In our weekly series From the Furrow, host Mike McGinnis and fellow grain geeks shed light on current market conditions and how grain producers can take action to manage their risk.
This week, Mike is joined by Dave Miller, Chief Economist for Decision Innovation Solutions. What’s ahead for soybean crush capacity? How many new crush facilities will be dedicated to renewable fuels? And what will additional crush mean for exports? Mike and Dave discuss those topics and a whole lot more.
Questions or comments? Topics you’d like to hear us discuss? Contact us at Insights@Ever.Ag.
(Transcript auto-generated)
00;00;00;13 – 00;00;15;00
VOICEOVER
Future training involves risk and is not suitable for all investors. Content providers in the segment is meant for educational purposes and is not a solicitation to buy or sell commodities. Opinions and statements of guests not affiliated with ever eg are their own and do not reflect the views of the brand. The accuracy of their statements cannot be guaranteed by ever.ag.
00;00;16;26 – 00;00;35;21
MIKE
Hello and welcome to From the firm brought to you by ever AG Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Mike mcginnis. We get started with a review of the markets today. It’s April 22nd, 2024. And this is a green day. A lot of strength actually throughout the grain complex.
00;00;35;21 – 00;01;00;12
MIKE
Corn is up six and three quarters at 440. These are all nearby contracts, by the way. Soybeans up $0.16 at 1166. The rest of the complex is also up. Soy meal up to 20 at three 4580 and soy oil up 86 at 4524. The wheat market is the leader today, up 22 and a half cents at 572. Well, let’s get started with our guest this week.
00;01;00;12 – 00;01;10;11
MIKE
It’s our privilege to have Dave Miller, the chief economist for Decision Innovation Solutions, join us here on from the firm. And Dave, I want to say thanks for joining us here today.
00;01;10;12 – 00;01;11;10
DAVID
Glad to be with you.
00;01;11;15 – 00;01;35;18
MIKE
Today. We’re talking about something that a lot of other people are talking about in the agricultural industry. The last couple of years, there’s been a real interest in turning soybean oil into a feedstock for renewable diesel. And we’re going to talk about why this is and the soybean processing plants that are under development, ones that are underway. And then, of course, what the future looks like for this industry.
00;01;35;18 – 00;01;44;23
MIKE
But first off, can you give us a feel for your company, your Decision Innovation Solutions? Tell us, Dave, what exactly your company does and give us your thrust within the company.
00;01;44;27 – 00;02;13;16
DAVID
We are a consulting company that works, particularly in the agricultural industry, in ag related industries, looking at providing what we call better solutions, better decision based upon analysis of data to we do various projects for everything from the United Soybean Board, US Grains Council. I will talk a wide variety of clientele where we look at data that’s basically in the agricultural industry.
00;02;13;18 – 00;02;43;06
DAVID
All we’ve done recently, we did some work for the Iowa Renewable Fuels industry, looking at the potential for sustainable aviation fuel and how ethanol and Kieffer based products, the oil based products, soybean oil, etc., might fit into sustainable aviation fuel. Working with both Iowa Renewable fuels and the Iowa Soybean Association. On that project, we’ve looked at carbon sequestered nation projects and what they may mean for the use of ethanol for sustainable aviation fuel.
00;02;43;07 – 00;02;45;09
DAVID
We do quite a bit of work in the area.
00;02;45;09 – 00;03;00;04
MIKE
Well, it sounds like you’re very well versed in soy mill research. And what we want to talk about today is how many soybean processing plants are currently up and running, crushing for oil that is being used for this new movement of renewable diesel.
00;03;00;06 – 00;03;20;26
DAVID
That’s kind of two different questions. The first is how many soybean plants are up and running? And it’s either 73 or 74. And it depends. There was a one of the new plants said they were going to be up and running in early spring of 2024, but I don’t think they’re running yet. I think they’re still in their early stages of opening up.
00;03;20;26 – 00;03;40;18
DAVID
So I think it’s probably 73. By July 1st, it’s probably going to be 74. That are up and running. The question about how many of them are making oil for renewable diesel, not really sure on that from the perspective all of them could be, but we know there are plants that are dedicated to soil oil for human use.
00;03;40;18 – 00;04;05;24
DAVID
There are some that have biodiesel facilities connected to the crushed plant. So some of the plants are already using their soybean oil in either human use for food use or using it for biodiesel or those type of things. But all of it could go to renewable diesel. But I am guessing there’s probably maybe a third or half of the plant sell some oil that goes into renewable diesel.
00;04;05;27 – 00;04;16;19
MIKE
How many plants are in the works that will begin this year or in the near future? That plan to either adapt their plants or open up for the production of renewable diesel?
00;04;16;20 – 00;04;41;03
DAVID
Well, there are six new crushed plants coming on with a total capacity of about 243 million bushels. That’s on top of a 2.6 billion bushel crush capacity that was already in place at the end of 2023. So it ends up being about a 13% increase in the total crush capacity that’s probably coming on in the next 12 months.
00;04;41;03 – 00;04;59;16
DAVID
Plus, there’s expansion going on at several plants that should be in place by the end of this year, totaling another 94 to 95 million bushels. There is capacity coming on now. That’s the crush capacity. Most of the plants that crush the beans do not convert it to renewable diesel directly.
00;04;59;21 – 00;05;16;02
MIKE
So let’s be clear then. Are there plants that only crush for renewable diesel use and not for edible products or edible soy oil or edible soy meal? I mean, do we have plants that can do all of it? Are there plants that are just separately built for just the production of renewable diesel?
00;05;16;02 – 00;05;28;16
DAVID
There are 17 plants in the U.S. that are built for renewable diesel. Almost all of them are independent, standalone plants not directly connected to a soybean crush plant.
00;05;28;16 – 00;05;38;16
MIKE
And do you know of plans for those types of plants that are just built for renewable diesel are more of those being built in the future, more plans for more to be built, more capacity?
00;05;38;23 – 00;06;08;15
DAVID
The two most recent renewable diesel plants are actually conversions of oil refineries, because renewable diesel is a totally different product than biodiesel. Biodiesel. You take soybean oil and you run it through an ester friction process and you end up with biodiesel that can be blended in. We typically talk and be five or 5% blend or a 20% blend, but it’s usually blended someplace between 5 to 20% with petroleum diesel.
00;06;08;15 – 00;06;36;08
DAVID
That’s the biodiesel that you see at most truck stops or that kind of thing. Renewable diesel is produced in a totally different manner. Renewable diesel essentially takes an oil stock in, in this case, soybean oil, canola oil use, cooking oil, animal fats, any of those oils slash fat products, it can take those and it runs them basically through an oil refinery process to make renewable diesel.
00;06;36;08 – 00;07;02;23
DAVID
That renewable diesel is what they call a drop in fuel. It can be run at 100%. It does not need to be blended. It can be blended, but it doesn’t need to be blended. And it’s a standalone fuel that a 100% meets the qualifications of renewable diesel From the standpoint of coming from non petroleum feedstocks and meeting certain requirements relative to reductions in emission standards.
00;07;02;25 – 00;07;18;27
MIKE
So as we look at the renewable diesel product, what is the volume of soy meal, you know, to be produced? The U.S. will be kicking out once these plants are really revved up and going forward, what are the projections for soy mill and then the volume that it will produce for renewable diesel?
00;07;18;28 – 00;07;50;22
DAVID
Right now we produce about 54 million tons of soybean meal is what we produce in the U.S. We export about 15 million tons of that and we use about 39 million tons. That’s kind of where the current market is when we increase soybean meal production with the new crush plants that are coming on one, it kind of depends on if we increase soybean meal production by 26%, we would increase to about 68 million tons.
00;07;50;22 – 00;08;16;21
DAVID
So about 14 million more tons of soybean meal is what would be produced if all these plants come on and there’s actually new crushing plants scheduled for 20, 24, 20, 25, 2026 on out to 2027. And ultimately all the new plants, if they all came on, would be about 26% more beans being crushed for the oil, which gives you 26% more soybean meal.
00;08;16;24 – 00;08;49;05
DAVID
And that would take us up to about 68 million tons of meat. One of the big questions ahead is will some of these new plants end up in the results that older plants get shuttered? So will soybean meal crush actually go up by 26%? USDA only projects it going up by 13% over the next ten years. So there’s about half of that new crush at least if all comes online at the moment, USDA does not feel it’s all going to end up operating.
00;08;49;07 – 00;09;16;18
DAVID
The new technology will probably all operate. It’s some of the 100 year old plants that were very well could be shut down. But assuming it all comes online, then we’ve got about 14 million more tons of soybean meal that we need to find a home for. USDA thinks we’re going to increase our utilization of soybean meal domestically by about 7 million tons, going from 39 something to 46.3.
00;09;16;18 – 00;09;27;11
DAVID
So they think we’ve got about a 17% increase over the next ten years. But that would leave about 6.8 million tons of soybean meal. That has to find a home someplace.
00;09;27;11 – 00;09;41;10
MIKE
And that’s my next question. You also hear that Brazil and Argentina are increasing their capacity for soy meal crush because they want to chase this renewable diesel market as well. So, I mean, globally, are we headed for a wall of soy.
00;09;41;10 – 00;10;14;26
DAVID
Meal increasing crush does not increase soybeans per se. It just increases where you crush that. Right now we export about a third of our soybean to overseas. If all this capacity comes on, we will cut our exports somewhat. We think probably 30%. You may cut exports, which means if we’re using more of the oil here, that may mean the places that we’re buying beans to crush them there for both the oil and the meal may be in the market for the meal.
00;10;14;27 – 00;10;33;27
DAVID
And so it’s one of these that we don’t have real clear answers on. Same for Brazil. Brazil is the number one seller of soybeans to China. If they crush more of the beans at home in Brazil, will they sell more meal to China because China is going to have less beans to crush? So that becomes the big question.
00;10;33;27 – 00;10;40;06
DAVID
Argentina already prefers to crush their beans and sell meal rather than selling whole beans.
00;10;40;09 – 00;10;45;11
MIKE
And if they use it for renewable diesel, they would have less meal to export.
00;10;45;11 – 00;11;00;04
DAVID
Correct. If they crush more beans, they’ll have more meal to export, but they would have to increase soybean production to get more beans to crush. In the US, we don’t have to grow more soybeans to get more to crush because we export a third of our soybeans.
00;11;00;05 – 00;11;23;23
MIKE
Well, as you talk about the additional plants that are going to be added on in 2024, 2025, 2026, and also about some of these plants that the USDA maybe feels like might not crush their projected amounts anyway. Is this movement in the renewable diesel area? Is it remind you at all of the development stages of the early 2000 when ethanol started?
00;11;23;23 – 00;11;52;09
DAVID
In a way it does, but put some things in perspective on that. From 2000 to 2004, the ethanol industry doubled from 2005 to 7. It went up another 67% and from 2007 to 12, it doubled again. So you had a 500% increase in ethanol production from 2000 to 2012. Here we’re talking a 26% increase as opposed to a 500% increase.
00;11;52;09 – 00;12;23;07
DAVID
But it will feel somewhat like the increase that occurred. We’ve actually increased ethanol another 22% from 20 1218, mostly with expansions of existing plants and refinements of the process. But we’ve increased ethanol production 22% since basically 2012 without building a lot of new plants, although there’s been a couple. So it’s a little different in that here we are getting that new plant being developed.
00;12;23;09 – 00;12;29;05
DAVID
The ethanol boom was probably four times bigger than what the soybean crush boom is going to be.
00;12;29;05 – 00;12;39;28
MIKE
Well, what else, Dave, should we be talking about regarding this movement with soybean crush plants and the soybean crush capacity here in the U.S.? What else should we be talking about that we haven’t mentioned yet? Well, one.
00;12;39;28 – 00;13;06;10
DAVID
Of the big unknowns is a lot of the talk around soybean oil and renewable diesel is are we going to get to 6 billion gallons? And right now we do about 1.9 billion gallons of biodiesel. We’re going to be at about 2.8 billion gallons of renewable diesel by the end of 2024, produced in 2024. So that gets you to about 4.7 billion gallons.
00;13;06;10 – 00;13;36;05
DAVID
And the question that’s probably coming on line is how well will sustainable aviation fuel take off? Because almost any plant that makes renewable diesel in our corn, a simplified version of this can turn some knobs and produce sustainable aviation fuel. And so one of the questions is to what degree will the incentives out there be directed at renewable diesel versus potentially sustainable aviation fuel?
00;13;36;05 – 00;14;12;28
DAVID
In the report we did for the Iowa Renewable Fuels Research, we think there will probably be eventually up to about 4 billion gallons of sustainable aviation fuel made from the proper oils, from soybean oil, animal fats, used cooking oil, canola oil, all the oils together, the non petroleum oils. We think eventually you could get to about 4 billion gallons of sustainable aviation fuel and probably have another billion gallons of biodiesel still being made and one or 2 billion gallons of renewable diesel.
00;14;12;28 – 00;14;37;26
DAVID
And for what it’s worth, renewable diesel is a byproduct. When you make sustainable aviation fuel, you don’t get 100%. It comes off what they call the distort stack. And so you get a variety of products just like out of crude oil, out of every gallon of crude oil, you get some gasoline, some diesel, some jet fuel, some bunker fuel, some tar, some math for that comes out of every gallon of crude oil.
00;14;37;27 – 00;15;00;18
DAVID
No gallon of crude oil goes 100% to gasoline or 100% diesel. You get a mix out of that distilled stack and that will be the same result, probably a little bit tighter range. But we’re going to get some range of products out of the distilled stacks for renewable diesel or SDF. That includes renewable diesel, ISIS and some other byproducts.
00;15;00;20 – 00;15;04;00
MIKE
Well, this could possibly increase soybean acres in the U.S..
00;15;04;06 – 00;15;36;25
DAVID
There have been projections that instead of 90 million acres of soybeans or 88 million acres where we’re at today, something like that, that at some point we could get up to 100 million acres. And that’s not an unreasonable number. You could pull probably unless we really ramp up ethanol production for sustainable aviation fuel, because we’ve added carbon sequestration and pipelines and some other things, we probably actually will see some reduction in corn acres over the next five years.
00;15;36;26 – 00;15;57;28
DAVID
So you could pull some acreage out of corn. We’re already put in some of the soybean acres on wheat. There’s the potential to double crop acres in the south with we were probably going to pull some soybean acres out of pasture lands over time so we could get to 100 million acres of soybeans without a whole lot of disturbance, if you will, to what going on today.
00;15;58;02 – 00;16;20;07
MIKE
This is very interesting. And we’re going to follow your research and your reporting on this, because I think this is going to be a huge element to the soybean industry. And as you silo these products, whether it’s renewable diesel, biodiesel, aviation fuel, there are a lot of other products co-products coming from the use of soybeans. So I think that we’re in for some changes over the next 5 to 10 years.
00;16;20;07 – 00;16;26;03
MIKE
So again, Dave Miller, chief economist for Decision Innovation Solutions with us today. Thanks, Dave, for your time.
00;16;26;06 – 00;16;27;07
DAVID
Glad to be with you.
00;16;27;07 – 00;16;39;01
MIKE
Thanks for joining us today. I’m Mike McGinnis. If you’ve enjoyed listening to From the Pharaoh, be sure to tell a friend or two and subscribe to us wherever you listen to your podcast. Thank you to the Ever Insights crew for their work on today’s show.
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