A farmer holds a soybean plant in his Iowa field. Renewable diesel generates additional demand for soybean oil. (Photo: Joclyn Bushman/Iowa Soybean Association)
Industry expert dissects soy challenges and opportunities
November 24, 2021 | Bethany Baratta
The strength in soybean oil demand has cushioned soybean prices from downward pressures typically seen with near-record soybean production.
Despite drought this season in pockets of Iowa, soybean farmers report better-than-expected yields as soybean harvest wraps up in the state.
“In aggregate, we’re looking at a near record size soybean crop in the U.S., just behind the 2018 crop. It hasn’t been burdensome to prices because of oil driving the complex,” said Mac Marshall, vice president of market intelligence for the United Soybean Board and the U.S. Soybean Export Council.
Marshall was the featured guest on the Iowa Soybean Association’s webinar on Nov. 23 providing farmers with his perspective on the challenges and opportunities in the soybean industry.
Marshall noted that soybean meal is the traditional price driver for soybeans at a 4:1 price ratio over soybean oil. However, farmers are seeing increased demand for soybean oil amidst a myriad of challenges for palm, canola, and sunflower oil production, creating an opportunity for soybean oil to fill the oil demand.
There’s also been an aggressive bidding to get soy oil as a feedstock to run facilities producing renewable fuels.
The Energy Information Administration projects renewable diesel production to grow from 1 billion gallons to 5 billion gallons in the next three years, a faster pace than many have anticipated. Marshall noted, however, that expansion will be contingent on new bills, announcements, retrofits and expansions coming to fruition.
The growth of the renewable diesel industry required feedstocks, like soy oil to make it happen. A 5-billion-gallon renewable diesel production requires 40 billion pounds of feedstocks, including soy oil, Marshall says.
“For soybean oil to be the sole supplier to renewable diesel … it is necessitating a shift in how we’re utilizing oil across balance sheet,” he says.
He noted announcements in the first quarter of 2021 in the renewable fuel space; some companies announced retrofits of existing plants while others partner to feed their renewable fuel facilities. In April, Phillips 66 announced an agreement to purchase 100% of Iowa-based Shell Rock Soy Processing’s soybean oil production for use in making renewable fuels.
As more soybeans are crushed for oil amid the growing demand for soybean oil for renewable diesel and other products, it’s shifting dynamics in the soybean industry, Marshall says.
“It’s a fundamental divergence the industry is working through and trying to figure out the driver going forward,” he said.
Market, risk diversification
The trade impasse between the United States and China showed the importance of a diversified trade portfolio. China is still buying U.S. soy, whether it’s through meat exports or direct bean sales, but other countries, Indonesia, Philippines and Malaysia, for example, show promise for soybean exports.
The United States is expected to see typical competition as Brazil marches toward the end of its soybean planting; Marshall says the United States is unlikely to see substantial erosion of its marketing share in December.
“I feel good about the overall ability to move U.S. soy,” Marshall says. “The question is willingness to buy.”
USSEC and the soy community will continue its efforts in touting the sustainability, reliability and qualitative attributes of U.S. soy, he notes.
Global supply chain
Moving a quality product relies on infrastructure and a supply-chain free from the disruptions the U.S. is seeing in 2021—shortages of containers for shipments, the continuation of the COVID-19 pandemic, natural disasters like Hurricane Ida hitting the Gulf, and, especially, labor shortages. These and other factors have led to triple-digit percent increases in costs for inputs like fertilizers year over year.
“Raw materials aren’t necessarily getting more expensive, it’s the shortage of labor into value-added products that lead to higher inflation at the retail level,” Marshall says. “Things have to get fixed on the labor side for us to see some of that debottlenecking that will allow for at least the pace of input cost inflation to abate somewhat.”
Marshall predicts that costs for inputs will remain high for farmers, perhaps for the next two to three years.
“Even though you’re seeing better soybean prices now, margins are going to come under severe pressure this year due to input costs,” he says. “That should factor into last minute marginal acre decisions.”