Renewable diesel production “gets ahead of itself”

This article is excerpted from Rabobank’s annual North American Agribusiness Review. 

A 115% expansion in nameplate renewable diesel production capacity set to take place between 2022 and 2024 carried with it positive implications for U.S. oilseeds and crush capacity demand. Coupled with the capacity of a slowly shrinking fatty acid methyl ester (FAME) biodiesel infrastructure, the country would have been equipped with the capability with the capability to produce over 7 billion gallons of biomass-based diesel (BBD) annually by 2024, compared with 3.1 billion gallons of actual production in 2022.

Indeed, 2023 production numbers showcased this newfound capability with January, March, May, and June all breaking new records in terms of domestic BBD production.

Unfortunately for the BBD value chain, however, the U.S. Environmental Protection Agency finalized renewable volume obligation mandates in late June at levels well below capacity expansion. This resulted in:

• A front-loaded fulfillment of the BBD mandate.

• BBD oversupply.

• Beginning in September, a crash in the market for advanced biomass-based diesel (D4 RIN).

These dynamics have been central to soybean oil futures shedding a dime (approximately -15%) from nearby contracts over August and September – a decline that would undoubtedly have been less severe had the Saudis and Russians not announced their intentions to extend petroleum output cuts through the end of December.

Weak demand and the prospect of an increased rig count in the United States suggests there could be further room to fall for crude and vegetable oils – though this picture is now clouded considerably by conflict in the Middle East.

Soybean Meal Looking Up

Meal prices, meanwhile, have found more support. Outstanding sales through the first week of October have proceeded at their fastest pace in five years and are 50% above the pace from a year ago. This is driven by sizeable increases in purchases from Southeast Asian buyers but also noteworthy increases from Canada and Ecuador in the Americas.

The release of the October World Agricultural Supply and Demand Estimates (WASDE) report also provided a shot in the arm for the soybean complex in general. Like corn, yields were revised down 1% due to dry August weather. However, unlike corn, there is very little room for yields to surprise to the upside this late in the season.

Looking south, Brazil once again looms large in the year ahead. Conab is projecting a 1-million-hectare increase in the area planted for soybeans for 2023-24, peeling off 300,000 hectares from the first corn crop to help get the job done.

Planting restrictions this year were lifted Sept. 1 for Mato Grosso and Oct. 1 countrywide. The pace of planting thus far remains slow, delayed by inadequate soil moisture throughout much of Mato Grosso and Matopiba and heavy rains in the south.

Nevertheless, Conab is anticipating record yields and record production. The drought in the Amazon basin is restricting traffic along the river’s western tributaries, including barge loads along the important Madeira River. If not resolved before harvest, these bottlenecks would inevitably reverberate across the country, as Brazilian grain infrastructure struggles to keep pace with production.

From 4Q 2023 Processing Journal