Soybean oil supply and demand: Scott Gerlt comments

Fastmarkets' exclusive interview with Scott Gerlt, chief economist at the American Soybean Association

Soybean oil plays a significant role in the US agricultural landscape, both in terms of consumption and production and as a versatile ingredient used in food products and biofuel blending.

As demand is increasingly driven by enhanced crushing for renewable diesel production and the implementation of low-carbon fuel standards, current supply constraints are a concern for the industry.

Scott Gerlt of the American Soybean association sheds light on the key factors affecting the market.

The USDA forecasts global soybean oil demand to fall for the 2022-2023 season. What is slowing down demand?

The lower demand can largely be attributed to production issues in Argentina.

Argentina is a major producer and exporter of soybean oil worldwide.

Unfortunately, they experienced a crop disaster this year, resulting in a significant reduction in soybean oil availability. However, this is expected to be a temporary setback.

According to the latest projections from the USDA for the next marketing year, there is anticipation of a recovery in soybean oil production. Once more supplies become available, we can expect the impact on U.S. soybean oil exports to be minimal.

What will be the impact on US soybean oil exports?

While there might be a slight decrease in exports due to increased domestic consumption in the United States, overall, I don’t foresee significant changes in soybean oil exports.

What will be the impact on price?

The foreign oil price will exert some downward pressure on soybean prices as soybean supplies increase over the next year or two. However, this is subject to various factors such as weather conditions and policies.

Do you think the trend (fall in demand) will continue, or is this just temporary?

Currently, the US and South America have relatively low soybean stocks, but as stock levels are rebuilt, prices should decrease to some extent globally.

Therefore, I would say that the decrease in quantity demanded is a result of insufficient supply rather than a decrease in demand itself.

Looking at the outlook for soybean oil, the demand appears to be very strong.

In the United States, there is a policy promoting the production of renewable diesel, which has led to increased crushing of soybeans. Additionally, Canada recently implemented its own low-carbon fuel standard to encourage greater biofuel consumption.

This demonstrates that demand and demand growth for soybean oil exist worldwide. The key now is to meet that demand, and I believe the industry is responding.

Many of the issues faced in the past year were primarily weather-related, and once we overcome those challenges, we can expect to see demand numbers continue to rise.

In Europe, there are sustainability concerns around the production and use of soybean oil. Will the same concerns be echoed in the US? And could they affect blending mandates and policy?

In the United States, we have addressed sustainability concerns regarding soybean production. Deforestation is not a significant issue for us when it comes to expanding soybean acreage. Our policies account for this, and soybeans must meet greenhouse gas emission reduction criteria to qualify for our national program, which they do. This program also considers land use changes.

The California program, where a considerable amount of renewable diesel is consumed, also addresses indirect land use. Despite these sustainability measures, some groups continue to raise concerns.

Currently, California is discussing the possibility of placing a cap on virgin vegetable oils, but it is still in the early stages of discussion. We believe that our existing program already addresses these concerns, so it is important to let the science work in this case.

Although there is some rhetoric on the topic, the program has already proven its effectiveness. We remain hopeful that reason and evidence will prevail in the end.

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