U.S. Adapts to Renewable Diesel Feedstock Demand
The United States is witnessing a significant shift in the agricultural and energy sectors as demand for soybean oil as a feedstock for renewable diesel grows. This trend is part of a broader move towards cleaner-burning fuels, with renewable diesel emerging as a preferred low-carbon alternative to traditional diesel. In response, U.S. soybean processors are expanding their production capacity by an expected 23% in the next three years, aiming to cater to the burgeoning demand.
Market Adjustments and Competitive Pressures
In recent years, soybean processors have enjoyed record-high profit margins. However, according to a CoBank’s Knowledge Exchange report, these margins are anticipated to moderate. The report highlights the dual challenges of increased domestic soy crush capacity and intensified global competition. Furthermore, soybean oil prices face pressure from a range of alternative renewable diesel feedstocks, such as imported vegetable oils, beef tallow, and used cooking oil. The potential surplus of soybean meal also contributes to the expected weakness in prices.
Tanner Ehmke, CoBank’s lead grain and oilseed economist, provides insight into the industry’s future, stating, “Legacy processing plants with low debt levels will still find profitability in an environment of sharply lower crush margins. But new crush plants built at substantially higher costs and interest rates will have higher breakeven costs.” Ehmke also noted the financial risks for plants far from soybean-growing regions due to their dependence on transportation for soybean acquisition.
Shifting Feedstock Dynamics
Soybean oil remains the predominant feedstock for biobased diesel production. However, its share of monthly feedstock usage has decreased from 50% to 35% in a year, amidst rising utilization of competing oils and fats. The report highlights the increasing role of beef tallow and other greases, indicating a diversifying feedstock market that could influence soybean oil’s dominance.
Implications for Soybean Meal and Livestock Production
The anticipated increase in soybean processing capacity is expected to result in higher supplies of soybean meal, which could impact processor margins and livestock producers. Brian Earnest, CoBank’s lead animal protein economist, emphasized the importance of export markets for soybean meal, given the limited domestic growth outlook for swine and poultry production and the significant role these sectors play in soybean meal consumption.
Read the complete report here.
EDITOR’S TAKE:
With demand escalating for soy oil, processors are reacting and building additional crushing capacity. That means not only more oil, but more soy meal – typically used in animal feed – as well. Caution may be the word of the day. Expanding too rapidly, especially in light of other competitive forces, could easily result in too much oil and meal. That would in turn have a negative impact on soybean markets and farm incomes. A rational and balanced approach will be best to avoid over doing it. If done properly, however, this could provide a real boost to farm income. We all know that putting more income in the hands of farmers will eventually lead to more truck sales. This is a trend we will continue to monitor and keep you in the loop.
