Energize Weekly, May 15, 2019
As the soybean market is roiled by trade disputes between the U.S. and China, the domestic biodiesel fuel industry is taking an increasing share of the country’s soybean oil production, according to federal Energy Information Administration (EIA) data.
Biodiesel production absorbed 30 percent of domestic soybean oil, or 7.1 billion pounds, from Oct. 1, 2017, to Sept. 30, 2018—the last “soybean oil marketing year.” Biodiesel’s share of soybean oil production doubled between the 2010-2011 market year and the 2017-2018 market year.
During that same period, domestic biodiesel production was up 250 percent to 1.8 billion gallons as the federal Renewable Fuel Standard, which mandates blending renewable fuels into the nation’s fuel supply, nearly doubled its target to 2.1 billion gallons in 2018.
“Growth in biodiesel production has coincided with federal biofuel mandates and other conditions that encouraged a larger share of the domestic soybean oil supply to be consumed as biofuel feedstock,” the EIA said.
Biodiesel fuel can be made with a variety of vegetable oils and animal fats, including distiller’s corn oil, canola oil and tallow, but vegetable oil accounts for three-quarters of the total biodiesel production, and soybean oil makes up half of all the fuel by weight.
“Soybean oil and distiller’s corn oil are widely used because the feedstocks are produced in the Midwest, where most biofuel production capacity exists,” the EIA said.
About 60 percent of the U.S. soybean crop had been exported to China, but in 2018 when the Trump administration slapped tariffs on a wide range of Chinese products, the Chinese placed a 25 percent tariff on American soybeans. Exports dropped by as much as 95 percent.
“We understand that Mr. Trump and his Administration have broad goals they want to achieve for our country, but farmers are in a desperate situation,” Davie Stephens, president of the American Soybean Association said to Hoosier Ag Today. “We need a positive resolution of this ongoing tariff dispute, not further escalation of tensions.”
The portion of the soybean crop that isn’t exported is “crushed” at U.S. soybean processing plants. The soybean crush yields about 80 percent soybean meal and 20 percent soybean oil, which in addition to biodiesel is used in a variety of food products.
The total U.S. soybean oil supply grew to 26 billion pounds from 22.5 billion pounds between market year 2010–2011 and market year 2017–2018.
Soybean crush margins—the difference between the value of raw soybeans and the value of soybean meal and soybean oil—were at near record-high levels around the time China imposed its tariff in July 2018.
Oil seed prices, which peaked in February 2018 at $10.71 a bushel, had dropped to $8.11 a bushel after the tariffs were imposed in July, according to an analysis by commodities and futures trader Alan Hecht in Seeking Alpha.