The Van Trump Report

Soybean Oil in the Driver’s Seat as Biodiesel Demand Explodes

Interesting changes are happening in the soybean market with soybean oil for biofuels being a huge driver of overall demand. According to the most recent update from the U.S. Department of Agriculture’s Economic Research Service, since the beginning of the marketing year (October 2020), soybean oil prices in Decatur, Illinois, have more than doubled. Soybean oil’s share of gross crush value grew to exceed 45% of total value at the beginning of May 2021, up from 30% at this time last year.

You may have noticed that the USDA changed its reporting in the May 12, 2021, Supply & Demand update, which now includes a “biofuel” category. Previously, USDA lumped soybean oil used for renewable fuels in the “food, feed, and other industrial” category. Although several renewable fuel products contribute to total biofuel use for soybean oil,  renewable diesel and biodiesel account for most gallons produced and thus reflect most of the soybean oil use in this category.

USDA says the addition of the biofuel category reflects changes at the Energy Information Administration (EIA), which began issuing a new report in March of this year, the “Monthly Biofuels Capacity and Feedstocks Update,” replacing the “Monthly Biodiesel Production Report.” EIA said the change came about due to the rapid increase in renewable fuel production and the impact on feedstock markets.  

For the 2020/21 marketing year, biofuel use is pegged at 9.5 billion pounds. Including food, feed, & other industrial (FFI), forecast at 14.1 billion, total soybean oil domestic consumption is estimated at 23.6 billion pounds. Looking ahead to 2021/22, biofuel demand accounts for all of the +1.8 billion domestic consumption increase for soybean oil, with biofuel use jumping to 12 billion pounds while FFI use is projected to fall back to 13.4 billion, bringing domestic consumption to 25.4 billion.

At the same time, total U.S. soybean oil production in 21/22 is projected to climb only slightly to 26 billion pounds, up from 25.5 million in 20/21. That’s based on a projected soy crush of 2.2 billion bushels in 21/22, barely changed from 20/21 levels. The USDA also projects U.S. soybean oil imports of 600 million pounds, up from an estimated 350 million in 20/21 and 319 million in 19/20. 

Meanwhile, soybean oil exports are projected to fall from 2.3 billion pounds in 20/21 to 1.45 billion in 21/22. USDA notes that the substantial decline reflects the high domestic demand and price for soybean oil. And the price jumps are pretty dramatic, with the 21/22 average farm price forecast at 65 cents/pound, up from an estimated 55 cents in 20/21 and just 29.65 cents/pound in 19/20. That’s a nearly +120% increase from prices paid in 19/20 versus 21/22. Soybean meal prices, by comparison, are projected at $400/short ton for 21/22, a +34% increase from the 19/20 average price of $299.50.

Historically, meal prices have been the main driver of soybean values, but recent dynamics have obviously shifted with oil now the driving force on the crush side. Mac Marshall, vice-president of market intelligence with the United States Soybean Export Council, said oil used to account for 30% to 35% of the value of soybeans. He says that is closer to 40% to 45% these days and he doesn’t see that shifting anytime soon. That’s largely because the biodiesel industry is poised to more than double existing capacity. At present, the capacity for renewable fuel plants exclusively using soybean oil as a feedstock sits near 280 million gallons per year, the equivalent of 2.3 billion pounds of soybean oil. The full Oil Crops Outlook is available HERE. (Sources: USDA, Biodiesel Magazine, EIA)

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