Bunge expects expansion in US soy-based renewable diesel capacity

Source: By Asim Anand, S&P Global • Posted: Thursday, February 10, 2022

Global agribusiness major Bunge expects an expansion in soybean-based renewable diesel capacity in the US, which is likely to support soybean oil demand, it said in its fourth-quarter earnings call.

“We’ll see the US transform from being an exporter to an importer of vegetable oils [in the coming years],” CEO Gregory Heckman said on the Feb. 9 results call. “You’ll see development of cover crops (rye, barley) that will add to vegetable oil supply and even higher capacity utilization of the crushing footprint,” he said.

Demand for soybean oil from the US biofuel industry has been rising markedly since 2020 as crushers and vegetable oil-based biofuel processors have become more confident about the government’s commitment toward energy transition.

Out of total US soybean oil production of 25.7 billion lb in marketing year 2021-22 (September-August), the country’s biofuels sector is projected to consume 11.5 billion lb, the Department of Agriculture said. In MY 2020-21, the US biofuel sector was estimated to have used 9.1 billion lb out of total soybean oil output of 25.2 billion lb, USDA data showed.

According to average analyst estimates, US biodiesel production in 2021 is estimated at 750 million gallons, up 36% year on year. For 2022, the output is projected around 2 billion gallons, almost four times the level seen in 2020.

With each passing year, the rate of biodiesel production is slated to rise significantly. In fact, by 2025, US renewable diesel capacity is expected to reach 5 billion gallons, some analysts said.

Global demand

Bunge sees strong demand for soybean meal and oil in 2022 on strong crush margins.

“With strong oil and meal demand, the curves, of course, are telling us that they (margins) are strong now,” Heckman said.

Bunge also expects China, which is the world’s largest soybean purchaser, to use more beans instead of wheat in livestock feed in 2022.

“China continues to be volatile, but we’ll see lower wheat feeding this year versus last year,” Heckman said.

South American supply outlook bleak

“Soybean production outlook in Paraguay has reduced, so has in Brazil,” Heckman said. “And then we’ll continue to watch how Argentina develops,” he said.

“So, we’ve got to see how that pans out and how the farmer responds,” Heckman added.

In addition, Bunge expects the upcoming general election in Brazil on Oct. 2, 2022, to create volatility in the market.

Brazil has an election and that may create a situation with the foreign exchange volatility and the farmer may be a little more reluctant to sell, Heckman said.

Typically, Brazil’s currency real has been relatively weak against the US dollar over the past few years, making Brazilian soybean exports extremely price-competitive against US beans.

Bunge’s Q4 earnings

Adjusted core segment earnings before interest and taxes, or EBIT, were $766 million in the fourth quarter versus $636 million last year, reflecting strong results in agribusiness, and refined and specialty oils segments, Bunge said in its Q4 earnings report released Feb. 9.

The company posted adjusted net income of $533 million, or $3.49/share, in the quarter ended Dec. 31, compared with $455 million, or $3.05/share, a year earlier.

Strong results in the agribusiness segment were driven by strong execution throughout the value chains, Heckman said, while the refined and specialty oils segment posted record Q4 and full-year results.

Climate change focus

“We’re also continuing to focus on fighting climate change with carbon-focused decisions — carbon-focused decision-making across our organization,” Heckman said. “In 2021, we announced science-based targets to achieve absolute reduction in carbon emissions for our own operations and in our supply chains,” he said.

“Our industry-leading commitment to have deforestation-free supply chains in 2025 is a big part of our path to our Scope 3 targets,” Heckman added. “We also closed on the refinancing of a credit facility tied to sustainability targets.”