Renewable-Fuel Push Drives Soyoil Prices to Record High

During the Arab oil embargo in the 1970s and the 1980s, the United States was a net importer of oil. Today, that’s not the case. The United States is the world’s top oil producer, and demand for oil is expected to exceed supply for the foreseeable future. This has led to a huge price spike for domestically produced oil, which is used to make many products we have come to take for granted: food, clothing, plastics, building materials, and transportation fuel.

Mention of large and small oil producers makes the news these days, and the recent announcement by Indonesia’s oil company, Pertamina (PT) that it intends to extract its own alternative fuels from soybeans has triggered a price spike in Indonesia’s soymeal.

Soybean oil prices reached an all-time high last week, boosted by growing demand from the biofuels sector. Soybean oil futures on the Chicago Board of Trade have risen nearly 70 percent this year, closing Friday at nearly 72 cents a pound. This figure exceeded the previous peak in 2008. The rebound made soybean oil one of the best-performing stocks of the year in a basket tracked by the Wall Street Journal, along with other commodities such as lumber, corn and pork. Soybean oil is often used as an ingredient in foods such as cereals, breads and other snacks. However, demand for vegetable oil is increasing due to the biofuels industry, which is a key part of the transition to renewables, as evidenced by President Biden’s call for the US to cut carbon dioxide emissions in half by 2030. Biofuels, particularly renewable diesel, are a key driver of future demand for vegetable oil, he said. Greg Morris, President, Agricultural and Oilseed Services, Archer Daniels Midland Co. The U.S. Department of Agriculture expects the biofuels sector to consume 12 billion pounds of soybean oil in the 2021-22 crop year, up from 9.5 billion pounds in the 2020-21 crop year, according to the monthly supply and demand report released in May. Manufacturers are trying to keep up. Soybean oil production capacity in the U.S. is expected to rise to 935 million gallons in 2021, nearly double the level of the year before, according to StoneX Group. This capacity is expected to increase to more than two billion gallons per year by 2023. The enthusiasm for a new generation of renewable fuels is reminiscent of the early days of the ethanol boom, he said. Arlan Suderman, Chief Commodity Economist at StoneX. Last month, ADM announced it will invest $350 million to build a new soybean milling plant in Spiritwood, New Jersey, where raw soybeans will be processed into products such as oil and flour. ADM said the plant would be operational before the 2023 harvest and process up to 150,000 bushels of soybeans per day. word-image-5376

The Department of Agriculture expects the biofuels sector to consume more soybean oil in the 2021-22 crop year than in the previous year.

Photo: Rory Doyle/Bloomberg News ADM is not the only large agricultural company to invest. In March, Cargill announced it would spend $475 million to modernize its soybean meal processing plants in seven states to make them more efficient and increase production. In April, Cargill announced a joint venture with Love’s Family of Companies to build a new renewable diesel plant in Hastings, Neb. Once open, the plant will supply the market with 80 million gallons of renewable diesel per year, Cargill said. We believe we need to be in the renewable fuels market for that, said Roger Watchhorn, Cargill’s head of agricultural supply. The large non-agricultural players in the energy market are also investing. Phillips 66 Co. confirmed in April that it had acquired a stake in a soybean processing plant in Iowa and would buy 100% of the soybean oil produced there, expected to be about 4,000 barrels per day. Some new entrants want to secure their supply chains, says Alan Weber, founding partner of MARC-IV, a biofuels consulting firm in Kearney, MN. While other raw materials, such as. B. used animal fats, to make better renewable fuels, this waste is just not enough, says Juan Sakoto, director of agribusiness consulting for North America at IHS Markit Inc. Around 40% of beef fat and 80% of reconstituted edible yellow fat is already sold for biofuel production, each worth around £2 billion. Those fats and lubricants aren’t enough, so they’re turning to vegetable oils, said Sakoto, who added that IHS predicts the biofuels industry will need 20 billion pounds of feedstock this year and that number will double over the next five years. Global supply problems are also contributing to the rise in vegetable oil prices. In Southeast Asia, labor shortages caused by the coronavirus have led to a decline in the production of palm oil, which is used for similar purposes. The world’s palm oil stocks are at their lowest level in four years. Few expect a quick turnaround, said Kyle Holland, a price analyst at research firm Mintec Ltd. Market sentiment right now is that it will be a long time, until 2022, before the market returns to normal, Hollande said at a virtual conference in May. Rising soybean prices in the US are also driving up soybean oil prices. The most active futures contract on the Chicago Board of Trade jumped to $16.43 a bushel in May, the highest since September 2012. The main demand comes from China, which is rebuilding its pig herd after African swine fever decimated about a third of the country’s pig population. Some wonder how long soybean oil prices can continue to rise now that consumers have noticed price increases in grocery stores. The reaction to soybean prices in the U.S. makes one wonder how far they can go before the tipping point is reached, Watchhorn said. word-image-5377

Soybean oil is one of the most productive crops of the year.

Photo: Rory Doyle/Bloomberg News Email Kirk Malthais at [email protected] Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

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