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Renewable diesel boom is wild card for U.S. soybeans

Thanks to a rush in investment, the renewable diesel industry is in a building boom in the United States and abroad “that is very comparable, I believe, to the ethanol boom of the mid-2000s,” said economist Scott Irwin of the University of Illinois on Thursday. During a webinar, Irwin said the sudden increase in facilities was a wild card in the price of soybean oil, one of the feedstocks for the biomass-based fuel produced from vegetable oils and animal fats.

U.S. production of renewable diesel, currently less than 1 billion gallons a year, could reach 5 billion gallons by 2024 based on a spate of announced or proposed projects, said an Energy Department agency in July. “This growth is driven by higher state and federal targets for renewable fuel, favorable tax credits, and the conversion of existing petroleum refineries into renewable diesel refineries,” said the Energy Information Administration (EIA).

At present, about one-third of U.S. soy oil production, or 8.8 billion pounds, is used in making biofuels. Consumption will grow to 11 billion pounds, or 43% of annual production, in the marketing year that opens on Oct. 1, estimated the USDA last week.

“This is a big wild card in the soybean complex,” said Irwin. Roughly 8.5 billion pounds of feedstock is needed to produce 1 billion gallons of renewable diesel, he said. A sharp increase in production could overwhelm domestic soy oil production, which totals 25 billion pounds a year.

Already, soy oil prices are near parity with soybean meal on the futures markets. “That’s an extraordinary event,” said Irwin. Usually, soy oil is two-thirds the price of soymeal.

Petroleum giant Shell said it would build a biofuels facility in the Netherlands to produce 820,000 tonnes of renewable fuel per year, more than half of it sustainable aviation fuel and the rest of it renewable diesel, reported Reuters. The plant would go into operation in 2024.

The EIA said that producers of biodiesel and renewable diesel rely on incentives such as tax credits and tradable credits in the Renewable Fuel Standard and California’s low-carbon fuel standard to make a profit. “Feedstock availability and government incentives will likely continue to play a role in the financial viability of new renewable diesel production capacity in the near term,” it said.

The Farmdoc Daily webinar is available here.

Produced with FERN, non-profit reporting on food, agriculture, and environmental health.
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