51 Ate Today? Thank a Farmer. Better Farming | January 2024 The North American oilseed crush sector is slated for significant expansion in the next three to four years. This would primarily impact the soybean oil demand/crush in the United States (U.S.) and Eastern Canada and canola oil demand/crush in Western Canada. With the proliferation of renewable diesel production and investment, vegetable oil demand has boosted in North America. The industry has been expanding and has big ambitions to build new plants in the coming years. Renewable diesel production is taking over from biodiesel in terms of demand for soybean oil and canola oil and is becoming a gamechanger for the renewable fuels industry. According to the U.S. Department of Energy, renewable diesel and biodiesel are not the same fuel and are produced differently. Renewable diesel meets the specification for petroleum diesel while biodiesel is approved for blending with petroleum diesel. Hence, renewable diesel could be used to blend along with or even partially substitute for petroleum diesel, and this likely makes it a more attractive and efficient option for producing (blending) than biodiesel. U.S. soybean crush capacity as of early 2023 was estimated to be around 2.2 billion bushels per year with about 60 crushing plants. According to market estimates, over the next four years, the U.S. soybean crush capacity is expected to increase significantly by 30 to 35 per cent, which will continue to boost demand for soybean oil to produce renewable diesel. There have been announcements of some 23 plant expansions, of which 13 would be new plants may add new capacity of about 750 million bushels per day. Canada’s canola crush capacity is estimated at nearly 11.1 million metric tons (MMT) and some market projections are for that to increase by over 60 per cent with a further seven MMT of crush capacity added over the next few years. Demand for renewable fuels in North America is driven by government regulation for usage of blended fuels. The U.S. Environmental Protection Agency sets required volume obligations (RVOs) for biofuel use in petroleum fuel used in the U.S. and this affects the renewable diesel production in the U.S. and Canada. The RVOs are in effect for a couple of years, and are required to be reset before the end of that period for the next couple of years. Hence any disappointments in the RVO numbers should be brief. A likely headwind for the Canadian crush industry though could be a new U.S. tax credit that is currently set to start in 2025. As part of the Inflation Reduction Act of 2022, the Clean Fuel Production Credit will incentivise clean transportation fuel production in the U.S. This will not only make the Canadian renewable diesel industry less competitive when trying to tap into the U.S. market, but also opens the door for likely cheaper renewable diesel coming into Canada. For Canadian renewable fuel producers, the Canadian government will need to mirror the U.S. tax credit to make the industry competitive. The flip side to the North American oilseed crush capacity expansion is that higher oilseed crush will lead to higher oilseed meal production. And that will then have to garner demand so as to not turn out to be burdensome for the industry. But it may become a “concern” only when most of the expected North American crush capacity expansion becomes fully operational likely by 2026. High oilseed meal production will be good news for the livestock sector as meal protein should be available at cheaper values. In the near-term, the fact that the biggest global soy meal exporter – Argentina – is facing shortages of meal due to the recurring La Niña drought over the last three years will continue to support demand for U.S. soy OILSEED CRUSH SECTOR EXPANDS Growing demand for renewable fuels drives sector expansion. By Moe Agostino & Abhinesh Gopal Moe’s Market Minute Demand for soybean oil increases with the demand for renewable fuels. Leslie Stewart photo
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