Astonishingly, whole soybean imports by China increased 25-fold between 1995 and 2003. In contrast, soybean meal imports dropped to zero.
Why did this happen?
By 2001-02, China had sufficient crush capacity to export over one million metric tons of soybean meal. Chinese soybean imports hit a record high of 20.3 million tons in 2002-03, nearly doubling the 2001-02 level of 10.4 million tons. This figure is even more remarkable when compared to the 1995-96 level of 800,000 tons.

The Chinese market has changed because several dozen new crush plants have been built in China since 1995, giving China sufficient crush capacity to produce enough protein meal to meet its domestic demand. This more than offsets the previous importation of soybean meal, mainly from the United States.

U.S. crush capacity increased As a result of what's happened with China, numerous U.S. soybean-crushing plants located on the Ohio and Mississippi Rivers have experienced reduced meal demand. Several plants have been shut down, leading some people to conclude that U.S. crush capacity has been reduced. However, crush capacity has actually increased with the construction of several new large solvent extraction plants in Iowa, Minnesota and South Dakota.

In addition, several new small-capacity mechanical screw or expeller press plants were built on the East Coast and in the Midwest between 1997 and 2003. This is not surprising, since domestic demand for soybean meal continued to increase between 1996 and 2001, driven by U.S. meat production, which increased 8.5 percent during the same period.

Soybean production low, prices highFor the short term, it appears there will continue to be upward pressure on prices of soybean products based on the USDA forecast for the crop year 2003-04.

The USDA forecasts that the crush will drop to 1.510 million bushels (41.1 million metric tons) and soybean oil production for 2003-04 will drop to 17.02 billion pounds (7.72 million metric tons). Ending stocks of soybean oil by the end of September 2003 are estimated to be only 710,000 metric tons and are forecasted to drop to 550,000 metric tons by October 2004.

The changes in the soybean complex, along with drought in Indiana and Ohio in 2002 (which affected ending soybean stocks in 2002), and drought in the other parts of the Midwest and upper Midwest during August 2003, resulted in very high price levels. Cash prices, as of October 22, 2003, compared to the same period in 2002 were:

This is a huge market shift since February 2001, when soybean oil (at Decatur, Ill. prices) was $0.124 per pound.

For the near term, it appears that the October USDA forecast for soybean production for 2003-04 of 2.468 billion bushels (67.18 million metric tons) will result in the lowest soybean supplies since 1996-97. This has resulted in a lower crush for October 2003, mainly due to higher meal prices and the use of alternative protein sources. Because of this, there will be a reduced supply of soybean oil. This near term shortage of vegetable oil will be partially offset by increased imports of canola oil from Canada.

You can be assured that market prices will change, up or down. The consumption of soybean oil for biodiesel feedstock at present is only a minor influence on the price. At a projected production of 25 million gallons of biodiesel for 2003, 17 million bushels of soybeans could provide the necessary feedstock (based on solvent extraction) assuming a biodiesel yield of 1.4 gallons per bushel.

Other biodiesel market drivers such as the Energy Policy Act, possible passage of the 2003 energy bill and various environmental programs—for school buses, marinas, ski lifts, etc.—will continue to influence biodiesel consumption. However, the big looming potential for biodiesel is the use of biodiesel blends for transportation fuel. If the EPA mandate to reduce sulphur in transportation diesel fuel from 500 parts per million (ppm) to 15 ppm in 2006 remains on schedule, a new influence on soybean demand could come into play.

The proposed reduction in sulphur will cause lubricity problems in the diesel fuel injection system. Adding 1 percent to 3 percent biodiesel to the petroleum diesel can restore the lubricant qualities of the fuel. Based on approximately 35 billion gallons of diesel fuel used in over-the-road transportation, this addition, using a B2 blend, would require 700 million gallons of biodiesel just for this program. This represents 500 million bushels of soybeans (based on 1.4 gallons/bushel) or about 20 percent of a 2.468 billion bushel crop, which is the 2003-04 forecast.

Of course, this assumes that biodiesel remains the additive of choice for diesel fuel and that 100 percent of the feedstocks for this potential market come from soybeans.

This will not happen.

Market forces will dictate that other feedstocks will be needed to supplement soybean oil.

Animal-derived feedstock sources
One logical substitute for a portion of the soybean oil used for biodiesel feedstock is animal-derived sources and recycled restaurant grease or oil. In some regions of the country, other vegetable oils can be considered.

Based on information published by Dr. Gary Pearl, president of the Fats and Proteins Research Foundation (FPRF), the United States produces over 11 billion pounds of animal fats and recycled cooking oils, which account for over 30 percent of the total U.S. fats and oil production.

A 1998 study by Appel Consultants reported that there are about 1.4 restaurants in the United States per 1000 people. It is estimated by FPRF that the amount of recycled cooking oils and fats (yellow grease) from the restaurant and food service industry exceeds 2.75 billion pounds. This supply of triglycerides should continue to increase as the restaurant industry grows.

The message: A well-planned biodiesel facility should be designed to handle not only soybean oil, but multiple feedstocks, including locally available vegetable oils, fats from animal sources, and yellow and brown grease from restaurants. For example, although there are additional processing costs associated with yellow grease, the current cash price of 14 cents to 16 cents per pound (depending on location) makes it an attractive alternative.

Vegetable oil soapstock provides option
Another potential feedstock is vegetable oil soapstock, an inexpensive coproduct of vegetable oil refining with a typical dry matter price 20 percent to 25 percent more than that of soy oil. An esterification process that utilizes soapstock has been developed at the USDA's Eastern Regional Research Center (ERRC). The method used for FAME synthesis from soapstock involves these steps:

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