Pressing the Possibilities

Biodiesel Magazine explores some broader implications of the increasing demand for soy oil coming from the burgeoning U.S. biodiesel industry.
By Ron Kotrba | September 01, 2006
A majority of current and future U.S. biodiesel producers report that soybean oil is, or will be, their primary feedstock for refining mono alkyl esters. With the way the biodiesel industry is expanding, it's astonishing to consider how many markets-shifting possibilities can come-probable or not-from that solitary, isolated statement.

For instance, other feedstocks may take on a bigger presence in the United States when soy oil demand hits record-breaking levels in the coming years. Experts say another possibility is transitioning non-critical Conservation Reserve Program (CRP) lands to soybean production. Specialists also indicate that acres of market-devalued crops may go to the bean. On the other hand, soybean yields may increase over time due to better genetic engineering, which could help alleviate pressures for more soy oil and needed acreage. Then there are the potential shifts in global trade. The United States could decrease its exportations of whole soybeans, retaining them here for more domestic crushing and freeing up more oil to help satisfy demand. Alternatively, soy oil exports might narrow. Soy oils in human foods may trend downward, which is another way to get more oil for methyl ester refining onto the market. Maybe increasing imports of soybeans or soy oil is another possibility-likely a controversial one.

Despite all of the unknowns, some of the more probable routes to expansion in this industry lead experts to wonder about what might come of all that additional meal.

Putting the Pieces into Place
Rather than placing the cart before the horse, though, consideration should first be given to addressing where new additional feedstock might come from. According to Marty Ross, director of the United Soybean Board (USB), concerns over biodiesel's demand on soy oil have been mounting for some time. "People seem to think we've already used up all our excess soybean oil, but we haven't yet," Ross says. "Eventually we may, and after that point-after we are using 100 percent of our oil and it's driving the soybean market-what's next?" That's the million dollar question.

Alejandro Reca, executive director of Rabobank International's Food and Agribusiness Research team for North and South Americas, hit home this message of changing commodities markets in a presentation at a conference called, "Biodiesel: Powered by Canola," which took place in Calgary, Alberta, in mid-July. His presentation, which was a culmination of intense research, concluded that global demand for vegetable oils is likely to push major crushers of particular oilseeds into changing their current business models. "The main implications, or threats, are for those oilseeds with relatively higher meal content-meaning soybeans," Reca tells Biodiesel Magazine. Often, soybeans are called oilseeds, but, in fact, many say the soybean is really a protein bean.

David Feider, Oilseeds division spokesman for Cargill, tactfully relays his inability to divulge information about Cargill's future crushing plans in this business on the verge of change. "Typically, Cargill does not offer market outlook or commentary, especially when we have financial positions in those markets," he says. Other crushers choose not to comment, as well. North American crushers and producers holding certain biases against oilseeds with higher oil content will be driven toward crushing more canola and eventually sunflower, Reca says. "The larger crushing of these will require higher production at the farm level as well," he adds.

Rick Ostlie, president of the American Soybean Association (ASA)-an organization working closely with many oilseed processors-says the major crushers are watching this situation develop. Nevertheless, American biodiesel producers simply like soy oil; it has been a high quality, abundant and reasonably priced feedstock.

There are options for limited growth in a soy-oriented industry, without crushing more soybeans. According to Reca, the U.S. food manufacturing industry has seen a decline in soy oil use for the first time ever in 2006. "That's mostly because of the move away from trans fatty acids in food," he says. This trend could continue, which bodes good news for U.S. biodiesel producers fixed on soy oil. Straight oil exports are another tapping source from which the processing of more beans isn't necessarily needed.

Historically, the demand for soybeans' protein-rich meal has driven its production and crush output. If a swelling demand for the oil surpasses the tipping point to drive the soybean market, then there will be untold meal tonnage along for the ride.

Meal Possibilities
In this industry, soy biodiesel producers use approximately one-fifth of the content in soybeans, unless of course the producer extracts its own oil. In that case, those biodiesel producers and oilseed processors sell the meal and retain the proceeds. Corn's fermentable starches, used to make ethanol, constitute 70 percent of the yellow dent feedstock that an ethanol plant takes in. Once ethanol producers make their alcohol, the remaining unfermentables-the protein, fiber and fat-produce a commodity coproduct marketed to feedlots as mid-protein distillers grains. Due to the nature of distillers grains origination, ethanol producers have direct and vested interests in market prices for distillers grains. Conversely, the various commercial biodiesel makers who buy soy oil through contracts may not be affected directly by soy meal markets, but the people who run those businesses and their investor-growers often are.

At a recent conference hosted by the Grand Forks, N.D.-based Energy and Environmental Research Center (EERC), mega-crusher Archer Daniel Midland Co.'s Paul Bloom talked about meal quantities and opportunities. "One billion gallons of soybean-oil-based biodiesel would create about 33 billion pounds of meal," he said. "So it's really an opportunity-not for only feed and these expanded feed applications, but for industrial applications."

That's the general consensus in the midst of all these uncertainties: opportunities in the unknown. Experts say the markets will work it all out. "The market is always the driver," Ross tells Biodiesel Magazine. "It will decide."

The Soybean Meal Information Center (SMIC) is an initiative sponsored by the USB, state soybean associations and soybean growers. The organization focuses on animal nutrition and factual information pertaining to protein meal for the livestock industries, according to Program Administrator Grant Kimberley. The organization has been deeply involved in the business of information for oilseed processors and meal exporters for 10 years, he says, in part by analyzing the latest supply and demand issues, and studying competing protein sources.

"For the last 60 years, there have been efficiencies made in feed grains and soybean meal regarding amino acid profiles and energy requirements for poultry, swine and some ruminants," says Keith Smith, SMIC technical advisor. "There are plenty of advantages to soymeal over distillers dried grains (DDG)." Distillers grains production is growing in step with the ethanol industry. To varying degrees, DDG competes with soymeal as protein feed for livestock. "But soymeal is a more stable product-it's less variable-and it has higher energy, protein and critical amino acids, and improved digestibility," Smith explains.

According to international markets specialist John Baize, who presented "The Outlook and Impact of Biodiesel on the Oilseeds Sector" to a recent USDA Outlook Conference, for every ton of DDGS used in swine or poultry rations instead of corn, two-fifths of a ton of soymeal "on a protein equivalent basis" is displaced. Should that make soymeal advocates and crushers concerned? "We have to be," Smith tells Biodiesel Magazine. But greater competition for livestock market presence, mixed with higher volumes of soymeal on the market, doesn't necessitate a tragedy. Ostlie says if oil drives soybean production and increased supplies of meal amidst greater competition drives its prices down, livestock production would have lower costs. "U.S. livestock could become more competitive worldwide," he says. Essentially, what's lost in trading prices is more than recuperated in volume sales and the value-added nature of soy-protein-fed livestock. Baize also suggests that the United States could become a major soymeal exporter, pinching out the large South American processors.

In the United Soybean Export Council's July 2006 "Global Update on U.S. Soy Export Market" newsletter, it was written that "Mexico and Latin America … accounted for 54 percent of U.S. soybean meal exports last year. U.S. meal exports to Mexico more than quadrupled in the past five years, and it appears that there is still room for growth. … A recent new market is Cuba."

The SMIC's Kimberley agrees that new markets can be developed and current markets can be reinforced, domestically and internationally. "We still have plenty of good outlets for meal," he says. According to Kimberley and Smith, one of the markets in which soymeal is expected have some of the biggest growth is the aquaculture industry, or fish farming. "The aquaculture industry has seen tremendous growth of soymeal consumption," Smith remarks. "It only accounts for 3 [percent] to 4 percent consumption of meal supplies now, but it provides the most opportunity for growth."

In March, the USB initiated a meal taskforce to critically analyze the growth potential of various meal markets, says the USB's Ross. This follows last year's soy oil taskforce. Together, he says, both of the taskforce's reports will assist in outlining the USB's 2020 vision, the board's long-term soybean market outlook. "The meal side of this issue is much more complex than that of the oil," Ross tells Biodiesel Magazine. "With competing DDGS, compositional traits and world markets, all of these things complicate the issue."

Ostlie agrees. "This is a very complicated matter, and there are a lot of scenarios that could come out of this-what demand will be, how many acres will be planted, how South America is going to respond…," he says. "It's hard to peer into the looking glass to see what'll come of it. There are just so many possibilities."

Ron Kotrba is a Biodiesel Magazine staff writer. Reach him at [email protected] or (701) 746-8385.
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