Overview of the US Biodiesel

Industry and Summary

By John Kruse, PhD

Principal and Directory of Quantitative Analysis

Email: jkruse@waees-llc.com

October 26, 2015

WAEES Scenario Analyses (2015)

Scenario Analysis1. RFS 2 Policy

- Volume Obligations

- Biodiesel

- Ethanol

- Advanced

- Tax credits

- Ethanol blend wall issues

2. International Policy

- Argentina Policy

- Brazil Policy

- EU-28 Biofuels Policy

3. Biofuels Technology

- Feedstock Conversion

- Renewable Diesel

4. Crude oil prices

5. Biofuels Feed Stocks

- Supply Availability

- Yield growth

- Production shocks

- New sources

- Market changes

- Technology

6. International supply shocks

- Ukraine disturbance

- South America yields

- US yields

7. International demand shocks

- China feed demand

- Africa meat & feed consumption

- Calorie consumption

WAEES Global Partial

Equilibrium Modeling System

8. Trait & Technology Analysis

- Valuation of GE crops

- Impacts of labeling GE foods

- Impact of new trait introduction

WAEES has run over 50 biofuels specific scenarios in 2015 as of the end of September

Over 20,000 equations

Commodity Coverage Corn

Sorghum

Barley

Wheat

Rice

Cotton

Soybeans & Derivatives

Sunflowers & Derivatives

Rapeseed & Derivatives

Palm Oil

Sugarcane, Sugar Beets, & Sugar

Biodiesel

Ethanol

Cattle

Hogs

Beef

Pork

Broilers

Dairy & Dairy Products(Quasi Trend Model)

Concept Coverage Supply Components

Crops: Area, Yield, Production, Imports, Beginning Stocks

Livestock: Breeding Herd, Market Animals, Calf Crop, Pig Crop, Slaughter Weight, Production, Imports,

Beginning Stocks

Biofuels & RINs: Capacity, Capacity Utilization, Production, Imports, Beginning Stocks

Demand Components

Crops: Food, Feed, Industrial, Exports, Ending Stocks

Livestock: Slaughter, Death Loss, Food Use, Exports, Ending Stocks

Biofuels & RINs: Consumption, Exports, Ending Stocks

Commodity Prices (except dairy)

Regional Crop Costs of Production for the United States, Brazil, Argentina, China, and India

Assumptions used regarding Real GDP Growth, Population, Inflation, Exchange Rates,

Crude Oil Prices, and Policy.

Geographic Coverage of the WAEES Agricultural

& Biofuels Partial Equilibrium Models (USDA Regions)

North America

• US

• Canada

• Mexico

Central America & the

Caribbean

South America

• Argentina

• Bolivia

• Brazil

• Chile

• Paraguay

• Uruguay

• Other South America

The European Union (28 countries)

Area, yield, production individual countries

Other Europe

Former Soviet Union

• Russia

• Ukraine

• Uzbekistan

• Other Former Soviet Union

Middle East

• Iran

• Saudi Arabia

• Turkey

• Other Middle East

East Asia

• China

• Japan

• South Korea

• Taiwan

• Other East Asia

South Asia

• Bangladesh

• India

• Pakistan

• Other South Asia

Southeast Asia

• Indonesia

• Malaysia

• Myanmar

• Philippines

• Thailand

• Vietnam

• Other Southeast Asia

Oceania

• Australia

• Other Oceania

North Africa

• Egypt

• Other North Africa

Sub-Saharan Africa

• Kenya

• Nigeria

• South Africa

• Other Sub-Saharan Africa

Partial Equilibrium Modeling System(Conceptual Framework Representation for One Country)

Crop Feed Demand

Crop Food Demand

Per Capita Income

& Distribution

Other Crop Demand

Population

Age Distribution &

Health Concerns

Cultural Tastes &

Preferences

Meat Food Demand

Biofuels Demand

Fuel

Fertilizer

Chemical

Machinery

Crop

Prices

Area

Harvested

Yield

Seed

Land

Transport

Labor

Interest

Crop Cost

of

Production

Veterinary

Feed

Meat

Prices

Market

Animals

Livestock

Cost of

Production

Breeding

Herd

Government

Policy

Technology

Inflation

Exchange Rates Conditioning Assumptions

Crop Supply & Demand

Livestock Supply & Demand

Data SourcesMacroeconomic Real GDP, Inflation: IMF through 2019, WAEES

thereafter

Population: United Nations

Exchange Rates: WAEES model based on IMF

forecast of real GDP, inflation, and other factors

Crude oil and other energy prices: U.S. Department of

Energy, Energy Information Administration (EIA)

Ag Commodity Supply & Demand USDA PS&D Database, ERS, & NASS (90%)

FAO Database

Eurostat (EU-28 by country supply data)

USDA Gain Reports

Country Ministries of Ag

Policies & Tariffs USDA FSA & USDA GAIN Reports

Country Ministries of Agriculture

WTO

OECD

European Commission

Ag Commodity Prices USDA ERS & NASS

Eurostat

Various spot markets

The Jacobsen

Biofuels US Supply & Demand: EIA, EPA EMTS Data, and

ERS-FATUS

US Prices: USDA AMS, Nebraska Government

Website, The Jacobsen

Int’l Supply & Demand: USDA Gain Reports,

European Biodiesel Board, European Commission,

Argentine Institute of National Statistics and

Census(INDEC),

Int’l Prices: Argentine Secretary of Energy, Center for

Advanced Studies on Applied Economics (CEPEA-

Brazil), USDA Gain Reports, The Jacobsen

US Biofuels RIN Models

D6 RIN Volume

Obligation

D6 RIN Ending

Stocks

D6 RIN

Price

Domestic D6 RIN

Production

Carryover RIN

stocks

Imported D6 RIN

Production

Demoted D5 RINs

Supplied

D5 RIN Volume

Obligation

D5 RIN

Carryover Stocks

D5 RIN

Price

Domestic D5 RIN

Production

Carryover RIN

stocks

Imported D5 RIN

Production

Demoted D4 RINs

Supplied

D5 RINs Demoted

to D6 RINs

D4 RIN Volume

Obligation

D4 RIN

Carryover Stocks

D4 RIN

Price

Domestic D4 RIN

Production

Carryover RIN

stocks

Imported D4 RIN

Production

D4 RINs Demoted

to D5 RINs

D3 RIN Volume

Obligation

D3 RIN

Price

Domestic D3 RIN

Production

Imported D3 RIN

Production

Imported

Sugarcane Ethanol

Renewable Diesel

Adv Sorghum Ethanol

Renewable Diesel

Biogas

Naptha

Heating Oil

Compressed Gas

Dom Sugarcane Ethanol

Butanol

Biodiesel

Renewable Diesel

Butanol

Corn Ethanol

Renewable Diesel

US Biofuels Partial Equilibrium Models For Ethanol & Biodiesel

High Blend

Use

Total

Supply

Ethanol

Production

Ending

Stocks

Low Blend

UseExports

Ethanol

Price

ImportsBeginning

Stocks

Exports

Total

Supply

Biodiesel

Production

Ending

StocksFuel Use

Biodiesel

Price

ImportsBeginning

Stocks

Corn Ethanol Biodiesel

CapacityCapacity

UtilizationCapacity

Capacity

Utilization

Conventional

MandateMarketBiodiesel

MandateMarket

Glycerin

ProductionDistillers’ Grains

Production

Corn Oil

Production

Processing

Margin

Ethanol

Price Corn Price

Processing

Margins

Biodiesel

Price

#2 Diesel

Price

Glycerin

Price

Feed Stock

Prices

Technology

DDG Price

DDG Corn

Oil Price

Other Costs

Unleaded

Gasoline

Price

Crude Oil

Price

Conventional

RIN Price

Biodiesel RIN

Price

Advanced

RIN Price

Brazil Ethanol

Price

Brazil Ethanol

Supply

World Sugar

Price

Brazil Ethanol

Demand

Cellulosic RIN

Price

Sorghum

Ethanol

US Biofuel Feedstock Sources

Sugarcane

Ethanol

Production

Corn

Biodiesel

Production

Renewable Diesel

Production

Soybean Oil

Cellulosic

Biomass

Butanol

Production

Sorghum

Canola Oil

DDG Corn Oil

Inedible Tallow

White Grease

Brown Grease

Poultry Fat

Palm Oil

Heating Oil

Naptha

Landfill Waste

ManagementBiogas

Animal Waste

Management

Compressed Gas

Yellow Grease

Boxes with a dashed outline

are included in the WAEES

biofuels model as

assumptions.

Yellow Grease Market Structure

Yellow

Grease Price

Yellow Grease

Imports

Yellow Grease

Supply

Yellow Grease

Methyl Ester

Use

Yellow

Grease

Feed Use

Yellow

Grease

Ending Stocks

Yellow Grease

Beginning Stocks

Yellow Grease

Production

Yellow Grease

Exports

Frying Oil UseHigh FFA Animal

Fats

Dashed lines indicate that data is

not specifically reported

Hog Fat Market Structure

Food UseInedible

Use

Lard Supply

Lard Production

(Edible Hog Fat)

White Grease Production

(Inedible Hog Fat)

Beginning

Stocks

Ending

Stocks

Hog

Slaughter

Lard Price

Imports

Other

Industrial Use

Methyl Ester

Use

Exports

White

Grease Price

White Grease

Imports

White Grease

Supply

White Grease

Methyl Ester

Use

White

Grease

Exports

White

Grease

Feed Use

White Grease

Ending Stocks

White Grease

Beginning Stocks

White Grease

Oleo Chemical

Use

Dashed lines indicate that data is not specifically

reported. Data availability has not been updated to

reflect new USDA “Fat and Oils: Oilseed Crushings,

Production, Consumption, and Stocks” report

SCENARIO ANALYSIS

RFS Volume Obligation AssumptionsBaseline and Scenarios

Calendar Year 2014 2015 2016 2017 2018

billion gallons

Baseline - EPA Proposed Rule (May 2015)

Overall RFS 15.930 16.300 17.400

Conventional Gap (Implied Ethanol) 13.250 13.400 14.000

Advanced 2.680 2.900 3.400

Biodiesel 1.630 1.700 1.800 1.900

Cellulosic 0.033 0.106 0.206

Advanced Gap 0.120 0.159 0.404

California CARB (sugarcane ethanol)* 0.120 0.180 0.240

NBB: Minimum Biodiesel Volume Obligations

Overall RFS 15.930 16.300 18.000 18.000 18.000

Conventional Gap (Implied Ethanol) 13.250 13.400 14.000 14.000 14.000

Advanced 2.680 2.900 4.000 4.000 4.000

Biodiesel 1.630 1.700 2.000 2.300 2.300

Cellulosic 0.033 0.106 0.206 0.256 0.306

Advanced Gap 0.120 0.159 0.694 0.179 0.129

California CARB (sugarcane ethanol) 0.120 0.180 0.240 0.300 0.360

* WAEES Assumption, not specified by EPA

The $1 blenders credit is

not assumed to continue

beyond 2014 in both the

baseline and NBB

scenario.

Crude Oil PriceWest Texas Intermediate

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

No

min

al D

olla

rs P

er

Bar

rel

US DOE-EIA April 14, 2015 Energy Outlook US DOE-EIA May 2014 Energy Outlook

US Soybean YieldsNBB vs USDA, Feb 2011 Projections

0

10

20

30

40

50

60

2011 2012 2013 2014 2015

Bu

shel

s P

er A

cre

NBB Forecast USDA Forecast Actual

US Soybean Production and Harvested Area

68

70

72

74

76

78

80

82

84

86

1.5

2.0

2.5

3.0

3.5

4.0

4.5

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Mil

lio

n A

cre

s

Bil

lio

n B

ush

els

USDA Production* NBB Production

USDA Harvested Area* NBB Harvested Area

* USDA estimates based on June 2015 WASDE for 2015, and the 2015 USDA Baseline thereafter.

Extraction of corn oil from DDG’s

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

Po

un

ds o

f o

il p

er

bu

sh

el

Perc

en

t

Share of DDG's with corn oil extracted Corn oil extraction rate from DDG's

DDG Corn Oil Production (Oct/Sep MY)(NBB Forecast vs Actual)

26402761

0

500

1000

1500

2000

2500

3000

Actual* NBB Projected**

Mill

ion

Po

un

ds

* Actual numbers based on USDA’s “Grain Crushings and Co-Products Production” reports, monthly data

for 11 months adjusted to annual.

** NBB projections as of July 2015.

DDG Corn Oil Production and UseMinimum Scenario – Marketing Year

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19

Bill

ion

Po

un

ds

Biodiesel Use Feed Use DDG corn oil production

SCENARIO RESULTS

US Biodiesel Production & ImportsMinimum Scenario – Calendar Year

0

500

1,000

1,500

2,000

2,500

3,000

2014 2015 2016 2017

Mill

ion

Gal

lon

s

Methyl Ester Production Methyl Ester Imports

Renewable Diesel Production Renewable Diesel Imports

US Methyl Ester Production By Feedstock SourceMinimum Scenario – Oct/Sep Marketing Year

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

13/14 14/15 15/16 16/17

Mill

ion

Gal

lon

s

Soybean Oil Corn Oil Canola Oil Inedible Tallow White Grease

Yellow Grease Brown Grease Poultry Fat Other

Biodiesel Plant PricesMinimum Scenario – Calendar Year

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2010 2011 2012 2013 2014 2015 2016 2017

Do

llars

Per

Gal

lon

RIN PricesMinimum Scenario – Oct/Sep Marketing Year

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

10/11 11/12 12/13 13/14 14/15 15/16 16/17

Do

llars

Per

Gal

lon

Biodiesel Advanced Conventional

Soybean Oil PriceMinimum Scenario – Oct/Sep Marketing Year

0.00

10.00

20.00

30.00

40.00

50.00

60.00

10/11 11/12 12/13 13/14 14/15 15/16 16/17

Ce

nts

Per

Po

un

d

Biodiesel Returns and Variable CostsMinimum Scenario – Oct/Sep Marketing Year

0.00

1.00

2.00

3.00

4.00

5.00

6.000

9/1

0

10

/11

11

/12

12

/13

13

/14

14

/15

15

/16

16

/17

Do

llars

Per

Gal

lon

Biodiesel Glycerin

Variable Costs (Soy Oil) Variable Costs (Weighted Average Feedstocks)

US Farm Program Payments(ARC & PLC)

5.15

9.879.53

3.56

5.15

9.839.48

3.27

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2015 2016 2017 2018

Bill

ion

Do

llars

Baseline: EPA Proposed SC 1: Minimum D4 VO

US Farm Program Payments(ARC & PLC)

5.15

9.879.53

3.56

5.15

9.839.48

3.27

5.15

9.60 9.40

2.70

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2015 2016 2017 2018

Bill

ion

Do

llars

Baseline: EPA Proposed SC 1: Minimum D4 VO SC 2: Realistic D4 VO

Thank You!

John Kruse, PhD

Principal & Director of Quantitative Analysis, WAEES

Jkruse@waees-llc.com

573-228-9842