US Biofuel Mandate Proposals Could Drive Soybean Oil Prices Higher

The Environmental Protection Agency (EPA) late Tuesday proposed cutting US biofuel blending requirements for 2020 and 2021. But its most significant proposal may be to increase 2022 blending quotas for biomass-based diesel and advanced biofuel, moves that would increase demand and prices for soybean and other edible oils.

As soybean oil is one of the most widely consumed vegetable oils, the EPA’s proposal could increase the competition for edible oils and also spark a new round of food versus fuel policy debates at a time of heightened US food inflation.  

Under the EPA’s Renewable Fuel Standard (RFS), advanced biofuels include biomass-based diesel and ethanol produced from sugarcane. Biomass-based diesel consists mainly of biodiesel, renewable diesel, and renewable jet fuel.

For 2022, EPA’s new proposal increased biomass-based diesel blending to 2.76 billion gallons, 14% over 2019 and 2020 levels. According to the proposal, advanced biofuels are set to rise to 5.77 billion gallons next year, up almost 11% over 2020 and 25% over 2019’s levels. 

Because renewable diesel capacity continues to be built out in the US, the advanced biofuel portion that is not made up of biodiesel will probably consist of renewable diesel. This means that the demand pull of soybean oil and other edible oil and fats feedstocks will intensify, likely resulting in a tightening global vegetable oil balance sheet. 

It also suggests that current US soybean crushing volumes would be insufficient to satisfy the oil demand that the increased renewable diesel requirement generates, meaning that crush rates would need to increase over the next few years or alternative feedstocks would have to be sourced. View Gro’s US Soybean Crush Model to monitor daily crush availability.

The EPA’s 2022 blending quota of 15 billion gallons for conventional biofuels means that the US will need to source an additional 580 million bushels of corn to produce the 1.68 billion gallon increase in ethanol next year, according to Gro’s calculations. This in turn will elicit additional corn demand and support futures throughout 2022, unless the proposed volumes are revised. 

Under the proposed RFS, total renewable fuel blending for 2020 was cut 14.7% to 17.13 billion gallons from the previously set requirement of 20.09 billion gallons. Ethanol blending was subsequently scaled back 16.6% to 12.5 billion gallons as the EPA essentially matched actual blending volumes for that year. Similar changes were made to advanced biofuel levels, with the 2020 mandate reduced to 4.63 billion gallons from 5.04 billion gallons.

The petroleum industry has been lobbying the EPA to lower the 2020 blending figure so that it more closely aligns with the lower overall fuel usage during the pandemic. If the EPA did not lower its biofuel blending mandate, refiners would have had to purchase renewable fuel credits from the market to comply with the law. 

For 2021, total blending was set at 18.52 billion gallons and ethanol blending at 13.32 billion,  which is lower than the 2019 finalized volume of 15 billion gallons.