Soybean oil is still the dominant feedstock for biodiesel, although its use has dropped to an estimated 59 percent of the feedstock supply, according to Brad Anderson, senior vice president of Informa Economics Inc. Bruce Babcock, director of Iowa State University’s Center for Agricultural and Rural Development, agrees and predicts soybean oil will remain the preferred feedstock for biodiesel. There is not enough waste grease available to make a tremendous amount of biodiesel, he says. Although soybean oil has been high priced in recent months, all the other oils are priced jointly with soybean, and producers aren’t going to want to pay transportation costs for those others, Babcock says.
A number of factors have come into play as market observers try to predict longer term trends in the soybean market: the relationship between corn and soybeans is changing, the crude oil market has a stronger influence, and global supply and demand will continue to grow, although that growth is expected to slow.
Imported Crude Oil Prices and Soybean Prices January 2003 to September 2008
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SOURCE: ISU AG MARKETING RESOURCE CENTER
Corn Versus Soybeans?
Regarding the changing relationship between corn and soybeans, soybean acres have increased but not at the expense of corn acres. “We’re in a new realm,” Babcock says. “It’s pretty hard to apply what we thought we knew about corn versus beans in the old days.” This year, the market was surprised when the October USDA reports showed more soybean acres than expected. Babcock says those came from more double cropping of soybeans after wheat and more soybeans on traditional cotton acres. The increase in acreage more than offset reduced yields. “We were able to squeeze in a lot more soybean acres than we thought we were going to,” he says. “That old relationship between corn and soybeans has changed.”
To predict what the corn/soybean balance will be over the next few years, one needs to look at the renewable fuels standard (RFS), Babcock says. “For 2009 and ’10, we’re going to have to look at the number of corn acres needed to hit the RFS,” he says. In the United States, corn acreage has historically been in the high 70s, (78 million acres planted in 2006), and soybean acres have run in the low-to mid-70s, Babcock says. “To meet the RFS, you have to plant 10 million more acres to corn,” he says. That means corn would have to consistently be in the 88 million to 89 million acre range. To put that into perspective, more than 93 million acres of corn were planted in 2007 and 87 million acres in 2008.
Just as the ethanol industry has eaten up excess corn supplies, the biodiesel industry has soaked up excess soy oil. Traditionally, the soybean crush has been driven by demand for soybean meal. David Asbridge, senior economist with Doane Advisory Services explains that historically, meal has carried the bigger value, and soy oil was 35 percent to 38 percent of the value of the soybean. The oil value rose to 45 percent to 46 percent of the value of the bean when prices were high, indicating the value of soybean oil increased relative to soybean meal. However, soybean demand is still driven more by the soybean meal market. “We actually crush for the meal but the meal isn’t very storable,” Asbridge says. “You can’t crush excess meal and store it, but you can oil. We’re coming off record stocks of soybean oil in the United States.”
The early expectation was that biodiesel would take the soybean oil it needed and oil exports would decline, Anderson says. “Well, this past year, we had huge soybean oil exports,” he says. Under those early expectations for biodiesel, the industry thought the supply of soybean meal would accumulate. Instead, demand for meal continues to drive the crush. “We’ve seen soy oil stocks build to more than 3 billion pounds and the reason was, we had strong exports of soy meal in the past year,” Anderson says.
Nonetheless, even though the crush is still determined mostly by meal demand, the influence of biofuels has soybeans tracking the crude oil market in recent months in much the way that corn has (see chart on page 45). “If you look at what soybean oil prices have done, they basically have tracked whatever biodiesel producers can afford to pay,” Anderson says. While Babcock agrees with that influence, he says the RFS will put a limit on just how far corn and soybeans will follow crude oil, should the decline in oil prices continue. “If oil goes to $50, you won’t see corn and soybean prices follow,” he says.
Trans Fat Impact
Biodiesel has been particularly helpful to the soybean industry in that it became a home for the soy oil that didn’t go to the food market after the trans fat labeling law took effect. “The trans fat issue was a big feature of the market when the [U.S. Food and Drug Administration] required the labeling of trans fat on food labels beginning January 2006,” says Mark Ash, agricultural economist with USDA’s Economic Research Service. “That caused a lot of food manufacturers to seek alternative oils for their products and minimize that trans fat percentage.” For the past three years, food use of soy oil has declined about 3 percent annually. “Total consumption is down by close to 1 billion pounds over the past three years for food use,” he says. “Methyl ester demand picked up all of that decline.” The American Soybean Association says the cumulative 10 percent drop in food use over the past three years amounted to more than 4.6 billion pounds of soybean oil, which has been used to produce more than 600 million gallons of biodiesel. In refuting the food-versus-fuel debate, the ASA points out that at the same time biodiesel has offset the edible soybean demand, ending stocks of soybean oil have more than doubled since 2004 when the biodiesel tax incentive was first implemented. Soy oil now holds a 70 percent share of the edible oil market compared with the 80 percent it had prior to the trans fat labeling change.
Around the World
While the decline in food use for soybean oil in the domestic market appears to be tapering off, global food use of edible oils continues to grow, although the pace has slowed. Anderson says vegetable oil food use has grown by 2 million tons per year for the past couple of years compared with 5 million tons annual growth earlier. “The high prices appear to be slowing growth in traditional nonbiodiesel demand,” he says. The world produced 135 million tons of vegetable oils last year, of which he estimates more than 10 million tons were used for biodiesel production. “The reason the world raises soybeans is the demand for meal,” he adds. “If we need additional oil supplies in the world, we’re getting it from palm oil production.”
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