Renewable diesel capacity in the US has almost doubled in the last two years. However, it’s not US soybean growers benefitting from the expansion of renewable diesel as many had anticipated. Instead, renewable fuel facilities are importing record amounts of canola oil from Canada and used cooking oil (UCO) from China, resulting in domestic soybean oil being pushed out.
The domestic biomass-based diesel industry, which includes biodiesel and renewable diesel, grew to 5.9 billion gallons by the end of 2023, up from just 3.3 billion at the beginning of 2021. Much of that growth stems from the renewable diesel industry with the number of plants reaching 539 in January 2024 versus 384 a year earlier. There is even more capacity in the pipeline.
However, soybean processors don’t seem to be riding the renewable diesel wave. Instead, they are witnessing a slowdown in demand that resulted in some 20 million bushels of crush capacity coming offline across the Midwest in April, according to Bloomberg. At least another 10 million bushels of capacity could be shut down in May.
Currently, about 21 soybean crushing projects are slated to expand capacity. Five are expected to be up and running in time for new crop harvest, which will add an additional +495,000 bushels per day of capacity.
John Neppl, chief financial officer of Bunge Global SA, the world’s largest processor of oilseeds, said last week that soybean crushing projects already in the works will likely get completed. “But really, anything that was proposed or in early stages, we’ve seen a number of those put on hold,” he added.
The USDA has estimated that roughly half of US domestic soybean oil supplies will be used as a biofuel feedstock this year. This is largely based on blending levels set by the Environmental Protection Agency (EPA). When EPA set those levels, it questioned the feedstock availability to supply the biofuel plants. As a result, EPA set the blending levels on assumed feedstock availability, not biofuel capacity, according to the American Soybean Association (ASA).
For 2023, EPA assumed 649 million gallons of renewable diesel would either be imported or produced from imported feedstock evenly split between soybean oil, canola oil and fats, oils and greases. In reality, about 360 million gallons of renewable diesel were imported. The increase in canola oil imports in 2023 was large enough to produce 240 million gallons of renewable diesel, while UCO and tallow imports were large enough to produce over 600 million gallons of renewable diesel.
According to ASA, these feedstocks exceeded EPA’s estimates by about +550 million equivalent renewable diesel gallons, which is close to a factor of two. In other words, almost 550 million renewable diesel gallons worth of domestic feedstocks were displaced by imports.
More recently, renewable diesel plants consumed 224 million pounds of canola oil in January, up from 193 million pounds in December. US canola oil imports from October 2023–February 2024 totaled 2.9 billion pounds, up +21% from the same period last year. As a result of ongoing strong demand from renewable diesel facilities, USDA in April raised US canola oil imports for 2023-24 to a record of 7.4 billion pounds with strong imports from Canada. The agency’s estimate for canola oil use in biofuels was in turn raised +0.4 billion pounds to a record-high 4.0 billion pounds.
ASA takes particular issue with US imports of UCO, which are primarily coming from China. In 2023, the U.S. imported about 40% of China’s world imports, compared to virtually no Chinese UCO supplies being sent to the US before last year.
ASA notes that the timing of the large jump in imports of Chinese UCO during mid 2023 corresponds to the period when Germany asked the European Union to investigate biofuel imports from China that were labeled as made from waste oils but are suspected of being virgin oils like palm. European imports of China’s used cooking oil fell by almost -600 million metric tons in 2023 compared to 2022 while imports to the U.S. increase by over +700 million metric tons. Meaning what was going to the EU was largely rerouted to the United States where concerns over the integrity of UCO imports had not been raised, said ASA.
“The U.S. is not looking at those imports with much scrutiny at this point,” said ASA chief economist Scott Gerlt. EPA does require that biofuel producers maintain chain of custody data for every gallon of used cooking oil, both domestic and imported origin. However, EPA does not audit the UCO chain of custody for either until an enforcement action has been initiated, which occurs after the RIN has been generated. “It definitely bears looking at more closely by the regulators and auditors just to verify that we’re not getting an issue here like the EU is investigating,” added Gerlt. (Sources: American Soybean Association, USDA, Argus, Bloomberg)
