While normal people were getting ready to go out for a night of Halloween fun, this market nerd was poring over a report from the U.S. Energy Department (DOE) entitled U.S. Feedstocks Consumed for Production of Biofuels. The report showed another big month for soybean oil as 1.197 billion pounds were used to make biofuels in August, thanks to the rapid growth of renewable diesel production in the U.S. As an example of just how fast things are progressing, consider that 1 billion pounds of soybean oil had never been used in a month to make biofuels before May of this year. The June-to-August average of 1.226 billion pounds per month was up a stout 37% from last year’s summer average. Annual U.S. production capacity for biofuels has increased 765 million gallons just this year. Total capacity of 3.704 billion gallons in August represents a 67% increase from the same month a year ago. More expansion plans are underway.
USDA’s NASS also gave us a hint this week of soybean oil demand in September. Wednesday’s Fats and Oils report showed the production of crude soybean oil was up 3% on the month in September to 2.077 billion pounds. Even with the higher production, crude plus once-refined soybean oil stocks at the end of the month were lower, dropping to 1.60 billion pounds and were also down 20% from a year ago. The smaller month-end stocks suggest soybean oil had another strong month of demand in September, likely helped by another active month of renewable diesel production.
Given the above numbers, one might expect soybean oil prices would be near record highs, or at least near the highs of the year, but that is not the case. After peaking at 65.58 cents a pound on July 24, the price of December soybean oil turned lower in September and October, closing at 50.32 cents Thursday, Nov. 2, near the lower end of the past two years of prices. During the same two-month period, the price of D4 RINs for biomass diesel fell from just over $1.40 to just under 80 cents. The falling RIN price was the market’s way of signaling that production of renewable fuels was nearing the annual mandate and not much more production was needed.
Putting together the clues of lower soybean oil prices, falling RIN prices and the report of tight soybean oil stocks from NASS, it appears the demand for soybean oil remains active. But something else is also happening.
While soybean oil is still the primary feedstock for renewable diesel production, there are a few other fast-rising stars. From June to August of 2023 an average of 297 million pounds of canola was used each month to make biofuels, up 128% from the same three-month period in 2022. Also in the same period, an average of 544 million pounds of yellow grease per month was used, up 30% from the previous year, and 320 million pounds a month of beef tallow was used, up 78% from its previous summer.
Complicating matters, the feedstocks are not all domestically sourced. USDA’s October issue of Oilseeds: World Markets and Trade explained U.S. imports of Animal and Vegetable Fats and Oils, including used cooking oil, roughly tripled in 2022-23 to 882,000 tons, valued at near $1.2 billion. The total is increasing again in 2023-24.
There is one other piece of the puzzle, regarding falling RIN prices this fall and that is Singapore. The Neste company has exported renewable diesel from Singapore to the U.S. for several years, long before U.S. production became popular. In the first eight months of 2023, the U.S. imported roughly 238 million gallons of renewable diesel from Singapore, up 39% from the same period last year.
According to the private firm, StillWaterAssociates.com, imported renewable fuel is not eligible for the Clean Fuel Production Tax Credit in the Inflation Reduction Act. However, Singapore’s renewable fuel does have a pathway for California’s low-carbon credit and, according to the U.S. Energy Department, every gallon of imported renewable fuel is eligible for a RIN certificate. In other words, renewable imports, including the fuel from Singapore, count as part of the Environmental Protection Agency’s annual mandate of 20.94 billion gallons of renewable fuels in 2023.
Unfortunately, the world of biofuel markets and production is entangled in complicated layers of rules and regulations, which make it difficult to sort out at times. Without getting any deeper in the weeds, I simply want to point out, while the incentives remain in place for renewable diesel production to keep expanding in the U.S. and while U.S. soybean oil continues to enjoy strong demand growth in 2023, the competition for alternative feedstocks and other sources of renewable fuels are rapidly encroaching on soybean oil’s bullish turf. It is going to be interesting to see how this market progresses in 2024.