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Diesel vs donuts’: New biofuel refineries shake up the US food industry By Louis Neal 08/09/2021

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Diesel vs donuts’: New biofuel

 

refineries shake up the US food

 

industry

 

 

 

The quest for a low-carbon motor fuel is pitting food companies against the energy industry over shrinking supplies of a humble commodity: vegetable oil.

Fuel refineries, including Marathon Petroleum and ExxonMobil, are adding “renewable diesel” to their product mix in response to government incentives for cleaner fuels. The raw materials are typically edible oils extracted from vegetable or animal fats.

The momentum has alarmed food companies facing record prices for many edible oils this year. But the energy sector is whetting its appetite in the vegetable oil market, according to analysts and public announcements from refineries.

“We support renewable fuels and the green agenda, but soybean oil [prices] they have tripled. Our members are concerned that they will not be able to buy oil, ”said Robb MacKie, executive director of the American Bakers Association. The business group, which has Krispy Kreme, Bimbo Bakeries USA and Pepperidge Farm as members, recently met officials from the US Environmental Protection Agency to urge that federal mandates for biofuels be lowered.

Food groups have long opposed biofuel targets in the US, particularly over corn ethanol mandates that increased dramatically in 2007. This time the focus has shifted to fuel feedstocks. diesel type used in heavy vehicles.

In food and agriculture circles, “it has become the diesel versus donut debate as food and fuel compete for that oil,” said David Widmar, an agricultural economist and consultant.

About 11.5 billion pounds of soybean oil will be used to make biofuels in the United States this year, according to the Department of Agriculture © Joe Raedle / Getty

The United States Department of Agriculture predicts that the price of soybean oil will average 65 cents a pound this year, more than double the price of two years ago. Krispy Kreme, the New York-listed donut company, cited “significant pressure on the cost of commodities, particularly edible oils,” last month as it pushed up prices.

“I must admit that the pressure from commodities in the short term has been quite extraordinary,” CFO Josh Charlesworth told analysts.

Tensions are at an all-time high in the US, where federal policy and low-carbon fuel mandates in states like California are driving heavy investment in renewable diesel production capacity.

The amount of soybean oil used to make biofuels in the U.S. is expected to total 11.5 billion pounds this year, a third more than in 2019 and more than 45 percent of national soybean oil consumption, according to estimates by the USDA.

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The US Energy Information Administration. forecasts that renewable diesel production capacity will reach 5.1 billion gallons per year by 2024. While it is a fraction of oil refining production, it would be more than 600 million gallons by the end of 2020.

By 2028, the U.S. renewable diesel and biodiesel industry would need nearly 30 billion pounds of raw materials, including soybean oil, canola oil, used cooking oil and grease, predicts commodities broker StoneX.

Oil companies have flocked to the renewable diesel markets over the past two years. Last month, ExxonMobil proposed a renewable diesel investment in Canada. Marathon of independent oil refineries, Phillips 66 and Holly Frontier are also carrying out projects.

Some oil companies are incorporating agricultural processing into their assets. Marathon and Archer Daniels Midland have formed a joint project to crush soybeans on farmland in North Dakota, shipping the soybean oil to a new renewable diesel plant that Marathon is developing. Chevron last week said planned to invest $ 600 million in a soybean joint venture with Bunge, the world’s largest oilseed processor, to create what the two companies called a “reliable supply chain from farmer to service station.”

US oil company Chevron is planning a $ 600 million soybean joint venture with crop processor Bunge © Kyle Grillot / Bloomberg

Jeremy Baines, US president of Finland-based Neste, the world’s largest biodiesel refinery, said demand for renewable fuel from airlines and road transport will only grow. “My expectation is that we continue to see the demand for renewable fuels, whether in the skies or on the roads,” he said.

However, there is some evidence that rising commodity prices have slowed the momentum for renewable diesel, at least temporarily.

David Lamp, CEO of CVR Energy, a US refinery controlled by investor Carl Icahn, told analysts last month that the company had put a hiatus on a new renewable diesel project in Oklahoma due to “spike” in prices. of raw materials, which he blamed. on the start-up of a couple of new plants in the US.

Feedstock column chart for US biodiesel and renewable diesel, by feedstock (billions of pounds) showing biofuels to increase demand for edible oils

Soaring vegetable oil prices are also having a global impact, recently forcing Brazil and Argentina to cut biodiesel mandates and putting Indonesia’s fuel blending plans at risk, said Michael Magdovitz, an analyst at Rabobank.

Going forward, demand for biofuels in the United States is likely to mean the country’s edible oil trade flows will change, said Arlan Suderman, chief commodities economist at StoneX. “The United States will increasingly be a net importer than a net exporter,” he added.

Baines acknowledged that growth in biofuel production was influencing agricultural markets. “Will there be any impact on prices in the short term? Yes, there will be, just like in the oil world. But I think one of the advantages of renewable energy is that it is becoming a long-term business, “he said.

CBOT Oil and Soybean Price Line Chart Readjusted Showing Soybean Oil Increasing Soybean Prices

A long-term vision offered little comfort to MacKie at the American Bakers Association. He said suppliers are telling their members that they could run out of vegetable oil by the end of the year.

“It’s going to get worse before it gets better. We have some members who are very concerned, ”he said. “Let’s pause so growers can grow more beans.”

 

 

 

 

 

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