More biodiesel plants may close in 2024, says ag analyst

Production of biodiesel, the original renewable fuel made from soybean oil, is being squeezed by the boom in renewable diesel, wrote agricultural economist Scott Irwin on Tuesday. “If the losses in 2024 to date continue, more biodiesel plant shutdowns may be in the offing,” he said on the farmdoc daily blog.

The average biodiesel plant in the Midwest lost 20 cents a gallon between 2021 and 2024 as the renewable diesel came into production, calculated Irwin. Operable capacity of biodiesel facilities peaked at 2.46 billion gallons a year in 2021 and dropped to 2.09 billion gallons a year in July 2022.

Early this month, Chevron announced closures of biodiesel plants in Iowa and Wisconsin with a combined volume of 50 million gallons a year because of “poor market conditions.” Chevron has seven other U.S. biodiesel plants.

“The recent announcements…indicate that production losses may be large enough in 2024 to trigger another round of plant shutdowns,” said Irwin. In fall 2023, there were 59 biodiesel plants.

Analysts say biodiesel and renewable diesel compete for a comparatively limited market for biomass-based diesel, with production capacity that is far larger than demand. Renewable diesel has the advantage of being a “drop in” replacement for petroleum diesel that burns cleaner and delivers more power than biodiesel, which must be blended into petroleum diesel up to a maximum of 20 percent.

California, Oregon, and Washington State have policies that encourage the use of renewable diesel.

The fuels are produced by different processes. Renewable diesel is produced by hydrotreating, similar to refining of petroleum. Biodiesel is created by transesterfication. Soybean oil is a leading feedstock for both fuels. A variety of fats and oils can be used.

Roughly half of U.S. soybean oil will be used in biofuels this year, compared to 38% in 2022, estimated the USDA. The rising demand for soyoil will translate into construction of new soybean crushing plants and expansion of existing plants, said a Wells Fargo analysis. Larger domestic demand for soyoil will more than offset a decline in exports, it said.