How Renewable Diesel Will Transform Agriculture

March 3, 2022

As the push for energy independence and achieving a lower carbon footprint continues to ramp up nationwide, many analysts believe soybean producers are going to see significant industry implications in the immediate future.

Soybean oil, of course, is one of the primary feedstocks for two biofuels—renewable diesel and biodiesel—at the center of advancements in the clean energy sector.

The main difference between the two is that the former can generally be distributed with existing energy infrastructure, while the latter requires separate storage and handling due to its cold-weather properties.

Both meet the federal government’s renewable fuel standards (RFS) and benefit from the tax credit for carbon oxide sequestration, also known as 45Q.

Renewable Diesel on the Rise

Because of its relative ease of transport and the identical chemical properties it shares with petroleum-based diesel, it is renewable diesel that stands poised to become the major driver of increased demand for soybeans and other oilseeds.

“In my opinion, renewable diesel will have a bigger impact on American agriculture than ethanol has,” says Joe Kerns, CEO of Partners for Production Agriculture. His team of market analysts has been watching the industry closely, and he feels quite bullish on this particular biofuel’s potential for impact.

He’s not alone. Last fall, Rabobank projected renewable diesel production to increase more than sixfold over the next ten years to an almost unfathomable 6.1 billion gallons by 2030. If that comes to fruition, soybean crush will have to more than double to keep pace with demand.

Line and bar graph of rapid ramp-up in US renewable diesel production capacity from 2010 to 2030

Source: Biodiesel Magazine, “The Rush to Crush” (Rabobank, September 2021)

Kerns expects this transformation to happen rapidly. He pointed out that the ethanol industry had to build out the infrastructure to make production viable, and that took time. Today’s landscape looks quite different from the early 2000s.

“We have all the refining capacity necessary to take any lipid substrate and turn it into renewable diesel,” says Kerns, who notes that significant investments are already underway for processing plants and refineries across the country.

“This is going to be the biggest revolution,” he says, “and people are going to look back in two to three years and say, ‘What in the world just happened?’”

Impact on Production Agriculture

This shift in demand will impact producers in three significant ways: higher prices for soybeans (and higher input costs), increased acres planted to soybeans (and less acres planted to other crops) and rising cropland values.

“If we see renewable diesel and biodiesel grow in the next five years like the ethanol industry grew in the 90s and 2000s, there will be a transformational change in the landscape of agriculture,” says Dr. Bob Thaler, South Dakota State University Distinguished Professor of Animal Science and SDSU Extension swine specialist.

He points out that just this winter, South Dakota Soybean Processors announced plans to build a new processing plant near Mitchell. This will provide better access to markets for producers in the central region of South Dakota, which could aid in the shifting of additional acres planted to soybeans.

And this sort of infrastructure investment isn’t happening in isolation. Processors and refineries are ramping up their capacity for the anticipated growth in demand for biofuels.

Thaler has also been watching this trend for another reason: swine nutrition.

He believes the projected increase in soybean production to meet oil demand will change the face of animal nutrition as well.

“Soybean meal—long the gold standard for protein and amino acids—is likely going to become cheaper and could replace at least some corn as an energy source for pigs,” says Thaler.

He also suggests that more readily available soybean meal might find its way back into feedlots to supplement protein needs in cattle—something that hasn’t happened for a generation.

Preparing for Change

So what does all of this mean for producers? In short, it means change is coming.

“We are going to have to get innovative,” says Kerns. “We’re going to have to adapt. But that’s what we do best. All of this change might be uncomfortable. It’s also going to be incredibly profitable.”

Kerns explains that producers will want to take inventory of their current assets and needs in order to prepare for the changes ahead.

Assessing available cropland, determining what equipment needs or labor shortages are present on their operation, and looking at futures or options are all important steps producers should consider.

“This is not a generational or multi-generational shift,” says Kerns. “It’s going to happen in three to five years, but the magnitude of the change is completely unprecedented.”