U.S. bakers say Iowa is gobbling up soy oil for biodiesel, driving prices higher and limiting supply

Source: By Donnelle Eller, Des Moines Register • Posted: Monday, November 29, 2021

U.S. bakers say biodiesel producers are gobbling up Iowa’s and the nation’s soybean oil, forcing them to import more soy oil to meet the nation’s demand for sweets, driving up costs and potentially making some products difficult to find.

The baking industry wants the U.S. Environmental Protection Agency to pause the nation’s renewable fuel blending requirements for a year to reduce demand and lower costs, which doubled this year.

A proposed pause in the nation’s Renewable Fuel Standard could spell trouble for Iowa, the largest U.S. producer of biodiesel and the second-largest grower of soybeans. Soy oil is used to make biodiesel, along with used cooking oils, grease and animal fats.

The state also produces the most ethanol in the nation, and Iowa farmers send about half of their crop — the nation’s largest — to make the renewable fuel. Both ethanol and biodiesel were developed to add value to Iowa crops and reduce U.S. dependence on foreign oil.

“The baking industry basically doesn’t want farmers to benefit from increased markets and opportunities,” said Grant Kimberley, Iowa Soybean Association senior director of market development. “I’m sure they want that opportunity to continue to grow their market. … I get a little disgusted by that.”

Ohio baking executive Ed Cinco told the U.S. House Agriculture Committee this month that growing demand from the biodiesel and renewable diesel industry means that “edible oil literally will not be available at any price” for some food companies.

And bottlenecks at the nation’s ports means soy oil, which has a short shelf life, can become rancid with long delays, said Cinco, director of purchasing at Schwebel’s Baking Co. in Youngstown, Ohio.

Bakeries may need to cut production 10% to 15% due to shortages of ingredients that include oil, gluten and other products. “Bakers will have to make tough decisions, and this will impact American families,” Cinco told House members.

“We went from a net exporter of soybean oil to a net importer” this year, the first time in nearly two decades, said Robb MacKie, CEO of the American Bakers Association. He said the association is “very concerned” bakers and other food companies won’t have this “critical ingredient” available to them.

The competition centers on refined soy oil, according to the Bakers Association, needed both by baking and renewable diesel industries. It’s processed from crude soy oil, which is more plentiful.

Renewable diesel is a direct replacement for petroleum-based diesel and can be blended at any level. Biodiesel is typically blended with petroleum diesel, most commonly at 5% and 20%.

Soybean growers: Scarcity due to supply chain disruptions

Iowa and U.S. soybean growers and biodiesel producers say supplies are plentiful and any kinks in availability are due to supply chain disruptions.

Some experts say rising soybean and other vegetable oil costs are due to drought in Canada that’s reduced the canola crop, and increased global demand for canola, soybean and other oils.

And investors are buying soybean oil futures on the expectation that biodiesel and renewable diesel demand will climb, given a low-carbon fuel standard in California and Oregon. Several other states also are considering low-carbon fuel requirements, including Iowa.

The U.S. Energy Information Administration sees renewable diesel production exploding to about 5 billion gallons by 2024, up from nearly 1 billion gallons at the end of 2020.

Kimberley said drought conditions in Iowa and the Midwest this year sparked supply concerns, with buyers worried it would slash the nation’s soybean and corn production.

But timely rains and improved seed genetics that have made crops more resilient to drought pushed the U.S. soybean harvest to the second-largest in history. Iowa’s soybean harvest this year is its biggest ever, U.S. Department of Agriculture data shows.

The nation’s Renewable Fuel Standard “is an easy thing to point to” and blame, said Kimberley, who is also the Iowa Biodiesel Board executive director. But “not all of renewable diesel projects are going to be built, and not all of them are going to be built right away,” he said.

More:EPA proposes giving oil refineries more time to comply with federal renewable fuel mandate

And U.S companies are adding soybean processing. In Iowa, Platinum Crush, a $350 million plant near Alta, is under development; Shell Rock Soy Processing, a $270 million plant in eastern Iowa, is under construction; and Ag Processing Inc. plans a $71 million expansion of its Sergeant Bluff soy processing plant, on the state’s western border.

“Even if some of that renewable diesel and biodiesel demand does develop down the road, you’re going to have additional soybean production and additional soybean processing to more than satisfy” demand, Kimberley said.

Moves toward low-carbon fuel sources driving biodiesel demand

The Bakers Association is worried about the gap between growing demand and needed supplies, especially as more states look to increase use of environmentally friendly fuel to reduce greenhouse gas emissions.

USDA expects the biodiesel and renewable diesel industry will need 11 billion pounds of soy oil for the marketing year that began in October. It’s nearly 25% more than a year ago, a November report shows. And biofuels make up 42% of the total soy oil use.

A large portion of the “edible soy food crop is being combusted in vehicles,” said Bill Lapp, founder of Advanced Economic Solutions in Omaha, in a report looking at soy demand.

Demand for renewable diesel will likely grow, Lapp said, since it has lower greenhouse emissions than petroleum diesel and can earn higher prices through state and federal mandates.

“An already extremely tight supply-demand situation for U.S. soy oil would be exacerbated if the EPA does not adjust advanced biofuel renewable volume obligations” under the federal Renewable Fuel Standard, he wrote.

Bakers will continue to struggle to compete with renewable diesel producers, Lapp said. “The margins are ginormous for renewable diesel producers,” he told the Register.

However, Corey Lavinsky, S&P Global Platts’ global manager of biofuels analytics, said the national requirements for biodiesel, renewable diesel and other renewable fuels have been effectively paused with federal delays in setting the required amounts.

The Trump administration left office this year without setting mandated ethanol, biodiesel and other renewable fuel blending requirements for 2021, and the Biden administration has yet to announce those levels, plus the required amounts for 2022.

The EPA is supposed to outline new renewable fuel requirements each year by the end of November. The 2020 Renewable Fuel Standard called for 2.43 billion gallons of biomass-based diesel, and 5.09 billion gallons of advanced biofuels.

“I don’t see a soybean crisis,” said Peter Meyer, who leads S&P Global Platts’ grain and oilseed analytics. “Prices have certainly gone up, but that’s more a global issue.”

More: EPA proposes giving oil refineries more time to comply with federal renewable fuel mandate

“We see a global pull on everything from sunflower oil to palm oil, soybean oil to rapeseed oil … in Europe and other places, but we just don’t see much pull here in the United States,” Meyer said.

Lavinsky said companies have announced building new plants or converting existing diesel plants to renewable diesel. But it’s unclear when some will come online, he said.

For example, CVR Energy delayed its final conversion of an Oklahoma refinery to renewable diesel, saying the price of refined soy oil was too expensive. But this month, the company said it would move forward after refined soy oil prices fell. And the company said it would add technology that allows it to use other fats to make renewable diesel.

Lavinsky said companies prefer to make renewable diesel from used cooking oil, tallow, or white and yellow grease, because those fuels have fewer greenhouse gas emissions than diesel made from soy oil. And that means producers can snag a higher price under California’s Low Carbon Fuel Standard.

Lapp, the Omaha economist, acknowledged that renewable diesel plants are adding technology over the next two years that will let them expand the types of fats they use.

However, he said, in the near-term, demand for refined soy oil remains large and will “continue to trend higher, creating a significant challenge in meeting both food and renewable diesel demand.”

Bakers: Soy oil is the ‘preferred ingredient’

MacKie, with the American Bakers Association, said many of the group’s 300 members like to use soy oil in their products. “It’s got a healthy profile. It’s available domestically …. It’s the preferred ingredient,” he said.

But “the increased demand for soy oil for the second-generation biodiesel is really putting a strain on the system,” he said. “It’s both price and availability.”

Pausing the requirements under the Renewable Fuel Standard would “ease some concerns that we have on the food side,” MacKie said, and allow soy oil supplies to catch up with growing demand.

Nick Bowdish, who’s leading the $350 million soybean crush plant near Alta in western Iowa, said farmers are growing more soybeans, even though the number of acres remains relatively constant each year.

Demand from renewable fuel, along with livestock production, is needed to help drive new soy demand, he said, since the food industry’s use has been stagnant at roughly 14 billion pounds annually, Bowdish said.

Altogether, eight U.S. projects will process an additional 290 million bushels of soybeans annually and create 3.3 billion pounds of soy oil. The projects include the Alta facility, which is under development, as well as Shell Rock Soy Processing, the eastern Iowa plant being built that will process 40 million bushels annually.

It doesn’t include Ag Processing’s plans to invest $71 million to expand its Sergeant Bluff plant. The company, which this month received approval to tap $842,000 in state tax credits, plans to produce refined soy oil as well as crude oil.

“The demand coming from renewable diesel is healthy,” Bowdish said. Processing soybeans also creates soy meal that can be fed to livestock, in particular, pigs and chickens. “We need more protein with continued improvements in global diets.”

Some of that added supply is getting bought up before the plants are finished, though. In April, Phillips 66 became a minority owner in Shell Rock Soy Processing, committing to buying all its soy oil. And Marathon Petroleum Corp. announced a similar deal in North Dakota with Archer-Daniels-Midland in August, with plans to buy all the soy oil from a new facility to feed a renewable diesel plant in the state.

Meyer said demand for renewable diesel will continue to climb. “We would imagine that more and more states are going to adopt renewable fuel standards because it’s very, very good for the environment,” he said.

Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at deller@registermedia.com or 515-284-8457.