Biodiesel sees mixed bag in China trade fight

Source: Marc Heller, E&E News reporter • Posted: Monday, April 9, 2018

U.S. soybean farmers are on edge about the Trump administration’s trade spat with China. One aspect of their business, though — biodiesel — isn’t necessarily sharing the gloom yet.

The biodiesel industry might even benefit, sources close to the business say.

That’s because prices for soybean oil may fall if the United States loses China as a trade partner for soybeans and suddenly faces a soy surplus at home, said Patrick Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.

Biodiesel plants wouldn’t have to pay as much for soybean oil, which constitutes about half of biodiesel manufacturers’ raw material, according to the National Biodiesel Board. The rest comes from a mix of recycled vegetable oil, canola and other sources.

Westhoff said he doesn’t see a very big effect on the industry, unless a large gap grows between prices here and in other countries. If China’s 25 percent tariff comes to pass, he said, price of soybeans and soybean products in the United States would probably be a few percentage points lower than they would otherwise have been.

“All else equal, lower soybean oil prices would make biodiesel production more profitable,” Westhoff said. “Lower U.S. soybean oil prices should result in slightly lower U.S. biodiesel prices, which should encourage U.S. exports and discourage imports.”

Any forecasts of a trade war’s impact, though, have to take into account a bigger player in the biodiesel market: the federal renewable fuel standard, which requires the blending of biofuel into gasoline.

Thanks in large part to the RFS, biodiesel and soybean oil use has surged in recent years. In 2015, biodiesel consumption required 5 billion pounds of soybean oil from 441 million bushels of soybeans, according to the United Soybean Board, a promotional group.

That compares to less than 500 million pounds of soybean oil in 2005, the year the RFS took effect; the law was updated in 2007.

The biodiesel business has tended to rise and fall, as well, based on a federal tax credit for blenders, which has expired at times and been renewed temporarily by Congress. The industry also recently won complaints against imports from Argentina and Brazil, allowing the United States to impose tariffs on biodiesel imports from those countries (E&E Daily, Jan. 9).

Domestic biodiesel production accounts for more than a quarter of all soybean oil use in the country, the Soybean Board said.

Westhoff said the RFS basically determines U.S. biodiesel production, so the real impact of tariffs might not be on production but on the prices of renewable fuel credits that have generated controversy between refiners and the biofuel industry.

However, biodiesel makers aren’t exactly celebrating. The possible effects are too unclear, including how the dispute might affect farmers’ planting decisions this spring, said Kaleb Little, spokesman for the National Biodiesel Board, a trade group.

“Anything that impacts agriculture negatively impacts us, too,” Little told E&E News.

Coming on top of the administration’s recent moves to ease some refiners’ obligations under the RFS, the possibility of a trade war with China is like a “one-two punch” that makes the soybean industry nervous, Little said.

Most biodiesel plants can switch to other raw materials if soybean oil becomes less attractive, Little said. “The U.S. industry is really very flexible and nimble.”