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Sep 20, 2024
By Allison Jenkins, Mill Creek Communications
Photo Credit: North Dakota Soybean Processors
From zero to 100 million bushels — that’s about how much soybean crush capacity has increased in North Dakota since fall of 2023. Two new soybean processing plants, with another on the way, are opening a world of opportunity for farmers much closer to home.
“Last year at this time, almost all of our soybeans were shipped as whole beans to the Pacific Northwest for export to Asia,” says Nancy Johnson, executive director of the North Dakota Soybean Growers Association. “By this fall, nearly half of the soybeans grown in North Dakota could be crushed in North Dakota. That’s quite a swing in value-added capabilities.”
The state’s first-ever soybean crushing plant and refinery, Green Bison Soybean Processing, opened in Spiritwood, N.D., in September 2023 as a joint venture between ADM and Marathon Petroleum. The plant is expected to process more than 50 million bushels of soybeans per year.
On its heels came the opening of North Dakota Soybean Processors in Casselton, N.D., created by CGB Enterprises, Inc. and Minnesota Soybean Processors. The new facility, which began accepting soybeans this July, is expected to crush 42.5 million bushels in its first year.
A third processing plant proposed by Epitome Energy in Grand Forks, N.D., will have the ability to crush 42 million bushels of soybeans per year. Construction on that facility has not yet started, but Johnson said the company has received necessary permits and is moving forward with development plans.
“Suddenly, our farmers are going to have this tremendous opportunity to take advantage of local sales and basis improvement,” Johnson says. “The crush business also makes it possible to think about a biodiesel facility coming to the state. There’s certainly room for options because, until now, we haven’t had a lot of access to biofuels here.”
Robust demand for soybean oil, especially from biodiesel and renewable diesel sectors, is driving this growth in crush capacity in North Dakota and across the nation. In a report released March 21, CoBank predicted U.S. soybean crush capacity will expand 23% during the next three years. If all renewable diesel projects currently under development begin operations as scheduled, U.S. renewable diesel capacity could reach nearly 6 billion gallons per year by the end of 2025.
That’s good news for soybean farmers, says Paul Winters, director of public affairs and federal communications for Clean Fuels Alliance America.
“The oilseed processing industry has invested more than $6 billion to expand U.S. capacity, and biodiesel and renewable diesel demand is one of the main reasons for those investments,” Winters says. “It gives farmers multiple opportunities to sell their grain without being tied to any single market. The more options farmers have, the more value they get from their crop. And because we are creating domestic demand for fats and oils, that means that more value is kept here in the United States.”
The bad news is that capacity for biobased diesel is outpacing federal Renewable Volume Obligations (RVO) levels set by EPA for 2023 to 2025 under the Renewable Fuel Standard program, which requires transportation fuel sold in the U.S. to contain a minimum amount of biofuel. The current RVO levels are “significantly below” existing production and ongoing expansion, says Winters, whose organization recently filed a petition asking EPA to increase those numbers for 2024 and 2025.
As written, the EPA rule sets biomass-based diesel at 3.04 billion gallons in 2024 and 3.35 billion in 2025. Winters says Clean Fuels Alliance America believes those volumes should be 5.1 billion gallons and 5.6 gallons, respectively, to more accurately reflect the industry’s current status and future outlook.
“The volumes set by EPA last year constrained the market, stunted the industry’s growth and undercut the value of soybean oil,” Winters says. “That is not at all accomplishing any of the goals that they were aiming for in the Renewable Fuel Standard, which include cutting greenhouse gas emissions, generating jobs and economic opportunities, providing value-added markets for American agriculture and replacing petroleum-based fuel.”
New RFS volumes for 2026 were supposed to be finalized by Nov. 1, but the latest agenda of regulatory actions posted by the White House indicates that a proposal likely won’t be released until March 2025 with a final rule by December 2025.
Regardless of when the volumes are finalized, it’s important to get them right and ensure opportunity for growth, says Alexa Combelic, American Soybean Association director of government affairs. When it comes to soybean growers, she adds, the biofuel industry is a key domestic market, and the RFS program is crucial to its future.
“A lot of publicly traded companies are saying they need to decarbonize, and the easiest way to do that is through using renewable diesel and biodiesel in their fleets,” Combelic says. “But, to do that, you need the fuel. If we truly are a country that cares about lowering our emissions and carbon intensity, soybean-based biofuels are a great way to do it now.”
New biofuel tax credits in the Inflation Reduction Act of 2022 are also providing growth opportunities, as well as some confusion and uncertainty.
The Sustainable Aviation Fuel (SAF) tax credit, known as 40B for the section of the legislation where it’s found, is designed to encourage production and help overcome enhanced costs of producing biofuel to replace traditional jet fuel. The amount of the credit depends on the carbon intensity of the fuel’s production, including the feedstock used to produce it. A SAF producer could enhance that credit by contracting with farmers who use climate-smart practices to produce the fuel’s feedstock. The farmer should theoretically receive a premium in return for these practices.
However, guidelines for eligible farming practices are quite restrictive, Combelic says. In the case of soybeans — the primary feedstock for U.S. renewable diesel production — both no-till and cover-crop practices would have to be used to qualify for a SAF credit with enhanced value.
“We want to see more practices included in this list,” Combelic says. “There are a variety of things farmers can do to lower the carbon intensity of their feedstock. To restrict it to just those two things — no-till and cover cropping — really limits the number of farmers who could participate and creates regional and economic disparities.”
In a positive move, USDA collected public comments earlier this summer on climate-smart ag practices for biofuel feedstocks. The formal “request for information,” which closed July 26, sought input on crops, cropping practices and how they can be documented, certified and traced to help guide potential USDA rulemaking.
USDA Secretary Tom Vilsack announces the request for information on Climate Smart Ag at the Clean Fuels Member Meeting on June 26. Photo Credit: Clean Fuels Alliance America
Adding to the regulatory complexity, the 40B tax credit expires at the end of 2024 and will be replaced by Section 45Z, the Clean Fuel Production Credit. The 45Z program continues to provide tax credits for SAF and other biofuels, albeit with different formulations. It also changes the $1-per-gallon blender credit that has been in place since 2005 to a domestic producer credit based on their carbon intensity score.
Guidance on the new rule continues to be murky, Winters says, particularly as to who can claim the 45Z producer tax credit and how it should be valued.
“This new clean fuel producer credit is one of the biggest issues that people in the industry may not be paying enough attention to,” Winters says. “For our members, this is a huge change.”
Despite regulatory challenges, the momentum for biofuel production and demand continues to gather speed in the wake of federal climate-focused programs and state low-carbon fuel standards. Along with over-the-road transportation, there’s growing interest and emerging technology to promote the use of biofuels in rail, marine and aviation industries.
SAF is garnering much of the attention because air transportation creates some of the highest carbon emissions, Combelic says. According to the U.S. Department of Energy, the biofuel has the potential to deliver the performance of petroleum-based jet fuel with a fraction of its carbon footprint.
Soy-based biodiesel fuels trucks and other equipment used to move around the tarmac at St. Louis Lambert International. Photo Credit: Allison Jenkins
“The administration is eager to get sustainable aviation fuel developed quickly,” Combelic says. “A federal initiative launched in 2021 was tasked with decarbonizing the aviation sector by 2050, but SAF is very expensive to make. That’s why we have some of these programs in place to help spur growth in its production.”
Biobased heating oil also offers tremendous market potential in certain regions, such as New England, where about 40% of homes use this method. Among the fuel sources Clean Fuels Alliance America represents is a product called “Bioheat®,” a blend of biodiesel and ultra-low sulfur fuel that can be used in existing home heating oil systems.
“For indoor air quality, it’s important to have the cleanest source of energy available, and Bioheat® is an eco-friendly alternative to traditional heating fuel,” Winters says. “In 2019, the heating oil industry pledged to be carbon neutral by 2050. This year, they announced that they reached their first interim goal ahead of schedule — about 25% carbon neutral at this point. It’s a growing market for biodiesel, primarily, but renewable diesel will also work.”
A more obvious market is in offroad applications, especially farm equipment. But farmers have been reluctant to adopt biodiesel or renewable diesel, Winters says, citing reasons that range from bad experiences with the product in its early stages to lack of availability and noncompetitive pricing with traditional diesel. He believes those are obstacles that can be overcome with today’s biofuels.
“We work with manufacturers such as John Deere that encourage farmers to use renewable fuel in their equipment. It’s now truly a drop-in fuel,” Winters says. “By adopting biodiesel and renewable diesel in their operations, farmers are supporting their own markets and helping build a stronger future for their industry.”
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The term “biofuel” applies to liquid fuels and blending components produced from renewable biological sources, including oilseed crops such as soybeans, which can be used to create biodiesel, renewable diesel, sustainable aviation fuel, biobased heating oil and more. But what’s the difference between these types of fuels?
By Scott Gerlt, ASA Chief Economist
With all the growth in soy-based biofuel demand, it’s natural to wonder how this matters to the average soybean farmer. Biofuels increase the demand for soybean oil, which improves the returns from processing (or crushing) soybeans. This spurs crushers to process more soybeans. They can do this by increasing the utilization of their current plants, potentially expanding those plants or even building new facilities. The U.S. has seen over 20 announcements to build or expand domestic crush plants due to anticipated biofuel demand.
The new capacity will need to bid competitively to secure the necessary soybeans for operations. This improves the local basis by increasing the prices farmers are paid in the area. Even producers who are not next to a new or expanding plant can experience benefits as the overall value of soy increases. While biofuel markets and policy can quickly become complex, their growth—bottom line—results in value growth for soybean farmers.
Soy is not, however, the only feedstock used in the production of biodiesel, renewable diesel and sustainable aviation fuel. Recently, imports of alternative feedstocks have caused concern over the potential missed growth opportunity for the soy industry. Even so, new crush capacity continues to come online. And, margins from crushing soybeans continue to incentivize processing—and thereby, farmer margins. The key to these factors persisting is policy that is sufficient to sustain the use of U.S. soybeans in domestic biofuels.
