Biofuel, gasoline affect ag markets | Business


David Widmar Agricultural Economic Insights

Soybean-oil prices have spent the past 18 months at record prices, end-users searching for leaving solutions. In a flashback to the food-versus-fuel debates about ethanol a decade ago, the American Bakers Association has asked the US Environmental Protection Agency to reduce biofuel mandates to ease the soybean-oil-price squeeze. With that in mind, this week’s post dives into soybean-oil trends.

Figure 1 shows the usage – or more precisely the estimated disappearance – of US soybean oil across three categories – biofuel; food, feed and other; and exports. Since the 2011-2012 marketing year, the largest category of usage has been “food, feed and other.”

At almost 14 billion pounds of annual usage, the category has been fairly stable with little change during the 12 years of data. The smallest category has been exports. At 1.4 billion pounds of usage in 2022-2023, exports have decreased in recent years. In 2019-2020 marketing year, soybean-oil exports hit 2.8 billion pounds but have since decreased by more than 50 percent.

Between 2011-2012 and 2014-2015, biofuel accounted for about 5 billion pounds of soybean-oil usage. But since then usage in the category has increased. For 2022-2023 biofuel is expected to account for 12 billion pounds of usage. In just a few years biofuel could be the largest category of soybean-oil usage.

Since 2011-2012 biofuel usage has increased at an average annualized rate of 7.8 percent. That rate implies that the usage of soybean oil for biofuel is doubling every nine to 10 years. While one can debate how long that aggressive growth rate can be maintained, it’s also worth considering the other categories. During the past 12 years “food, feed and other” and exports are largely unchanged. That means essentially all the growth in soybean-oil usage during the past decade has come from biofuel.

The “diesel versus donuts” debate has been a discussion point for the past 12 to 18 months but the increase of biofuels has been years in the making. As early as 2016 it was clear that biofuel was a growing source of soybean-oil usage. More recently it seems as if biofuel has squeezed out the export market, which has significantly declined after peaking in 2019. And soybean-oil exports are expected to be at the smallest levels in more than a decade.

In a few years biofuels could easily displace the “food, feed and other” category to become the largest use of soybean oil in the United States. That would represent a significant redistribution of the soybean-oil market because biofuels have already grown from a 24 percent share of the market in 2011-2012 to 44 percent in 2022-2023. In short, biofuels have been almost the only source of growth in soybean-oil usage during the past decade.

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Gasoline usage varies widely

The summer driving season is here and record gasoline prices are creating all sorts of challenges for individuals and the overall economy. The effects are starting to show in the data. In this week’s post we are reviewing weekly gasoline-consumption data and the return to sluggish usage.

US gasoline consumption has been all over the board in recent years. First was the pandemic drop, followed by a slow recovery through 2020 and early 2021. But by this past summer gasoline consumption was largely recovered and even posted an all-time weekly record. And in recent months usage has again slumped.

Figure 2 captures the past few years in one chart. The range of observations between 2015 and 2019 we use as a benchmark for “normal” conditions. The data for 2020, 2021 and 2022 are also shown. As mentioned earlier, gasoline usage largely “recovered” by fall 2021. It’s difficult to definitively define a recovery, but weekly data were largely within the pre-COVID range.

Consumption in 2022 started strong and remained within the 2015-2019 range. But by April usage slipped to less than the pre-COVID range. Usage through Week 12 of 2022, or late March, was 102.5 percent of 2021 activity for the same period. But since Week 13 the usage in 2022 has been just 97.3 percent of the same period in 2021.

Furthermore it looks like the slump is becoming worse as recent data through Week 21 reported 8.8 million barrels per day of implied usage; that’s just 91 percent of the pre-COVID average for that same week. The last time relative usage was this small was Week 9 of 2021. Gasoline consumption might have recovered from the pandemic but it now faces new challenges from inflated prices.

Weekly gasoline consumption data were a helpful indicator throughout the pandemic, especially in the early months, as they provided an idea of ​​economic activity. Gasoline consumption largely returned to the pre-pandemic level for the second half of 2021 but inflated prices are now affecting usage trends.

It’s still early in the calendar year but the recent setback could result in the third-consecutive year of US gasoline patterns being disrupted. Just as policymakers struggled to address renewable-fuel usage and mandate challenges stemming from 2020, the current gasoline consumption dip could create a new set of policy challenges.

David Widmar is an agricultural economist with Agricultural Economic Insights. Visit aei.ag for more information.

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