Tuesday, October 18, 2011

Commodities: Action in the Grease/Tallow/Lard Complex--"Tallow Replaces Crude Oil as Biofuels Go to War"

A headline you won't see just anywhere.
And a subject near and dear to our sometimes over-amped hearts.
Tallow has attracted academic econ interest. In this 2003 paper we have a price series for tallow that goes back to 1209 (starting on page 53 of the PDF).

Here's a chart and what was then a long term forecast for tallow:
Figure 1: Tallow and Crude Oil Prices: New Zealand Dollars per Litre
Figure 1: Tallow and Crude Oil Prices: New Zealand Dollars per Litre
Disclaimer: They didn't do so well on the oil forecast.
Regardless, my guess is that the chart will end up looking like this:
A quiet market. Until now.
From Bloomberg:
Biofuels face their biggest test yet -- whether they can power fighter jets and tanks in battle at prices the world’s best-funded military can afford.

The U.S. Air Force is set to certify all of its 40-plus aircraft models to burn fuels derived from waste oils and plants by 2013, three years ahead of target, Air Force Deputy Assistant Secretary Kevin Geiss said. The Army wants 25 percent of its energy from renewable sources by 2025. The Navy and Marines aim to shift half their energy use from oil, gas and coal by 2020.

“Reliance on fossil fuels is simply too much of a vulnerability for a military organization to have,” U.S. Navy Secretary Raymond Mabus said in an interview. “We’ve been certifying aircraft on biofuels. We’re doing solar and wind, geothermal, hydrothermal, wave, things like that on our bases.”
Yet the U.S., stung by an oil embargo during the 1973 Arab- Israeli war, won’t deploy biofuels beyond testing until prices tumble. The Air Force wants them “cost-competitive” with traditional fuel, for which it pays $8 billion a year. Producers see it the other way around, saying they need big buyers before building refineries to help slash costs, according to Honeywell International Inc. (HON), which developed a process to make biofuels.

“The first few widgets are always more expensive than the billionth,” said James Rekoske, vice president of renewable energy at Honeywell’s UOP unit. “That’s where we’re at.” Honeywell expects to have delivered about 800,000 gallons of biojet fuel from 2009 through early 2012.
Rekoske said prices need to dive to $3 to $4 a gallon from more than $10 now. Refineries, costing about $300 million each, are “mission critical” and a giant customer like the U.S. government is necessary to carry production to the next level.

Convincing Bankers
“You can’t take a 10-year contract from an American airline to the bank and get the financing that you need,” Rekoske said. “You can if you have a 10-year contract from the U.S. Navy.”...MORE
Here's the bit that caught my eye:
...Boeing, Lockheed Martin

“We can use an almost unlimited number of feedstocks to produce these fuels,” said Braun. “From a performance stand- point you can’t tell the difference whether you’re burning a camelina blend, a tallow blend, or another fuel that’s made up of a bunch of waste greases -- fry grease or seasoning grease."...
We've covered both military use of biofuels and the intricacies of the tallow market but never had the sense to put two and two together. Here's an example of the former, from 2007:
DARPA Scramjet hits ludicrous speed
...They also ran fuel specification tests to see how closely the biodiesel/jet fuel blend matched FAA and military specifications “to see if there were any showstoppers. And there was a big showstopper for these blends. When you get above 2 percent of biodiesel in the jet fuel, the freezing point rose.” 
”It’s one thing if you stall a tractor in 44 below zero weather. You haul the tractor into a heated garage and wait for nature to take its course. But if you are at 33,000 feet (where it is equally cold) and suddenly your fuel line begins to freeze, that’s more than just annoying,” said Seames....
A couple years later:
Attention U.S. Air Force: Biodiesel That Conquers the Cold?

On the grease/tallow/lard comods we've had many posts, some of them cautionary. In "John Maynard Keynes: Money Manager (Couldn't Trade Lard to Save His Life)" J.M. Keynes catches the fever:
...In a 1983 paper "J.M. Keynes' Investment Performance: A Note" the authors are dubious of his performance, without casting the aspersion that I do in my comment. They on the other hand have a great tidbit:
...Investments in commodities were more substantial. The highest annual gain was for ₤17,000 from September 1936 to August 1937 and the highest annual loss, mainly in lard, for ₤12,600 in the following twelve months...
In July 2008 I almost connected the dots:
South Sioux plant will use beef tallow to make biodiesel
I knew it! The road not taken and what might have been.
In March we had "Volatility Getting You Down, Bunky?":
Maybe it's time you looked into the tallow market.
The tallow/grease/lard complex has been traded for five thousand years:

2992 B.C.
Honey I'm home!
Hi dear, anything new in tallow?
Nope. Same ol', same ol'.

2008 A.D.

Here's a long term forecast for tallow:...
Now, via the Sioux City Journal:

In a week's time, Beef Products Inc.'s plant in South Sioux City churns out about 22 million pounds of beef talloW.
That's a whole lot of fat. Soon, most, if not all, of it will be used to power semi-trucks, pickups and other vehicles that run on diesel fuel....MORE
See also:
A Look at the Tallow/Grease/Lard Complex: Tallow--It's What's for Dinner
In the meantime we're living high on the hog.

They eat LARD - They are young - they are in love.