US oilseed meal volumes set to take off, potentially changing feed formulations

When you crush oilseeds, you end up, broadly speaking, with two main products: oilseed meal used for livestock feed, and vegetable oil used for various purposes.

According to Susan David, agricultural market commentator and Managing Director of No Bull Ag, in the US market at least, the meals have generally been the priority for crushers, because of the US’s sizeable livestock industry, whereas vegetable oils were a significantly less valuable product.

However, the growth of North American demand for renewable diesel, made from vegetable oil, is turning this dynamic on its head. In this interview, David discusses the explosive increase projected for the US’s crush capacity and the implications for animal nutrition.

Hundreds Of Millions Of Bushels More Crush

By her account, across the US, no less than 19 projects to either build new crush plants or expand existing capacity have been announced between here and 2026. If all are brought to fruition — something she is deeply skeptical will happen — this would add nearly 700 million bushels of crush capacity to a nation that’s crushing around 2.2 billion bushels today.

Of course, there is likely to be a vast difference between what has been announced and what will actually be added. Some of those projects may fail to secure adequate funding, she believes, while others will be cancelled when the company behind them changes strategy. For example, just recently Cargill announced that it would be pausing its plan to build a soybean processing plant in Missouri because of what it refers to as “shifting market dynamics”; David points out that Cargill’s acquisition of another soy processor had given it capacity in the area where it had been planning to build.

“That is the main reason Cargill would have scrapped the new build. Both locations are on rivers for exporting meal, and they are within a few hundred miles of one another. Crushing margins have collapsed from their highs, and construction costs are much higher than when many of these projects were first announced.”

More realistically, David estimates that we’re looking at something more in the order of 500 million bushels of additional crush capacity built. This could produce a respectable 10-11 million short tons of additional oilseed meal per year. By comparison, the USDA’s National Agricultural Statistics Service had the country’s production of cakes and meal from crops like soy, canola, and cottonseed at roughly 50 million short tons last year.

The Gap Between Promises And Reality

There are a few more caveats. For one thing, she warns that estimating the crush utilisation rate can be a precarious exercise, and full year crush estimates have already been pulled back a couple times this year.

“When dealing with extreme temperatures or a lack of available soybeans — we’ve had really tight carry-outs here in the US the past few years, in the summer, especially — if you’re a plant that doesn’t have ownership already, you’re probably going to see some pretty seriously reduced crush rates in the summer, because there just aren’t beans available.

“And margins as they are right now — they’ve somewhat fallen apart. So you’re not paying up for bushels because the margins aren’t there. It doesn’t make any sense. We’ll probably start to see more downtimes.”

In other words, it’s not just whether the additional capacity is ultimately built, but also how extensively all capacity is used, which will determine how much additional meal is available to the livestock sector.

Soybean Crush Capacity Expansion

“Even though we, in theory, have all of this additional capacity coming online, the way things work on paper and the way things work in real life are two very different situations.”

Still, even though at this point, only one of the numerous projected capacity increases has come online (and even though teething issues in first few months of operations meant that it has only barely begun operating at full capacity), the additional capacity is making itself felt. David says, “That single plant is the reason why the monthly USDA NASS oilseed crush this spring have toppled records.”

Beyond that one project which has already come online, she doesn’t believe any other expansions are set to shake things up for a little while longer. “We’ve got a lull here before we see anything else pop up. Most of these expansions will not come online until the next marketing year — probably the 2024-25 marketing year. So we have a way to go before we really see a lot of this up and running.”

But regardless of when it happens, “as new plants and capacity expansions continue to come online, we will see [crush] records continue to fall,” she asserts.

Impacts Of Additional Meal

The meal produced by this additional crush capacity is almost surely going to reach both domestic and international markets.

“In general these plants are going in places where we have a lot of soybean production, but [where] it’s kind of a desert as far as demand goes,” she explains.

Biomass-Based Diesel Production Million Gallons*

describes as having the same chemical composition as fossil diesel, allowing it to be fully compatible with existing diesel engines, as opposed to biodiesel (fatty acid methyl ester), which has a different chemical composition to fossil diesel and thus can only be blended into fuel in limited amounts.

That characteristic makes renewable diesel an extremely important part of the puzzle for governments looking to reduce the carbon intensity of their transportation sector. In the US, the state of California (the biggest vehicle market in the US) is leading the way in this with their low-carbon fuel standard.

For example, additional crush capacity in the Dakotas might send the oil-derived renewable diesel into the Californian market, and then ship meal by rail and out of ports in the Pacific Northwest. Meanwhile, plants in Kansas might be anticipating sending meal by rail to Mexico.

“We’re set up to have more meal exports,” she believes. “Sure, we’re probably going to see more meal demand domestically because of cheaper prices. But we should see the US naturally become a larger exporter.”

Meanwhile, more abundant oilseed meal is likely to affect demand for synthetic amino acids among US feed formulators. This is not only because it will become cheaper, but also because it will potentially become available in more places, according to David.

“Say you’re in the middle of Nebraska, and you’ve got corn all over the place and close by, but maybe the nearest crush facility to buy meal is two hours away. So then a lot of times, you’ll rely more heavily upon synthetic amino acids for those logistical reasons.

But that will probably change with this [crush expansion].”

Driven By Demand For Renewable Fuel

The piling-on of additional crush capacity is, in David’s view, very much a direct consequence of a boom in renewable diesel. Made from hydrogenated vegetable oil, this is a biofuel which the IEA

This is important background for understanding how the underlying dynamic between the meal and oil derived from oilseeds has shifted. Because the new demand is based on policies, shifts in the political winds can turn things around: for example, David points out, at one point in recent negotiations over the US debt ceiling, Republicans were taking aim at renewable diesel tax credits put into place by President Biden’s Inflation Reduction Act.

“You have all of these things going on that could really impact the margins. This [capacity] is being built because of margins,” she observes.

Beyond the US, the Canadian clean fuel standard is also an important driver of renewable diesel in North America. “I guess one thing that we’re going to see is crush naturally ramping up in Canada,” David estimates. However, that crush is much more likely to consist of canola (rapeseed), which the country is a much larger producer of.

“One thing we’re going to start to see [is] canola meal really fight for demand with soybean meal here in the US, because naturally I think a lot of those canola meal exports from Canada will find their way into the US.”

While canola meal trades at a discount to soybean meal because of its lower protein content, she thinks it might still impact the ruminant feed sector, particularly in states where shipment from Canada is easy. “One thing we’ll probably see is that dairy in the US will lean heavier into canola meal as it’s more widely available and becomes cheaper.

Dairy does not want the higher protein content that’s in soybean meal. So you’ll probably see a switch there.”

By Shannon Behary, senior editor

From Feedinfo Review Summer 2023