Challenges Ahead For Soybean-Based Renewable Fuels Demand

Building new renewable fuel plants and increasing the pace of existing crush facilities can set the demand side of the soy biodiesel equation, but the supply side becomes complicated.
By Greg Horstmeier | May 24, 2023

Demand for renewable diesel has U.S. farmers excited about the potential for strong soybean prices as much as fuel companies are anxious to turn those beans into fuel for the expanding low-carbon diesel markets. In what some in agriculture see as a replay of the corn ethanol boom, farmers hope to see more revenue from the nonfood demand for their second-largest annual crop. But while there are similarities to ethanol-supported corn prices of the early 2000s, commodity analysts and others say the soybean diesel market has some unique challenges.

Driven by low-carbon fuel standards in California and elsewhere, the production of renewable diesel from soybeans has more than doubled in the past 24 months, with 2022 production topping 2.2 billion gallons. Federal incentives to blend more renewable fuels are bolstered further along the West Coast by generous state credits to encourage the move away from petroleum. The incentives could lure in enough renewable diesel to dominate the diesel market along the West Coast. The region, which is also the largest renewable diesel-importing region in the U.S., could soon meet most of its distillate fuel needs from renewable diesel by 2025 if domestic renewable diesel capacity does, in fact, increase as scheduled, according to the U.S. EIA.

Clean Fuels Alliance America says renewable diesel production capacity could hit 5.5 billion gallons by 2026, while a recent study by University of Illinois puts 2023 production expectations at 4.1 billion gallons, with the capacity to produce some 6 billion gallons in 2025.

Will Prices Drive Additional Soybean Production?
While building new plants and increasing the pace of existing crush facilities can set the demand side of the soy biodiesel equation, it’s the supply side that becomes complicated, according to Todd Hultman, DTN lead analyst. “Some studies say the fuel demand for soy oil will require another 12 million acres of soybean production in the U.S.,” Hultman says. “I don’t think we have another 12 million acres of highly productive farmland to shift to beans.”

The largest U.S. soybean crop, at 90.16 million acres (ma), came in 2017. The March 30 USDA Planting Intentions report predicted 87.5 ma will be planted in 2023, essentially flat with the 87.45 ma planted a year ago and slightly under the average analyst predictions of 88.23 ma.

To get to nearly 100 million acres of soybean production will take a massive shift from other crops, mainly corn. And that’s not something Hultman sees happening anytime soon. “The demand for more soybeans (for renewable diesel) is a national need. What happens on the farm, however, is based on local issues. Farmers typically respond to local situations. So, if you’re in an area with historically strong ethanol production or a lot of livestock that demands corn, you’re not going to immediately shift a lot of acres from corn to soybeans.”

Higher soybean prices will be a strong pull to grow more beans, Hultman admits. He sees the increased demand adding as much as $3, or 15-20%, to the national per-bushel-price of beans.

Meal Demand Helps
Hultman says one positive difference between the current soy oil boom and the ethanol boom of the 2000s is the issue of finding a home for byproducts. In the early ethanol days, the grain mash left from alcohol extraction was a problem for plant manager. It took some time for livestock producers to learn to feed, and see the tremendous value, in so-called dried distillers grains.

Soybean crushers, in contrast, have a readymade market for the byproduct of soybean oil creation. Most modern U.S. soybean varieties produce seed that is about 20% oil by weight, with the remaining 80% a high-protein meal. Hultman says soybean commodity groups are already working to expand U.S. meal exports to areas like Vietnam, Thailand and elsewhere, where the meal can be used in feed rations those country’s poultry, swine and fish.

The Reality of Soybean Agronomics
Shifting more corn, sugar beet or wheat acres to soybeans in one particular year is partially a question of higher dollar returns per acre. Keeping that higher number of soybean acres over time is more difficult. “Farmers will respond to whatever economic incentives they see,” says DTN crops technology editor Pam Smith. For decades, Midwestern row-crop farmers have focused on maximizing corn production, while soybeans were treated as more of a second-class crop.

Higher soybean prices, fueled by Chinese demand, has moved more farmers to giving soybeans more management attention, Smith says. In the past decade, that has moved national yield averages from below 40 bushels per acre to around the 50-bushels-per-acre average mark. “Some of that yield boost is due to earlier planting,” Smith says. Planting in late March and April, versus traditional May and June, allows soybeans to mature and be poised to take advantage of late summer rains. Smith says some early-planting farmers have documented a half-bushel-per-day yield loss for every day they’re delayed planting once the ground is generally ready.

That earlier planting, especially in colder, northern fields, wouldn’t be possible without a host of modern seed treatments—small amounts of fungicides, insecticides and growth stimulants layered directly on the seed itself. What those treatments can’t do, Smith adds, is protect seedlings from untimely frosts once they’re out of the ground. Seed treatments also do little when a wet spring, such as northern soybean production areas are having in 2023, delay planting.

Issues with Continuous Soybean Production
A complication with securing an additional 10 million to 12 million more soybean acres isn’t getting the acres one year. It’s keeping them longer-term. When the ethanol boom drove need for U.S. corn, farmers had a relatively easy time responding. To start, the country had been swimming in corn for decades. Corn also performs well in continuous, year-after-year production.

Soybeans, on the other hand, can have a yield drop of 5% or more in the second season of continuous beans, with larger drops in successive plantings, says Smith. Diseases and pests, such as the soybean cyst nematode, build up in fields during soybean cultivation. Fields often need multiple years planted in other crops to reduce nematode numbers and to clean up disease pressure.
In the meantime, Hultman expects higher amounts of raw soybeans will move out of the export channels and be used to feed the new U.S. crushing plants.

Contact: Greg Horstmeier
Progressive Farmer/DTN
[email protected]

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