Rural Matters

Rural Matters: Issue Deep Dive – Soy Oil Market Pressures

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Biofuels continue to be a valuable marketplace for ag products. And with the growing attention and investment in aviation fuels and renewable diesel, it’s safe to say that those markets will maintain their growth. However, with increasing demand of biofuels, new policy incentives, and global supply chains, the arena is becoming more complex. Farmers, especially Landus farmers, are eager to be part of the solution, but it’s important that we first understand the dynamics that are unfolding in the marketplace. 

Various fats and oils are used to create green diesel products (i.e. biodiesel or renewable diesel). Soybean oil continues to be the predominate feedstock for the U.S. biodiesel marketplace. And while soy still has a sizable share of the renewable diesel marketplace, a growing amount of waste oil and/or used cooking oils are taking up a growing portion of that feedstock marketplace. 

The challenge ahead is multi-faceted… 

  1. Government Programs: Public policy incentives and programs have placed higher values on renewable diesel (RD) than biodiesel (BD), and thus the marketplace is shifting more feedstocks (oil and fats) and financial resources/investments into RD processors. Some examples of these key programs include the federal Renewable Fuels Standard (RFS), California’s Low Carbon Fuels Standard (LCFS), tax programs like 40B and 45Z, Europe’s Renewable Energy Directive (RED), and Canada’s Clean Fuel Regulations. 
  2. Carbon Scoring: The value of the finished green fuel product is representative in part by the carbon intensity (CI) score of the feedstock—a metric which measures the resources combined to create a product. Certain products like fats from livestock processing and “waste” oils from food service are valued higher than “virgin” (industry term used to define products processed initially and specifically for biofuels) vegetable oils like soy or canola. In short, “waste” oils are seen as recycled oils rather than newly produced oils. 
  3. International Trade: Much like how we trade our grains and other raw commodities on a global marketplace, so too do fats and oils. With the growing demand for lower CI feedstocks, and no requirement that feedstocks be sourced in this country (while there are requirements that the ultimate fuel be processed and/or consumed in this country), more waste oils are being imported into the U.S. from places like China and other Asian countries. This has resulted in domestic crushers being pushed further down or, in some cases, entirely out of the marketplace. 
  4. Sustainability Tracking: While oils produced in the U.S. are predominately soy, canola, sunflower, and such, the primary oil crops in other parts of the world are far less sustainable in their production practices—specifically when looking at palm oil. Palm is recognized in the U.S. and Europe as so unsustainable that it doesn’t qualify for credit under our biofuel programs as a virgin oil (see above). But if that same foreign palm oil is used in a restaurant first, then it becomes classified as used cooking oil (UCO). It’s given a low CI score and becomes open to market access and valued at a premium over the sustainably grown and processed soy oil produced here domestically. 

So, what does this mean for Landus and our farmers? We operate the largest mechanical soybean crush facility in the country, which is a critical marketplace for beans from farmers across the state. This facility has been providing value back to farmers for decades and underwent a $27 million expansion in 2016. However, with the growing influx of imported oils, there is increasing economic pressure on domestic soy crush facilities like Landus as more of the soy oil marketplace is displaced with foreign waste oils, which will impact the bottom lines of soybean farmers. 

Some additional background reading on this topic: 

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