LONDON – The current demand for renewable biodiesel is both expanding and refueling the U.S. soy crush industry, according to a recent report by the CME Group.

“An interesting new dynamic has been forming in the U.S. domestic soybean crush industry on the back of growing demand for renewable diesel, which has pushed prices for soybean oil sharply higher in recent months,” said Paul Wightman, CME Group director of research and product development in London, who authored the report.

He said soybean oil is the largest source of vegetable oil in the U.S. and is widely used internationally. 

“U.S. annual production rates reached 11.5 million tons per year in the latest 2021/2022 marketing year, double the levels seen in the early 1990s, according to the latest data from the USDA,” he said.

“Traditional oil refiners have turned their attention to the production of renewable diesel, in part to meet tougher environmental mandates and boost profitability of their operations that have been faltering due to a softening in demand for fossil fuel-based refined products,” he added.

He said the global demand for soybean oil has pushed prices close to record highs in recent months. 

“The front-month soybean oil futures price, measured on a 20-day rolling average basis, reached over 62 cents per pound at the end of August 2021, double the level seen 12 months earlier,” he said. “These market dynamics have changed the interplay between meal and oil prices, with U.S. crushers increasingly crushing soybeans to meet robust soybean oil demand.” 

He said the front-month soybean oil futures price has reached its highest level in over eight years. According to Investopedia.com, “Front month contracts have an expiration date that is closest to the current date. As a result, they tend to be the most heavily traded and the most liquid options and futures contracts for a given series or issue. Typically, but not always, the listed front month will be in the same calendar month. Front month prices are normally the ones used when quoting that security’s futures price.”

“Because soybean oil and meal prices are co-outputs of the soybean crush, many market participants will typically evaluate soybean oil prices relative to soybean meal prices,” he said.

“While soybean oil prices have nearly doubled over the latest 12-month period to end September 2021, meal prices have risen by only 23 percent year on year,” he added. “This has had a positive impact on the soybean oil’s share of the soybean crush margin.”

According to Wightman, soybean crushing is the process of transforming whole soybeans into both soybean meal and soybean oil. Soybean meal is used as a high-protein animal feed, while soybean oil is a vegetable oil used in various industrial applications such as renewable diesel. 

Scott Gerlt, American Soybean Assoc. economist, said, “The CME Group report does a good job describing the growth in renewable diesel in the U.S. We are certainly seeing many announcements for renewable diesel facilities that are initiating that growth. 

“However, the factors affecting soybean oil prices are more complex than just renewable diesel.

“Canada and the northern U.S. experienced a short canola crop; Indonesia has restricted palm oil exports; Malaysia has had trouble getting workers for its palm oil harvest; the South American soybean crop is much less than anticipated; and now sunflower oil from Ukraine is cut off,” he said. 

He added, “All these countries are major producers of their respective vegetable oils, and this has been pulling up soybean oil prices.”

He said, however, soybean oil use for biofuels has not increased in the past year. 

“What we have seen is higher renewable diesel production and lower biodiesel production that have largely offset,” he said. “Renewable diesel production should increase in the next few years and provide strength for soybean oil prices and crushing margins but is currently in the early stages of growth.

“All these factors have definitely caused the value of oil to rise faster than (soy) meal, which is increasing the oil’s share of the value (45-50 percent currently, compared to 30-35 percent historically),” he added. 

He said the U.S. crush capacity is expanding to help provide feedstock for the future anticipated growth in renewable diesel, “but those new facilities really are not in production yet.” 

“When looking at this,” he said, “the international conditions in vegetable oil markets are having a major impact on soybean oil prices that cannot be ignored.”