The most important shift we’re going to see is a decrease in US exports due to increased domestic feedstock demand from the biofuel industry.
This is likely to allow Argentina to fill the gap for importers and increase its soybean oil exports (Argentina is currently the world’s largest soybean oil exporter). Although Argentinian crush margins are under pressure, so the availability of soybean oil may be reduced compared to the volumes we’ve seen historically.
Another reason causing shifts in trade routes is the war in Ukraine.
Ukraine isn’t able to export as much sunflower oil because of logistic difficulties. The country may likely resort to exporting more sunflower seeds than oil because the former are easier to transport. This would lead to an increase in European sunflower crushing and, consequently, European sunflower oil exports.
On the other end, importing countries are also starting to shift their focus and seek new partners.
For example, China has been a major importer of Ukrainian sunflower oil, but as Ukraine went through a period of drought (before the war) and saw its sunflower oil exports decrease, China increased its soybean oil imports from Brazil. This shows how a decrease in exports from one country may provide opportunities for other exporters and how buyers and end-users need to adapt quickly to shifting trends.
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Generally, under the Renewable Fuel Standard (RFS) program in the US, there isn’t any difference in the way that any of the feedstocks are treated, so vegetable oils or fats and greases are all more or less treated in the same way.
We see a difference in treatment under the Low Carbon Fuel Standard (LCFS) program in California. That difference shows up in the carbon intensity (CI) score for the various feedstocks.
Vegetable oils are generally less favored than fats and greases (because of their higher CI). The average CI score for soybean oil is around 55. Canola oil has a slightly lower score than that. In comparison, most fats and greases score around 35 on average, with used cooking oil (UCO) having the lowest CI score at 20.
That’s important because the lower the CI score, the higher the value of the LCFS credit.
Now, more broadly, through the Renewable Fuel Standard (RFS), canola oil hasn’t always had a pathway to produce RIN credits for renewable diesel production, but the EPA is moving towards approving one and has already published an outline for it.
We expect that to be completed by the end of the year.
So far, we’ve had generally favorable growing conditions.
However, according to the latest weather forecasts, we expect hotter and drier conditions across the Midwest and the areas in North America where we grow canola. This is happening at a critical time, in fact, the most important time for crop development. Because we’re about to enter pod filling season and yields will be significantly lower if it doesn’t rain.
Diminished production of soybeans and canola will mean lower stocks of vegetable oils at a time when demand continues to rise due to the increase in biofuel blending mandates.
Supposing the weather plays out as per forecasts and the hot and dry trend continues, I think it’s fair to say that we will probably have prices rise back up to the historical highs we saw earlier this year. And depending on how long the hot weather continues, prices may rise above that level.
Our vegetable oil market series continues; click here to read more.
For more information on the current biofuels market, take a look at our dedicated page for biofuels market analysis. Or, take a look at our dedicated page for vegetable oil insights.