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CoBank

CoBank: Rapid expansion of US soybean-processing capacity risks industry overbuild


Demand for soybean oil as a feedstock in the production of renewable diesel is rising as the U.S. aims to increase adoption of cleaner-burning fuels.

 


Renewable diesel has emerged as a preferred low-carbon replacement for traditional diesel, and U.S. production is projected to increase sharply in the years ahead.

 


To meet the growing demand for soybean oil, U.S. soybean processors are ramping up their production capacity, which is expected to increase by 23 percent over the next three years.

 


While soybean processors have benefitted from record-high profit margins in recent years, margins are expected to moderate as the market adjusts to the increase in domestic soy-crush capacity and growing global competition.

 


Soybean-oil prices have come under pressure due to increasing competition from alternative renewable diesel feedstocks including imported vegetable oils, beef tallow and used cooking oil.

 


And persistent weakness in soybean-meal prices is likely as surplus grows.

 


According to a new report from CoBank’s Knowledge Exchange, multiple years of record margins have left U.S. soybean processors well prepared to weather the inevitable downturn in margins.

 


However, overbuilding U.S. soybean crush capacity, combined with sustained levels of low processing margins could threaten the viability of new, high-cost plants in the long term.

 


“Legacy processing plants with low debt levels will still find profitability in an environment of sharply lower crush margins,” said Tanner Ehmke, lead grain and oilseed economist for CoBank. “But new crush plants built at substantially higher costs and interest rates will have higher breakeven costs. And destination plants located outside of soybean-growing regions are at greater financial risk due to increased reliance on transportation to acquire soybeans.”

 


Rising demand for soybean oil for use in renewable diesel will support soybean-oil prices.

 


But competition from imported vegetable oils like canola and palm is increasing.

 


Soybean oil remains the most widely used feedstock for biobased diesel production and accounts for roughly 35 percent of monthly feedstock usage.

 


However, that percentage has fallen from 50 percent a year ago as usage of competing oils, fats and greases increases.

 


Beef tallow has climbed to more than 20 percent of total feedstuff usage, while yellow grease and used cooking oil account for 20 percent.

 


The expansion of U.S. soybean-processing capacity will lead to growing supplies of soybean meal, which could also pressure processor margins.

 


End users of soybean meal in the U.S., chiefly swine and poultry producers, hope to benefit from an abundance of supplies as production climbs.

 


But for soybean processors, the question is whether domestic livestock supplies will be ample enough to absorb the additional soybean meal.

Frazier, Barnes & Associates LLC
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