Used cooking oil crushes soy sector

The United States continues to face a tsunami of used cooking oil imports from China that is undermining the country’s soybean crush expansion, says an analyst.

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The U.S. imported 3.2 billion pounds of UCO through the first eight months of 2024, which is double the volume for the same period one year ago.

Why it matters: Canola and soybean producers aren’t seeing the benefit of an uptick in demand from the biofuels market.

Dan Basse, president of AgResource Company, said the imported UCO from China and tallow from Brazil are displacing soybean oil in the U.S. biofuel sector.

“Those two have kind of overwhelmed the soybean oil demand story,” he said during a recent Agri-Pulse Open Mic Interview.

The National Oilseed Processors Association (NOPA) noted in a recent news release that the U.S. imported 7.9 billion pounds of UCO and tallow between Jan. 1, 2023, and June 30, 2024.

That is the equivalent to the soybean oil crushed from more than 650 million bushels of soybeans.

Basse said that is disturbing because it was only a few years ago that the U.S. soybean industry announced it would be building 600 million bu. of additional crush capacity to meet the anticipated new demand from the renewable diesel and sustainable aviation fuel sectors.

There was talk of needing an additional five to seven million acres of the oilseed to fuel those new crush plants.

However, that anticipated demand driver for the agriculture sector has fallen well short of expectations due to the fierce competition from imported feedstocks.

“We’re left with crop prices today that are near four-year lows,” said Basse.

“We can’t keep having these cargoes of Chinese used cooking oil coming in.”

In June, a group of U.S. senators asked President Joe Biden’s administration to investigate UCO imports. They noted that there are credible reports UCO is being fraudulently blended with palm oil before it leaves China.

U.S. farm groups, senators and members of the House of Representatives have also submitted letters to the Treasury Department urging it to restrict Section 45Z Clean Fuel Production Tax Credit eligibility to renewable fuels made from domestically sourced feedstocks.

Chris Vervaet, executive director of the Canadian Oilseed Processors Association, said he can understand where the U.S. commodity groups are coming from when it comes to putting the brakes on UCO and tallow imports.

It is an issue that the canola sector has identified as detrimental to demand as well in the U.S. and Canada.

However, he takes issue with the notion that the 45Z tax credit could only be applied to U.S. feedstocks.

“As a Canadian canola stakeholder, we obviously have some concerns with how that’s being messaged,” he said.

Vervaet has read the letters sent to the Biden administration and it is clear to him that the target is imported UCO and tallow, but canola has been inadvertently caught in the crosshairs.

“They’re quite specific on where the problem is, and you will notice that Canadian canola is not mentioned,” he said.

U.S. agriculture secretary Tom Vilsack recently commented about the efforts to exclude foreign feedstocks during a presentation he made at Growth Energy’s 2024 Biofuels Summit.

“This is a tough issue because if you essentially create some kind of significant restriction in the efforts of trying to protect commodities and items that are grown and raised here, you essentially invite the entire world to do the same thing,” he said, according to a transcript of his remarks.

U.S. corn, soybeans, pork, poultry and other commodities could quickly become targets for retaliation.

“Other countries go, ‘wait a minute, they’re restricting this over here to protect their industry. OK, we’ll do the same,’ ” said Vilsack.

Similar comments were recently made by Sharon Bomer Lauritsen, an agriculture trade policy consultant and former lead agricultural trade negotiator with the U.S. Trade Representative.

She told delegates attending a webinar hosted by North American Agricultural Journalists that a tax credit that is only made available to domestic producers would violate World Trade Organization rules.

“That invites retaliation at a certain period of time if countries are upset enough,” she said.

Basse said the U.S. needs to figure out some way to generate more domestic demand for its corn and soybeans because exports of the commodities are drying up.

When he got into the agriculture business in 1979, the U.S. controlled 62 per cent of the world’s agricultural trade. Today its share has fallen to 12.3 per cent.

China was once the U.S.’s biggest agriculture customer. It has now slipped to third place.

“The Chinese are getting very cozy with our friends in Brazil,” he said.

Those ties could be strengthened further if the U.S. slaps China with more tariffs after the November election, which is one of Donald Trump’s campaign promises.

“I’m worried about agriculture longer term,” said Basse.