Biofuel crops are a unique space within the ag universe. Governed largely by shifting regulatory frameworks and subsidies, the biofuels market has seen marked volatility over the years, and COVID has only exacerbated this trend. With an untenable price differential between conventional fuels and biofuel alternatives, the outlook does not look good.

Nonetheless, recent years have seen an increase in concern over global warming and climate change that resulted in renewed focus on alternatives to oil-based fuels. While this gave a big boost to the biofuel crops market, those gains have since evaporated as market forces have shifted in favor of oil.

With vulnerability at an all-time high in the biofuel crops market, what are the prospects moving forward from here?

Overview of Biofuel Crops by Fuel Type

The range of different kinds of biofuels and ways of producing them have increased in number and complexity through four generations of biofuels, but the primary players by fuel type and the crops from which they are manufactured can be summarized as follows:

  • Ethanol: Produced primarily from corn and wheat in most parts of the world, but from sugarcane in Brazil.
  • Jet Fuel: Made mostly from soybeans, palm oil, and jatropha.
  • Biodiesel: Often made from rapeseed, palm oil, or sugar beets.

Ethanol and biodiesel are the most widely-used biofuels around the world because they are the ones used in land-based transportation applications, including cars (replacing gasoline) as well as commercial trucks and buses (replacing regular diesel).

The Role of Governments in the Rise of Biofuels

Many governments all over the world have recognized the need to shift away from fossil fuels (oil, gas, diesel), driven largely by concerns about global warming and climate change or by a desire for nations to become less dependent on fossil fuels and the whims of the oil market. A growing number of countries have established surprisingly robust mandates for blending biofuels into conventional fuels. Here are just a few examples:

  • Brazil is taking an incremental approach to biodiesel mandates. In 2019 it raised the minimum of biodiesel blended into commercial diesel from B10 to B11, with plans to shift upward to B13 in 2021, B14 in 2022, and B15 in 2023. On the gasoline front, Brazil requires a 27% blend of ethanol in its gasoline (E27) as of 2015 and has no current plans to increase it.
  • Indonesia has the world’s most ambitious biofuel mandate. In late 2019 it became the first country in the world to require diesel fuel to contain 30% biodiesel (B30), up from the previous B20 mandate set in 2018. As the world’s biggest producer of palm oil, these mandates are driven primarily by the desire to reduce dependence on high-cost diesel fuel imports.
  • Malaysia was in the process of enacting a B20 mandate for its transportation sector, but the global pandemic put those plans on pause. Current plans are to have the B20 mandate in place by June 2021, and then raise it to B30 by 20205.
  • USA biofuel mandates are stuck at low levels, E10 for gasoline, and it’s not required in all gasoline. Instead, the US sets an overall figure in gallons for all biofuel production and use in the transportation sector. The 2020 mandate is 30 billion gallons, which is supposed to go up to 22 billion gallons in 2021 and 36 billion gallons in 2022.

Biofuels Foiled by the Pandemic

It’s hard to overstate the impact the novel coronavirus and COVID-19 global pandemic has had on the transportation-based fuel markets. As economies shut down and stay-home orders were put in place around the world, travel of all types came to a screeching halt.

The result of the pandemic-induced global economic downturn saw demand for oil and oil-related products dry up almost overnight. The per-barrel price of oil was above $100 throughout January and February, and even into early March. But then came the lockdowns and the price plummeted to low-points not seen since the Great Depression. Oil production had to be drastically cut because there was no place to store the excess.

The fall in oil prices was dramatic—all the way down to under $15 per barrel. There were a few times where market pricing for oil slipped into negative numbers. Although demand and prices have rebounded to some extent, per-barrel oil prices have been stuck in the low $40s for months. While this has meant some of the lowest sustained prices for gasoline and diesel at pumps around the world, this has a hugely negative effect on the biofuels market and its related agricultural markets in the form of biofuel crops.


Return relative to production cost for biofuels, Iowa (Purdue University)

Take, for example, countries like Indonesia and Malaysia where ambitious biodiesel mandates could be derailed. The problem is that regular diesel is 45% less costly than it was before the pandemic. Palm-oil was already significantly more expensive than oil, but now the price gap between palm oil and diesel is the widest it has been in a long time.

With biofuels now far more expensive than conventional fuels, this has a dampening effect on the demand for biofuels. Governments would have to substantially increase subsidies for biofuels to bring prices down at a time when there are too many pandemic-related government budget and spending issues all vying for attention.


US gasoline and ethanol prices (IHS Markit Energy)

These kinds of effects from a global oil glut are rippling throughout the biofuels industry and markets. In the US, governors from five states (Texas, Wyoming, Utah, Oklahoma, and Louisiana) with extensive oil refining operations asked for a waiver from the federal biofuel laws in light of the sharp decline in demand. Those requests have not been granted, in part because the U.S. Court of Appeals for the 10th Circuit ruled the EPA cannot grant such waivers.

The global pandemic will eventually be resolved when effective vaccines and treatments become widely available, but that still feels like something on a distant horizon as new cases, hospitalizations, and deaths are once again on the rise in many parts of the world. Some jurisdictions are beginning to once again lean towards restrictions and closures to slow the spread of the virus. The conclusion here is that in terms of the agricultural sector, biofuel crops will remain an unattractive investment opportunity for months to come.

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