Soybean Oil Carries More of Soy’s Value

By Scott Gerlt, Ph.D. Chief Economist American Soybean Association

Soybeans have the distinction of essentially consisting of two products in one crop. While soybean oil and soybean meal are produced in a fairly fixed ratio, the demand for each is largely independent. While called an oilseed, soybeans are largely produced to provide a high-protein feed ingredient.

Yet demand growth for soybean oil in the U.S. is spurring increased demand for soybeans. The historical relationships between oil and meal prices are undergoing fundamental changes.

Soybean price increases that started in late 2020 have largely been driven by a higher soybean oil price (Figure 1). The initial run-up in soybean oil prices from 2020 to 2022 was due to many factors in the veg - etable oil markets. Malaysia is the second-largest producer of palm oil and had trouble with recruiting enough labor for harvest after COVID-19 shutdowns. The largest producer of palm oil, Indonesia, banned exports of palm oil in 2022. Canada is the largest exporter of canola and had a short crop in 2021. Russia’s invasion of Ukraine stopped agriculture exports from Ukraine, which is the largest exporter of sunflower oil. Last of all, Argentina, the world’s largest exporter of soybean oil, had a major drought this past year that dramatically cut its soybean production. The world has had supply issues in every major vegetable oil over the past few years.

Fortunately, the supply issues for vegetable oils are dissipating. At the same time, with the rise of renewable diesel, domestic demand for soybean oil is growing. Like biodiesel, renewable diesel is a biofuel that can be made with soybean oil and utilized in diesel engines. However, there are also distinct differences. Renewable diesel is produced by a process that is used in petroleum refineries. In fact, renewable diesel production often occurs in the same facilities that refine petroleum. Renewable diesel is the same type of chemical as petroleum diesel and meets the same standards. Petroleum companies are investing in renewable diesel facilities in a major way. Biodiesel plus renewable diesel capacity in the U.S. was just under 4 billion gallons per year in 2021, but current announcements for new capacity would take that to about 10 billion gallons over the next several years. While not all the announced plants will likely be built, the industry is already closing in on 6 billion gallons of capacity—with construction continuing.

Soybean oil has been the predominant feedstock for biodiesel production (about

50 percent), yet only about 10 percent of renewable diesel production has used soybean oil. However, the other feedstocks, such as used cooking oil or tallow, have limited ability to expand with new production. Monthly soybean oil consump -

Index of Soybean and Product Prices

Soybeans Soybeanmeal

Oil Value Share of Soybean Crush

tion for biofuels has already increased by 35 percent between January and July this year.

The soybean crushing industry has experienced strong processing margins over this time. The forthcoming demand incentivizes the industry to expand current facilities or build new ones. Some of the oncoming facilities are partnered with renewable diesel producers. A total of 27 announcements either have been completed or remain outstand-