WASHINGTON — Soybeans, typically processed principally for high-protein meal to feed livestock, recently have been crushed for oil as soybean oil values, and those of several other edible oils, have soared to historic highs.
The soybean oil share of the soybean crush has been rising from a more typical level of 32% to 33% at the start of the year to just over 48% briefly in early June, reflecting the high value of soybean oil relative to soybean meal.
“Historically, oil share was considered cheap once it got back to about the 30% level,” said Brian Harris, executive director and owner of Global Risk Management Corp. (GRM), a food and agribusiness consultancy. “With the advent of renewable diesel demand, we think the new norm will be ‘value at 40%.’”
The nearby July Chicago soybean oil contract set an all-time high of 73.74¢ a lb on June 7 but had fallen more than 11¢, or 16%, by early last Wednesday, still up 125% from 27.74¢ in mid-June 2020.
“News articles stating that the Biden administration may be looking at providing the oil industry some relief for the high costs involved in complying with biofuel blending requirements sent the soybean oil market tumbling,” GRM said in an update last week.
“Soybean and canola oil basis levels offers are still very firm where they can be found as capacity restraints remain a major issue given the continued surge in demand for renewable diesel.”
While global edible oil stocks have been tight, much of the run-up in US soybean oil prices has been fueled by a relatively new demand sector — renewable diesel — which is primed to rekindle the food-versus-fuel debate of the 2000s that was brought on by a surge in demand for corn to make ethanol.
It’s worth noting the similarities and differences of biodiesel and renewable diesel to understand why renewable diesel has “taken off” in recent months.
“The main similarities are that (the) fuels are made from the same feedstocks, offer lower carbon emissions than petroleum diesel and can be used in existing diesel equipment,” according to the Renewable Energy Group, Inc., Ames, Iowa. “The differences are the production processes and specifications.”
Biodiesel is made by a process known as transesterification in which the feedstock reacts with methanol to produce fatty acid methyl esters. It has been around for many years, and usage has increased with many trucking fleets using a 5% maximum blend even though a 20% blend is approved. Arguably, biodiesel has some issues, though, in part because it contains oxygen, which allows it to absorb water. Higher blends also caused fuel system seal problems in trucks and some gelling in cold weather.
Renewable diesel is distinctly different from biodiesel. It starts with the same feedstocks as biodiesel but uses a process in which the feedstock reacts with hydrogen to produce hydrotreated vegetable oil (HVO) that contains no oxygen. Renewable diesel requires no engine modifications, performs in cold weather, has a high cetane number and does not require specialized storage tanks. It can be blended with fossil-diesel or biodiesel, or it can be used directly in diesel engines.
Thus, demand for renewable diesel has skyrocketed as it “acts” like fossil-diesel more than does biodiesel. Further, production of the relatively new renewable diesel is lower than biodiesel, resulting in higher prices for limited supplies.
Although new renewable diesel production facilities are being built, current demand continues to outstrip supply.
Mr. Harris said current renewable diesel buildout is lagging demand by 1.5 to two years.
The US Department of Agriculture in its June 10 World Agricultural Supply and Demand Estimates report forecast the use of soybean oil for biofuel (all types) at 9,500 million lbs in the current marketing year ending Sept. 30, up 10% from 8,658 million lbs in 2019-20. Use in 2021-22 was projected at 12,000 million lbs, up 26% from this year. This year’s use equals 37% of expected US soybean oil production. Next year’s use would be equal to 46% if realized. In contrast, in June 2015-16, use of soybean oil for biodiesel was 5,500 million lbs, equal to 25% of soybean oil production.
In comparison, about 35% of annual US corn production is used to make ethanol.
Food, seed and other industrial use still accounts for the lion’s share of soybean oil use, equal to 56% in the current year, 52% expected next year and compared with 64% in 2015-16. Use of soybean oil for biofuels in 2021-22 is expected to be more than double such use in 2016-17, while food, feed and other industrial use would be down 8% based on the USDA’s June projections. Soybean oil exports are expected to decline as use for biofuels increases, with 2021-22 exports forecast down nearly 50% from 2019-20, although other factors also are at play. In the case of corn for ethanol, corn acreage was increased significantly, leaving food use of corn and exports little changed.
Agricultural futures have been especially volatile this year, and that is expected to continue as major crops are at the mercy of weather during the growing season. Add in the influence of rising crude oil prices and new demand for renewable diesel, and the soybean oil market has ample influences to create even more volatility.