Weekly Outlook:Bio-Diesel Production
Author: Bob Sampson
URBANA - U.S. energy policy is heavily influencing the rate of growth in
bio-diesel production and the related consumption of soybean oil, said a
University of Illinois Extension marketing specialist.
"Even though bio-diesel production continues to grow, profit margins are
narrow and production would not be profitable at all without the current
large subsidies," said Darrel Good.
Much of the strength in soybean prices since the fall of 2006 has been
provided by soybean oil prices, even though U.S. soybean stocks have
been record large. The strength in soybean oil prices has been
associated with rising world bio-diesel production."
Good noted that the cash price of soybeans in central Illinois averaged
$7.82 during August 2007. That price is 42 percent higher than the
average during September 2006 when a record U.S. crop was being
harvested. The average price of soybean oil and soybean meal at central
Illinois processing plants increased by 48 percent and 28 percent,
respectively, over that same period.
"The higher soybean oil prices came in the face of record large soybean
oil inventories being held at U.S. processing plants," he said. "New
record large month-end soybean oil stocks have been reported every month
since June 2006. Year-over-year increases in monthly stocks averaged 29
percent from October 2006 through June 2007. Month-end stocks reached a
record 3.362 billion pounds in March 2007.
"Stocks remained extremely large, at 3.246 billion pounds, at the end of
July 2007. Soybean oil stocks are large due to the record pace of the
domestic soybean crush in order to meet record consumption of soybean
meal. Use of U.S.-produced soybean meal, domestic plus exports, during
the period October 2006 through July 2007 was a record 36.05 million
tons, almost 6 percent more than consumed during the same 10 months in
the previous year."
Even though U.S. soybean oil stocks have been increasing, consumption of
soybean oil has been record large as well. Domestic use plus exports of
U.S. soybean oil reached a record 16.93 billion pounds in the 10 months
from October 2006 through July 2007, an 8 percent year-over-year
"Percentage-wise, the large increase, 13 percent, was in exports," said
Good. "Still, domestic use of soybean oil was nearly 5 percent larger
than during the same period last year. That is well above the long-term
growth rate of about 2 percent per year.
"Much of the increase in domestic soybean oil consumption was for the
production of methyl esters, which are used in the production of
The U.S. Census Bureau started reporting the amount of once-refined
soybean oil used in the production of methyl esters in January 2006.
Beginning in January 2007, the Census Bureau included estimates of crude
soybean oil and all fats and oils used in the production of methyl
"In January 2007, it was estimated that about 168 million pounds of
soybean oil and 202 million pounds of all fats and oils were used to
produce methyl esters," he said. "That use accounted for 10 percent of
the consumption of U.S. soybean oil and nearly 8 percent of the
consumption of oil fats and oils during the month.
"In July 2007, the Census Bureau reported that about 346 million pounds
of soybean oil and 392 million pounds of all fats and oils were used in
the production of methyl esters. That use represented almost 19 percent
of the consumption of U.S. soybean oil and 13 percent of the consumption
of all fats and oils during the month."
Good added that the use of soybean oil to support bio-diesel production
will remain sensitive to the price of soybean oil and the price of
diesel fuel, but further increases are expected.
"Use was very large during July 2007 when the average soybean oil price
was nearly 10 cents higher than the average in July 2006 and only
slightly below the record average monthly price in May 1983," he said.
"As the production of distillers grain increases and as South America
expands soybean production, soybean oil demand will become increasingly
important in determining the magnitude of the domestic soybean crush.
"Currently, the crush is still being determined by the demand for
soybean meal. If the size of the crush in the future is determined by
soybean oil demand, meal could be in surplus. Since soybean meal is not
easily stored, the surplus would have to be consumed, potentially
driving soybean meal prices lower."
Source: Darrel Good (217) 333-4716
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