As renewable diesel emerges as the ideal biofuel, soybean oil demand is expected to erupt, and U.S. Soy is poised to meet demand.
The announcement of unlikely partnerships, such as Loves and Cargill, Marathon Petroleum and ADM and Chevon and Bunge, have appeared on front pages of newspapers across the United States.
“It’s clear that sustainability is a bigger and bigger business driver around the world,” says Jim Sutter, CEO of the U.S. Soybean Export Council, during a Dec. 9 webinar that focused on the outlook for U.S. Soy production, crush and exports.
This is demonstrated by the many announcements we’ve been hearing and reading about, he says, adding that U.S. Soy is poised to deliver a sustainable solution.
“Earlier this year, SSAP (U.S. Soy Sustainability Assurance Protocol) was recognized for meeting the Olympic and Paralympic Games Tokyo 2020 Organizing Committee's sustainable sourcing code for agricultural products, the Global Seafood Alliance's Best Aquaculture Practices and the Consumer Goods Forum's Sustainable Soy Sourcing Guidelines," Sutter says. "And we are very pleased that the SSAP was again recognized and approved by FEFAC as being compliant with their 2021 Soy Sourcing Guidelines.
“This can give strong assurance to customers around the world about the background, practices and sustainability U.S. Soy is produced with.”
As businesses, states and countries adopt sustainable policies and commit to building a better environment, experts say demand for soy is expected to erupt.
Currently in the United States, both renewable diesel and biodiesel draw on the same feedstocks. Mac Marshall, Vice President of Market Intelligence for USSEC and the United Soybean Board, shares the market is comprised of: soybean oil, distillers corn oil, animal fats, canola oil and used cooking oil/yellow grease, of which soybean oil makes up nearly 50% of the feedstock share.
“Renewable biodiesel is poised to be a much larger market in the years to come,” Marshall says, noting it’s a 3-billion-gallon market of which greenfield construction can bring up in the next couple of years.
Marshall echoes Sutter in that what makes this really exciting and tangible are the uncommon partnerships being announced: Loves and Cargill, Marathon Petroleum and ADM, and Philipps 66 and Shell Rock Soy Processing, and Chevron and Bunge.
For some, these partnerships leave more questions than answers.
What does this mean for the availability of U.S. Soy and U.S. Soy exports?
Marshall says, even when they’re all combined, it’s only about a 20% demand increase for all oil feedstocks relative to existing capacity.
“We will still have ample amounts of whole soybeans that will be available for international markets,” Marshall says, adding that U.S. soybean farmers are wrapping up harvest of what analysts say is the second largest crop.
But shaping this demand is policy.
And helping us shed light on this is American Soybean Association Director of Government Affairs Alexa Combelic.
Nationally, the Renewable Fuel Standard (RFS), which is benchmark legislation created by Congress in 2005, guides national policy. Combelic says the RFS sets the stage for the U.S. Environmental Protection Agency (EPA) to annually develop new renewable fuel obligations to guide the market. She notes that these renewable volume obligations have been delayed for the past three years. However, Combelic is optimistic about the numbers for the year ahead.
Looking at state policy, several states have carbon goals that drive sustainable policy. Combelic spotlights California, which kicked this off this process in 2009 as the first state to implement a low-carbon fuel standard. She says this was followed in 2016 by Oregon and in 2022, Washington should have their low-carbon rule-making complete.
LMC International’s James Fry adds that these states’ policies have moved from their reliance on the mandates provided by the Renewable Fuel Standard to statutory requirements to reduce the carbon intensity of its fuels.
In the northeast part of the country, Combelic says home heating oil blending requirements come into affect in 2035 and increase from there with B30 blending requirements. She says the northeast has about 40% of homes using home heating oil, which equates to about 4 billion gallons a year.
Fry, the company’s chairman and founder, notes that both FAME and fuel ethanol have faced blend walls in the proportions in which they can be blended with diesel and gasoline.
“These blend walls mean that higher biofuel demand has to be met increasingly with renewable diesel, the one biofuel that has no limit on the proportions in which it can be blended,” he says, adding that California has the highest reliance on renewable diesel where biodiesel blend rates already exceed 20%.
But lurking in the wings is sustainable aviation fuel.
While this is still new, Fry reports that some analysts believe it will be larger than FAME plus renewable diesel 10 years from now but may use ethanol as an input (not oils and fats).
WORLD DEMANDS MORE SOYBEAN OIL
Fry says the world needs more soybean oil, but “it has nothing to do with soy and everything to do with palm.”
He explains: Together Indonesia and Malaysia produce more palm oil than the rest of the world, and they are by far the largest exporters of vegetable oil. However, Fry notes this has been declining in recent years. Oil palm is incredibly labor intensive, and it’s incredibly hard to mechanize the harvesting the trees. And environmental constraints limit expansion.
The world cannot look to oil palm to meet its growth in oil demand, Fry says.
When you combine all of the oil crops, we see an average of about 2% growth per year through 2030, Fry shares. However, he says that soybean — the oilseed with the greatest scope for expansion — will expand its oil supply at a rate of nearly 3.5% annually, while canola and sunflower will grow closer to 1.5% annually.
Fry points out that this will pull soybean oil above palm oil in its share of total global output of the four main vegetable oils after 2025.
Looking to the future, Fry believes there will be seasonal pressure on the availability of soy oil from U.S. crushers. “Soy oil is really the ideal oil for meeting the mandates of California and the RFS,” he says.
To meet this demand, Fry expects U.S. soybean farmers to expand soybean production by 7 million to 8 million acres, pushing total acres to 94 million to 95 million by 2030/31. This expansion, he says, will likely take acres away from corn, wheat and cotton and he also expects seed companies to the develop soybeans with higher yields and higher oil content.
Accompanying the production of more soybeans will be an increase in U.S. crush, with much of the investment in new capacity already in the pipeline with renewable diesel.
What does this mean for U.S. Soy exports?
Fry forecasts that for the next five years, the growth in U.S. production will roughly match the growth in crush. It’s not until after 2027, when the growth of sustainable aviation fuel becomes crucial, that export surplus beans could be absorbed domestically by a demand explosion, he says.
One thing is for certain, Fry points out: the surge in U.S. crush will lead to more soybean meal production. Some of which will be used to feed livestock, leading to higher meat exports, and some will go for novel vegetarian and vegan foods. However, he says, most of it will be exported.
For details and the full webinar, watch here https://ussec.org/u-s-soys-outlook-production-crush-exports/.
-- This is partially funded by U.S. soybean farmers and their checkoff.
Biodiesel, defined by ASTM D6751, has an energy value per gallon in the Federal Renewable Fuel Standard defined to be 1.5 times that of fuel ethanol.
Renewable Diesel (RD), widely known as Hydrotreated Vegetable Oil (HVO) is very similar to ultra-low sulfur fossil diesel (ULSD) in its technical performance with an energy value per gallon defined to be 1.7 times that of fuel ethanol.