Factors Affecting the Price of Yellow Grease
The price of yellow grease, along with all commodities, is ultimately determined by supply and demand, however government policy plays an enormous role in both sides of the equation.
First, what is yellow grease?
Yellow grease is a generic definition used to describe “mixed” fats and oils. Generally, material referred to under the classification of Yellow Grease will be less than 15% FFA. Often times yellow grease is a blend of used cooking oil, and rendered fats from beef, pork, and poultry rendering operations. While used cooking oil does retain some fats and oils as a byproduct of its use in cooking, the material only stops being considered “used cooking oil” and becomes “yellow grease” when it is blended with oils of a different origin. In other words, gaining a bit of fat during the cooking process does not change the definition from used cooking oil to yellow grease. Used cooking oil is SPECIFICALLY a byproduct of cooking food for HUMAN consumption, and nothing else.
What are FFAs? They are hydrolysis products of triglycerides in vegetable oils. In edible oils, FFAs usually emerge during the production of the oil, during high temperature heating (frying) and as a result of exposure to air. They reduce the value of grease because they lower its conversion rate to biodiesel. However, with the rise of renewable diesel and High FFA biodiesel production technology becoming more common, the penalty for FFA (all other quality constraints held constant) has been decreasing over time.
What factors affect the demand and price of yellow grease?
Yellow grease can be used as a high calorie nutritional supplement to animal feed and therefore is somewhat influenced by other feed prices. Thus, the price of corn, soybeans, proteins, and fats can impact the price of yellow grease. However, the largest consumer of yellow grease (or more specifically, used cooking oil) is the biodiesel/renewable diesel industry.
About 5% of the US’s 24 Billion pounds of biodiesel biodiesel/renewable diesel feedstock comes from yellow grease, so demand for biodiesel and renewable diesel is a huge part of the puzzle in understanding what drives the price of yellow grease.
But what drives the demand for biodiesel? Government subsidies, and funding transfer programs intended to reduce carbon emissions create financial incentives for fuel distributors and users to adopt biofuels such as biodiesel, renewable diesel and sustainable aviation fuel (SAF). Demand for biodiesel/renewable diesel drives demand for yellow grease.
You can find more information about biodiesel, renewable diesel and sustainable aviation fuel here.
How does government policy affect the price of yellow grease?
The U.S. government encourages the use of biodiesel (as a blend with regular diesel) as well as the production of renewable diesel and sustainable aviation fuel (SAF). It does this through a series of credits from the EPA, the IRS and the State of California (LCFS.)
The Biodiesel Blender’s tax credit, the CARB LCFS credit and the Renewable Fuel Standard Program subsidizes the cost of producing biodiesel, so its producers can sell it at prices that are competitive with the price of regular diesel. These credits therefore have a huge influence on the price of biodiesel, renewable diesel and SAF. And the demand for these diesel products, of course, affects the price of yellow grease, a key input for biodiesel.
Summary-the price of yellow grease
Price is where supply meets demand. In a free market, the selling price is where the price range a seller is willing to sell at overlaps the price range a buyer is willing to buy at, and where the two players agree to settle on an exact price and volume to transact.
The volume demanded for these endeavors is primarily set by government policy and tends to increase with time. The EPA RFS program and California LCFS program are the main drivers affecting demand at present.
An increase in demand, as has steadily happened in the recent past due to national and international carbon re-use incentives, has been bullish for yellow grease.
As global markets have recovered from recent events, and new liquidity has entered the market, diesel prices have rapidly recovered. The increasing price of Diesel, which is the primary driver of consumer level biofuel prices, has provided additional support to the yellow grease bull market.
While a complex set of factors affecting the price of yellow grease make it a challenge to predict prices, Reiter Trading can help you find a deal that works for you, whether that’s getting the highest possible price on each individual sale or locking in consistent pricing so that even if the market price for yellow grease falls, you’re protected. Give us a call.