Rising Imports of Green Diesel Raw Materials Are Disrupting the US Soy Market

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(Bloomberg) — A surge in U.S. imports of used cooking oil and other ingredients for biofuel production is hurting soybean processors’ profits, forcing them to slow down and threatening their expansion plans.

Given weaker demand, companies are starting seasonal maintenance earlier than usual and closing plants for longer periods. About 20 million bushels (540,000 tons) of crushing capacity across the Corn Belt were offline in April, a record for that month, including at major plants owned by Archer-Daniels-Midland Co. and Cargill Inc., according to CrushTraders. At least 10 are expected in May Millions of bushels will be shut down.

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That’s a worrying sign for an industry that has invested billions of dollars to expand its capacity to convert soybeans into oil that can then be used to make renewable diesel. While government incentives have led to booming demand for cleaner-burning fuels from sources such as agricultural crops, foreign shipments of alternatives, including imported tallow, used cooking oil and canola oil, are cannibalizing soybean oil’s market share.

Increasing competition raises the question of how much capacity will be needed in the future.

“The projects that were already well underway will continue and be completed,” John Neppl, chief financial officer of Bunge Global SA, the world’s largest oilseed processor, said in a conference call with analysts on Wednesday. “But actually what we’ve seen is that with everything that was proposed or in the early stages, some things were put on hold.”

Soybean oil accounted for 32% of feedstock used to make biodiesel in January, down from 44% a year ago and a record low. This is partly because soybean oil is not very competitive compared to alternative sources, which are cheaper and have lower carbon intensity, allowing for higher subsidies.

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“The U.S. soy processing industry is experiencing growing pains due to the challenges posed by these alternatives,” said Susan Stroud, grain analyst at No Bull Ag in St. Louis.

At the same time, the number of renewable diesel plants is growing, reaching 539 in January, compared to 384 last year.

Soybean processors have 21 capacity expansion projects outstanding in the U.S., according to Gordon Denny, an agricultural consultant and former procurement director at Bunge. Five of them are starting this year and are competing for the new crop, the harvest of which begins in October. This will create an additional 495,000 bushels per day of additional processing capacity to compete for the new oilseeds.

“This increase in crushing capacity, as well as the use of other feedstocks to produce renewable diesel, is surprisingly creating a lack of demand for soybean oil,” Denny said.

Neppl said the Environmental Protection Agency should review its rules that determine how many gallons of biofuel refineries must add to the U.S. fuel mix. These requirements are part of the Renewable Fuel Standard, which aims to curb climate-damaging greenhouse gases and strengthen U.S. energy security.

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Gross margins – which reached decade-long levels in 2022 and 2023 – are under further pressure from Argentina’s return to the export market after a historic drought, as well as rising soybean oil inventories. In March, oil inventories reached 1.85 billion pounds, the increase from February marking a record high, according to Stroud.

Competition will become tougher during the fall harvest as more crushing plants come into operation. As a result, companies are weighing their options on how much capacity they can bring back online.

“Lower margins impact downtime, but companies are also taking their time after running as much as they could in 2022 and 2023,” said Kent Woods, owner of CrushTraders. “The market is realistic that it will be challenging as we move forward.”

– With support from Kim Chipman and Michael Hirtzer.

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