Wholesale Market Conditions

Funny how things can change in just a few months.  In February I was flaunting the brilliance of using biodiesel as a supplemental form of income by generating increased savings and optimizing profitability.  If you wanted to take that same stance today you would see a much different savings schedule.  With RIN values deteriorating and the U.S. drought conditions spanning across the midwest the outlook on feedcost is very bullish.  RINs are dropping as EMTS numbers coming out are showing us likely to hit our obligations (on physical & RIN standards) by then end of September.  Anyone looking to maximize a Q4 physical product contract on biodiesel (like this guy) has their fingers crossed hoping for a miracle.  All is not lost though, purchasers and end users in Texas can still take advantage of the .20/gallon state incentive for using the biodiesel  adding this into the fact that basis is still swimming around .1325 in the Group 3 & .1045 in the Gulf Coast for ULSD shows there is still some value, but considering a number of refiners/shippers are trying to meet their obligations, they are mostly shipping a B2 - B5 already.  To really make an immediate impact, blending at a B15 (after the B5 from the shippers) would be the only real way to make a difference.

All is not lost yet!  There have been some good opportunities for those companies harboring unbranded contracts as the market continues its bullish rise.  With Bernanke disappointing all the QE3'ers it helped physical trading continue its rise.  I'm personally worried at the sustainability of this increase - Iraq's exports are at 2.565 million bbls per day (the most in 30 years) and US production continues to increase weekly.  Hurricane Isaac had an obvious impact on trading, but was short-lived.  Damage was less than expected to offshore assets and refineries.  Marathon was able to get 1 million barrels from the reserve from congress and has to pay back (with interest) in the next 60 days....not much an impact really.  Wholesalers can "hedge" their position on sales, by offering both current day & previous day Platts contracts.  In an up market your previous day contract stays constant and pricing will not fluctuate with market conditions.  On a down day your current day contract will encompass that day's trading and your costs will likely be lower than available low rack.  This is a way to offer different options for your customers and show your support in their continued growth.

It has been a tough few months on the renewable fuel front, but keeping a constant watch on both the refined and renewable markets will keep you in touch on ways to be versatile on your offering.  Continue to grow with both markets because it always seems as soon as you ignore one side, that is the side where your marginal value lies.  Grow in both markets and find ways to use them to supplement each side's business.  This will alleviate risk of failure and sustain your company's market value.