Larger US Soybean Crush More Evidence of Biofuel’s Impact

The US soybean crush is expected to grow in 2021-22, buoyed by an expanding renewable diesel industry.

In its first supply-demand estimates for the upcoming new-crop marketing year, the USDA on Wednesday forecast the 2021-22 crush will increase by 35 million bu from a year earlier to 2.2 billion bu. Meanwhile, the USDA also projected 12 billion lbs of soybean oil will go to biofuel production in 2021-22, up from 9.5 billion a year earlier and 8.658 billion pounds in 2019-20.

The USDA’s report this week also marked a change in its biofuel forecast, as ‘biodiesel’ was replaced by ‘biofuel’ and will now include projected soybean oil use for both biodiesel and renewable diesel as reported in the US Energy Information Administration’s Monthly Biofuels Capacity and Feedstocks Update.

It is further evidence of how the global biodiesel industry is shaking up the supply-demand picture for the most commonly used edible oils, including palm and soybean.

As part of recent webinar, Thomas Mielke, the executive director of Oil World, forecast 2021 (Jan-Dec) world biodiesel and renewable biodiesel production at 47.5 million tonnes, up 2.2 million from a year earlier and an increase of almost 14% from three years ago.

Of that total, he suggested almost 18 million tonnes will come from palm oil, and 12.6 million tonnes from soyoil. (Rapeseed/canola, sunflower and other smaller oils make up the balance). Those are hefty amounts, with biodiesel and renewable biodiesel output alone representing about 23% of total global palm oil consumption in 2020.

And given the increasing government focus on cutting greenhouse gas emissions the trend remains pointed higher.

In the US, the National Biodiesel Board is working toward a future where total US biodiesel use will roughly double from current levels and exceed 6 billion gallons by 2030 – an amount that will demand more than 18 billion lbs of soybean oil each year. It is notable the US biodiesel industry’s share of American soyoil production has already doubled just the past 10 years.

Here in Canada, there are seven biodiesel plants collectively producing just under 600 million litres per year.

However, future biodiesel production and resulting vegoil demand remains uncertain as the government moves toward implementing its new Clean Fuel Standard (CFS), which was just proposed late last year. Details are still to be fully ironed out but modelling in the government’s proposed regulation projects the biofuel content in diesel could be 11% in 2030, up from the current 2% national requirement. At this level, the CFS could create a market the size of Japan for Canadian canola growers, according to the Canola Council of Canada.

Just in the past number of weeks, both Cargill and Viterra have announced plans to build new canola processing plants, with Viterra specifically noting that its new facility will play a key role in supplying the feed stock required for renewable fuel production to support the CFS.

Not surprising, the additional demand from biodiesel is putting demand pressure on vegoil supplies and forcing prices higher. That is especially the case since palm oil production – which accounted for almost one-third of total global vegoil output in 2020 at 75 million tonnes - is deaccelerating.

Indeed, Mielke is forecasting that palm oil production could slow by as much as 20-25% over the next five to 10 years, thus ensuring the other oils will have to pick up an increasing amount of the slack – a market dynamic he called a ‘game changer.’

At the same time, some European countries are banning biodiesel made from palm oil because the plantations are widely viewed as contributing to deforestation and environmental degradation. In fact, an EU-wide ban on biodiesel made from palm is set to be phased in by 2030, which is expected to lead to increased demand for alternative oils.

The EU biodiesel industry is already much more heavily reliant on rapeseed oil, consuming about 6.1 million tonnes in 2020, according to the USDA. That compares to 2.4 million tonnes of palm oil and just 900,000 tonnes of soybean oil.

Amid the tightening world vegoil supply and rising prices, Mielke said some countries may be forced to rethink their biodiesel mandates. He thinks a reduction in mandates would be one signal to look for, as sign the bull markets are over.

“This alone is probably one of the single most potential bearish market factors to watch: if biodiesel mandates are reduced.”

Source: DePutter Publishing Ltd.

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