USDA sees little renewable diesel benefit for soybean oil

Analysts generally concur that the burgeoning renewable diesel industry will result in exploding demand for soybean oil through 2030.

But there is one notable exception.

The United States Department of Agriculture is forecasting static soybean oil demand from the renewable fuel sector after 2022, at about 12 billion pounds per year.

“I find that a big puzzle, I must say,” James Fry, founder of LMC International and one of the world’s leading vegetable oil analysts, said during a recent U.S. Soybean Export Council webinar.

That is because U.S. biodiesel/renewable diesel demand is projected to reach nearly 30 billion lb. per year by 2030, up from about 18 billion lb. today.

One explanation for the USDA’s lackluster forecast for soybean oil use is that its projection only includes demand from the biodiesel sector while all of the growth is in renewable diesel. But Fry doesn’t believe that is the case.

The other explanation is that the USDA believes the renewable diesel sector will rely almost exclusively on low carbon intensity feedstocks like animal fat and used cooking oil rather than higher intensity feedstocks like soybean oil.

Fry doesn’t think that makes sense either because the overall availability of low carbon intensity feedstocks is basically fixed. If the renewable diesel sector consumes more of them, that would leave holes in other markets that would be filled by soybean oil.

Mac Marshall, vice-president of market intelligence with USSEC, indicated there might be something behind Fry’s second supposition.

He said the biodiesel process favours low free fatty acids or edible oils and fats like soybean oil, which have less desirable carbon intensity scores.

Conversely, the renewable diesel process favours high free fatty acids, like animal tallow and used cooking oil, which are inedible oils that have more preferable carbon intensity scores.

There is an estimated 3.4 billion gallons of biodiesel and renewable diesel capacity in the U.S. today, with the vast majority of that being biodiesel capacity.

But there is an additional 5.98 billion gallons of renewable diesel capacity in the works over the next few years with 1.29 billion gallons coming on stream in 2022, another 1.38 billion gallons in 2023 and the remainder in 2024 and beyond.

Soybean oil is by far the leading feedstock for the U.S. biodiesel/renewable diesel sector today, accounting for 54 percent of the market. Canola oil’s share is seven percent by comparison.

Canola oil does not yet have an approved pathway as a renewable diesel feedstock but that is expected to happen within the next two years, he said.

Marshall said a number of the renewable diesel plants are being built by oil companies and they are partnering with crushers, which is an encouraging sign that soybean oil will still be a major feedstock despite its higher carbon intensity scores.

“That’s what makes this seem a lot more tangible and real and exciting,” he said.

He is forecasting a 20 percent increase in U.S. crush capacity to meet that demand, which should leave an ample amount of U.S. soybeans for the export market.

Fry said the world is going to become increasingly reliant on soybean oil because there is no growth in palm acres or yields on the horizon.

He expects soybean oil to surpass palm oil as the world’s leading vegetable oil in 2025, with production growing at a clip of 3.5 percent per year over the next decade, while palm oil production will steadily decline every year.

Fry agreed with Marshall that demand for soybean oil in the U.S. renewable diesel sector will be strong despite its higher carbon intensity scores because low carbon intensity inputs like used cooking oil will eventually price themselves out of the market due to limited supply.

That will lead to situations like early this summer when U.S. soybeans were selling at a $1 to $2 per bushel premium over Brazilian beans and Argentine soybean oil was selling for a 15 cents per lb. discount to U.S. soybean oil.

Fry said the other huge looming potential demand factor for U.S. soybeans is sustainable aviation fuel.

If that new source of demand materializes as anticipated, it will start to eat into soybean exports in 2028 and by the early 2030s it could absorb most of the exportable surplus of U.S. soybeans, he said.