Key Takeaways:
- U.S. soybean processors are increasing production capacity by 23% over three years to meet rising demand for soybean oil in renewable diesel.
- Despite recent record-high profit margins for processors, margins are expected to moderate due to increased capacity, global competition, and alternatives to soybean oil.
- CoBank’s report suggests U.S. soybean processors are prepared for margin downturns, but warns of risks to new, high-cost plants.
- Competition from alternative feedstocks and imported oils is impacting soybean oil’s market share in renewable diesel production.
- The expansion in soybean processing could pressure margins with growing soybean meal supplies, potentially affecting livestock producers.
U.S. Adapts to Renewable Diesel Feedstock Demand
The United States is witnessing a significant shift in the agricultural and energy sectors as demand for soybean oil as a feedstock for renewable diesel grows. This trend is part of a broader move towards cleaner-burning fuels, with renewable diesel emerging as a preferred low-carbon alternative to traditional diesel. In response, U.S. soybean processors are expanding their production capacity by an expected 23% in the next three years, aiming to cater to the burgeoning demand.
Market Adjustments and Competitive Pressures
In recent years, soybean processors have enjoyed record-high profit margins. However, according to a CoBank’s Knowledge Exchange report, these margins are anticipated to moderate. The report highlights the dual challenges of increased domestic soy crush capacity and intensified global competition. Furthermore, soybean oil prices face pressure from a range of alternative renewable diesel feedstocks, such as imported vegetable oils, beef tallow, and used cooking oil. The potential surplus of soybean meal also contributes to the expected weakness in prices.
Tanner Ehmke, CoBank’s lead grain and oilseed economist, provides insight into the industry’s future, stating, “Legacy processing plants with low debt levels will still find profitability in an environment of sharply lower crush margins. But new crush plants built at substantially higher costs and interest rates will have higher breakeven costs.” Ehmke also noted the financial risks for plants far from soybean-growing regions due to their dependence on transportation for soybean acquisition.
Shifting Feedstock Dynamics
Soybean oil remains the predominant feedstock for biobased diesel production. However, its share of monthly feedstock usage has decreased from 50% to 35% in a year, amidst rising utilization of competing oils and fats. The report highlights the increasing role of beef tallow and other greases, indicating a diversifying feedstock market that could influence soybean oil’s dominance.
Implications for Soybean Meal and Livestock Production
The anticipated increase in soybean processing capacity is expected to result in higher supplies of soybean meal, which could impact processor margins and livestock producers. Brian Earnest, CoBank’s lead animal protein economist, emphasized the importance of export markets for soybean meal, given the limited domestic growth outlook for swine and poultry production and the significant role these sectors play in soybean meal consumption.
Read the complete report here.
1 Comment