Renewable Fuel Demand Competing With Soy Export Markets

Whichever way it goes—and it could go several ways—the push for renewable fuels is great news for America’s farmers. But what about barge interests?

According to the most recent figures from the Corps of Engineers’ Waterborne Commerce Statistics Center, in 2021 whole soybeans made up about 8 percent of barge cargoes, and corn 11 percent, versus 17 percent for construction materials, 22 percent for petroleum products and 5 percent for crude oil. Although coal, once the dominant bulk cargo on the rivers, continues to decline, coal and coke still made up about 15 percent of barge cargoes.

Last summer, barge industry analyst and consultant Sandor Toth sounded an alarm in an issue of his River Transport News that got a lot of attention from barge industry leaders, warning that the push for renewable fuels, which use soybeans as an important feedstock, could imperil soybean barge cargoes. “Over the past several years, the growth of the renewable diesel industry has emerged as a major stress point for the dry cargo barge market,” Toth recently told The Waterways Journal.

“Driven by domestic subsidies at both the federal and state levels, especially in California, plans by developers to capitalize on these subsidies have led to a major increase in renewable diesel production.

“This, in turn, has led to steady increases in U.S. soybean crush as the biorefineries continually increase their reliance on soybean oil feedstocks. ‘Green’ diesel now consumes nearly 50 percent of total U.S. soybean oil production. This proportion is expected to grow as developers have rapidly advanced plans to add significantly more green diesel production capacity.”

“It must be remembered,” Toth stressed, “that any development that boosts domestic demand for our soybean or corn crops generally reduces U.S. exports of these products.” Most of the new crush plants being built to supply the growing demand for fats and oils to feed the renewable-fuels boom are located close to the sources of supply, in the Midwest, and won’t require long barge trips, if any.

Biggest Farm Export

Soybeans have long been the single biggest American farm export. In 2023, exported soybeans earned a record $34.4 billion, with China taking about half the crop. America was the world’s No. 1 soybean exporter until Brazil overtook the U.S. in the 2012 marketing year. According to the U.S. Department of Agriculture, the 2023-24 U.S. soybean export forecast is 1.7 billion bushels, a decrease from the 2.16 million bushels exported in 2021-22. The USDA also sees total 2023-24 U.S. soybean exports at a four-year low and down 12 percent on the year.

A December 2023 report from the Economic Research Service of the USDA said Brazil is taking a bigger share of the global export market. “Projections indicate that the Brazilian share of global soybean trade could increase from 51.6 to 60.6 percent between marketing years 2021-22 and 2032-33.” Brazil’s advantage is lower production costs. In the past, those lower production costs have been partly offset by higher transport costs, but those have been lowered by investment in Brazil’s ports and waterways infrastructure. American beans are also affected by factors beyond growers’ control, like a strong American dollar that makes American beans more expensive. Some American soybean growers have expressed concern that without the domestic demand for renewable fuels, prices for American beans could fall off a cliff from their current high levels.

Steady Biofuel Growth

Domestic biofuel production has grown nearly 8 percent every year over the past 15 years, driven by tax credits and targeted government programs, including the federal Renewable Fuel Standard Program and California’s Low Carbon Fuel Standard. Although it competes with other feedstocks—including canola oil, sunflower oil and kitchen waste grease—soybean oil is the most common feedstock for U.S. renewable diesel production.

Soybean crushers, often in partnership with energy companies, have invested billions of dollars in new crush plants. Scott Gerlt, senior economist for the American Soybean Association, wrote in November 2022, “The soybean processing industry intends to significantly grow over the next few years. … To date, there have been announcements for 23 plant expansions, which would add about 750 million bushels per year in crush capacity. … Many of the crush plant announcements are being driven by the growth in renewable diesel.”

Agricultural banks and funds investing in renewable fuel have followed trend lines into the future to predict that renewable fuel could absorb all of the U.S. export soybean crop. In September 2022, a report from CoBank, a branch of the Farm Credit Service—a network of lending institutions that serve farmers, ranchers, agricultural cooperatives and other eligible borrowers—reported, “The expected growth in soybean oil-based renewable diesel will require considerably more soybean bushels for domestic crush. To satisfy this demand, the U.S. would need to (theoretically) stop exporting whole soybeans while planting 17.9 million additional acres of soybeans (21 percent larger than the current crop) to satisfy the incremental biofuel demand.”

On October 12, 2023, the Foreign Agricultural Service of the U.S. Department of Agriculture reported that increases in renewable diesel production are “suppressing exports and pushing the U.S. out of the global export market.”

U.S. Becomes Net Importer Of Soybean Oil

For two years in a row, the U.S. has been a net importer of soybean oil. The balance was tipped in the 2022-23 marketing year, when imports stood at 170,000 metric tons against exports of 168,000 metric tons, according to the USDA. The shift came as the Environmental Protection Agency released higher multiyear biofuel blending targets. 

Even if the CoBank report’s forecast comes true and the U.S. diverts all its non-food soybean production to feeding the alternative fuels crushers, it may still not be enough to meet demand. “Besides importing soybeans, the alternatives to shifting massive farm acreage would include growing other types of oilseeds (such as canola and sunflower) at a larger scale, importing other vegetable oils and/or using other feedstock such as beef tallow to produce renewable diesel fuel,” according to the report. The percentage of Canada’s canola crop going to the U.S. to satisfy this demand has spiked in recent years, accounting for 86 percent of Canada’s exports in 2022-23.

Shock As EPA Mandate Remains Flat

In June of last year, however, the EPA delivered a shock to biofuels refiners and farmers. Its final rule setting renewable fuel blending standards for 2023, 2024 and 2025 was below what soybean processors had been led to expect by public discussions with the agency. “The RFS [renewable fuel standard] was intended to drive continual growth in all categories of renewable fuels well beyond 2022; instead, today’s final rule flatlines conventional renewable fuels at 15 billion gallons and misses a valuable opportunity to accelerate the energy sector’s transition to low- and zero-carbon fuels,” said Geoff Cooper, CEO of the Renewable Fuels Association at the time.

What About Soymeal?

Recognizing the coming shift in exports presaged by the expansion of crush facilities, the soybean industry has geared up for increasing exports of soymeal. Soymeal is a highly nutritious animal feed and a coproduct of crushing soybeans for oil, just as dried distillers’ grains (DDGs) are a byproduct of processing corn for ethanol, another alternative fuel feedstock, and are also used for high-quality animal feed. Soymeal is widely used in domestic hog farming and chicken operations, but due to its traditionally high cost hasn’t been used as a cattle feed supplement for years. Recently, though, a livestock publication reported that soymeal was being added to cattle feeds for the first time in a generation as it is becoming more available—and cheaper, thanks to more crush for biodiesel and sustainable diesel.

The Pacific Northwest Port of Grays Harbor in Aberdeen, Wash., is an important infrastructure link for U.S. farmers getting their product to markets in southeast Asia, but it is supplied by rail rather than barge. Grays Harbor focuses primarily on soymeal brought in via rail from crush facilities in the northwest Corn Belt. Soybean growers have been collaborating with the United Soybean Board and Port of Grays Harbor to expand the port’s soymeal-handling facilities. It is currently the largest soymeal exporter on the West Coast. Destinations include the Philippines and other Southeast Asian countries.

According to Mac Marshall, vice president-market intelligence for the United Soybean Board and the U.S. Soybean Export Council, the port will play an even more vital role in the near future as the soybean export market sees a shift due to expanding soybean processing capacity.