Biofuels spur growth

SOYABEAN

Biofuels spur

growth

e biodiesel and renewable sectors are playing an increasing role in shaping US consumption of soyabean oil Darren Cooper

In the early months of 2020, worries about the potenti al impact of the COVID-19 pandemic on global economic acti vity resulted in steep falls across a range of markets, with a retreat in vegetable oils stemming from a marked downturn in food and industrial demand.

However, aft er bott oming out in the late March to early May period, vegetable oil markets surged. The uplift in soyabean oil prices has been especially sharp. Aft er touching a multi -year low of US$580 fob in late April 2020, US Gulf export values have advanced signifi cantly, reaching a high of US$1,678 fob in late April 2021.

While similar rallies were seen in Argenti na – by far the world’s largest soyabean oil exporter – and Brazil, gains in the US market have been especially dramati c, refl ected in sizeable premiums over competi ng origins.

Boosted by strong demand from China in parti cular, US soyabean exports have progressed at an unprecedented pace, with shipments forecast to total a record of 62.1M tonnes for 2020/21, an increase of around a third against the previous season.

Together with solid domesti c demand, the Internati onal Grains Council (IGC) expects US soyabean ending stocks to plunge in the year ending 31 August 2021 to just 3M tonnes, an almost 80% yearon-year decline and the smallest amount in seven seasons. The US Department of Agriculture (USDA)’s supply and demand projecti ons issued in mid-May also point to another year of large soyabean disposals (exports and domesti c consumpti on) for 2021/22, with end-season inventories set to remain historically ti ght.

US biodiesel demand

A key element supporti ng record US soyabean disposals has been growing domesti c uptake of soyabean oil, mainly stemming from increased use in the biofuels sector.

As the USA is one of the world’s leading producers of soyabeans, soyabean oil has

(projected) Source: IGC been traditi onally the most important biofuel feedstock uti lised by volume. Biodiesel is produced through transesterifi cati on, a chemical process that converts fats and oils into fatt y acid methyl esters (FAME).

Renewable diesel, which has gained tracti on in recent years, is manufactured via hydro-treatment at a high temperature and is oft en referred to as hydro-treated vegetable oil (HVO).

While biodiesel is blended with petroleum diesel, renewable diesel is broadly physically and chemically identi cal to petroleum diesel. As such, it can be used in a blend but also consumed independently, with existi ng diesel engines requiring no modifi cati on. It can also be stored in much the same way. As with biodiesel, it can be manufactured using an array of raw material inputs including vegetable oils, notably soyabean oil, rapeseed/canola oil and corn oil, as well as recycled feedstock materials such as used cooking oils (UCO), fats and residues.

The closure of much of the US hospitality sector at ti mes over the past year led to a reducti on in recycled feedstocks such as UCO and fat, with processors uti lising larger quanti ti es of soyabean oil for biofuels producti on.

Data from the USDA also highlights the growing importance of the biodiesel and renewable diesel sectors in shaping US domesti c consumpti on of soyabean oil over the past decade (see Figure 1).

While the food sector remains the largest sector, industrial demand – which comprises biodiesel and renewable diesel – has advanced signifi cantly in recent years and, based on the USDA’s latest outlook, is forecast at an all-ti me high of 4.3M tonnes in 2020/21, a year-on-year gain of 10%. In contrast, uptake in the food market segment is expected to rise

Photo: United Soybean Board

more modestly by 3%, to 6.4M tonnes.

Tentative projections for the 2021/22 season point to a surge in industrial demand for soyabean oil, potentially rising by around a quarter year-on-year to a record of 5.4M tonnes. This is linked to growth prospects in the production and consumption of soya-based renewable diesel against a backdrop of government incentives aimed at producing cleaner, sustainable fuels. These include federal income tax credits available to blenders and producers, as well as an additional credit to small outfits that produce biodiesel derived from virgin oils. Another form of support comes via California’s Low Carbon Fuel Standard (LCFS), administered by the California Air Resources Board.

The surge in industrial demand is also being driven by some US-based petroleum refiners planning to convert a portion of their existing capacity to renewable diesel.

Against this backdrop, the utilisation of soyabean oil in the US food sector is likely to contract in 2021/22, while the production and use of renewable diesel is likely to continue expanding in the future.

Brazil becomes key producer

Among key biodiesel producers, Brazil has emerged as a significant player over the past decade. Amid economic gains and the use of biodiesel mandates, local production has almost tripled over the decade to 2020, reaching a record of 5.7M tonnes.

Although growth in international demand has been central in underpinning sizeable gains in soyabean production over many years, local processing has also been a contributory factor, shaped by rising domestic demand for soyabean oil for biodiesel, with supplies almost exclusively channelled to the local market.

While the use of animal fats and other raw materials, including recycled oils, has expanded, soyabean oil remains by far the principal feedstock employed, with government data estimating its share in total feedstock usage at 71% in 2020.

The government’s recent, temporary lowering of the national biodiesel blending mandate by three percentage points to 10% (B10), could contain the potential for growth in 2021. Nevertheless, with local supplies of soyabeans expected to remain plentiful in future years, further growth in local demand for soyabean oil is expected moving forward. As a consequence, export potential is likely to be contained.

Figure 2: Brazilian consumption and exports of soyabean oil (million tonnes)

Figure 3: Shipments by leading soyabean oil exporters, Oct-Mar, (‘000 tonnes)

Argentina Brazil Bolivia EU* Paraguay Ukraine USA Sub-total 2016/17

2,536 430 156 468 268 86 681

4,624 2017/18

1,868 559 104 329 331 95 489

3,776

*EU28 to 2019/20, EU27 from 2020/21

2018/19

2,273 339 169 399 337 154 505

4,176 2019/20

2,118 323 140 346 257 185 646

4,015 2020/21

2,868 288 173 440 229 121 623

4,740 y/y change

+35.4% –11.0% +23.8% +27.1% –11% –34.8% –3.6%

+18%

Prospects for trade

Global trade in soyabean oil has advanced over the past decade as economic growth and rising incomes boosted (food) demand from Asian importers in particular.

Despite the backdrop of elevated international values, a further year-onyear increase in world import demand is likely in the October 2020-September 2021 period, to a high of almost 12M tonnes. Tight supplies of alternatives, notably palm and sunflower oils, has encouraged some buyers to switch a small portion of their overall requirements to soyabean oil. In the 2021/22 season, world import demand is seen staying high, although buying interest will ultimately be shaped by availabilities and pricing compared to alternatives.

Highlighting the strength of global demand in the current trade year, shipments have progressed robustly during the first half of 2020/21, with aggregate dispatches by seven selected exporters rising by about one-fifth yearon-year, to 4.7M tonnes. The upswing in trade has been primarily underpinned by demand from importers in Asia, including China, India and Bangladesh, as well from end users in the Americas and Africa.

The bulk of the overall net increase in soyabean oil dispatches was almost entirely due to Argentina, the world’s dominant supplier, with a downturn in domestic demand, notably from the biodiesel industry, boosting export availabilities. Based on their current pace to date, shipments for the year in full from that origin are anticipated to post a solid year-on-year increase to a new high.

In contrast, export availability in the USA is relatively tight, exacerbated by the recent uptrend in domestic renewable diesel production, with full-season shipments expected to contract in 2020/21.

In Brazil, international sales of soyabean oil are expected to remain well below past highs, although the temporary reduction in the national biodiesel blending rate could boost exportable supplies of the vegetable oil in the near-term. ● Darren Cooper is a senior economist at the International Grains Council (IGC)