reporting structure is concise.  Luckily we have made good friends in this industry and the opportunities present themselves when we need them most.  Afterall....it's not what you know it's who you know.