What’s Behind Those Strong Soybean Prices?
3 Industry Uses Supporting Demand
First of all, it’s worth noting that the 2019 opening of an AGP®️ processing plant in Aberdeen has continued to support South Dakota producers—in addition to growers in North Dakota and western parts of Minnesota—with increased crushing capacity.
“That’s made a huge impact,” said Frerichs. “It has helped significantly to have another market for our soybeans locally where they are made into oil and meal products that are then marketed further.”
What is more, the fact that AGP®️ invested $300 million to build the new facility points to the upward demand trajectory for soybeans. And that is welcome news for producers in South Dakota.
Diversification helps soybeans weather the storm
Frerichs will tell you that ultimately, the continual expansion of new and diverse uses for soybean oil has paid off big for producers and is supporting demand across the board.
“It goes to show the extreme importance of the soybean checkoff and why we want to continue building on existing uses and exploring new, cutting-edge uses that will continue to command competition in the marketplace for our soybeans,” said Frerichs. “We certainly wouldn’t have been able to weather the storm in terms of trade wars and COVID otherwise.”
What are some of those new and emerging uses that are helping to fuel demand? And what will support market demand moving forward? Let’s take a closer look at three markets—diesel production, industrial applications and use in the food industry—that are driving a healthy price environment for soybeans.
The push for renewable fuels
For starters, the demand for biodiesel and renewable diesel is stronger than ever. Travel for work and personal reasons declined sharply amid pandemic lockdowns, but that didn’t impact the country’s fleet of diesel-powered trucks on nearly the same level.
The push for green energy doesn’t seem to be going away anytime soon, either. Last fall, USDA projected that an estimated 8 billion pounds of soybean oil would be used for biodiesel during the 2020-21 fiscal year. There is increasing pressure both on the consumer side and in the political arena for alternatives fuels, and soybean producers will benefit from this continued trend.
Adjacent to this demand is the emerging development of biosynthetic motor oil, comprised of 26 percent renewable content.
According to the United Soybean Board, the soy-based product can be used in most modern cars, SUVs and light trucks. Preliminary field-testing of biosynthetic motor oil is returning strong results when compared to petroleum-based products.
Industrial uses on the rise
Petroleum isn’t just used for gasoline and motor oil; it is also a key component to asphalt and road oil as well as myriad other industrial products.
“There’s so much untapped potential,” said Frerichs of the current market opportunity for soybeans, “especially as we see the shift away from petroleum.”
Last fall, Sioux Falls Mayor Paul Ten Haken announced a partnership with South Dakota Soybean farmers through their Checkoff to enable the city to use soy-based asphalt sealant on its roads.
The innovative product has performed well in previous applications and received accolades for being a safer, greener alternative to traditional sealants.
It also has the added benefit of supporting producers in-state.
Frerichs, who also runs a cow-calf operation, is also hopeful that ongoing research efforts will produce an economically viable, soy-based alternative to the plastic netting used for wrapping bales. “Right now we’re hearing about a net wrap shortage,” said Frerichs. “It’s just a real need.”
Soy-based food products
Prices for soybean oil are also up in part because of demand for its use—along with palm, canola and sunflower oils—within the food industry.
Mac Marshall, VP of Market Intelligence with the United Soybean Board and the US Soybean Export Council, referred to this as a “veg oil complex” in an interview on the Market Talk podcast.
“You can’t really think of one vegetable oil in a vacuum; you have to think of them as an aggregated stack,” said Marshall. “There’s (supply) tightness through all four of those oils, and that has been helping buoy the complex.”
The 2020-2025 Dietary Guidelines published by USDA at the end of last year also recognized soy for its health and heart benefits, supporting continued development of food products and recipes that incorporate soy-based ingredients.
This research-backed recommendation cannot be overlooked as it helps further diversify uses and demand for soybeans.
How the checkoff plays a pivotal role
As Frerichs noted, the market demand we currently see for soybeans is aided significantly by the soybean checkoff. Its role in the research and development of new and existing uses for soybeans has been vital to strengthening its demand across multiple industries.
To learn more about this important work, take a closer look at soybean uses and additional opportunities on the horizon for the South Dakota Soybean Checkoff.