WESTERN PRODUCER — There was a huge uptick in canola oil usage in the United States in January.
An estimated 109,769 tonnes of the product was consumed, a 42 percent increase over the previous month, according to the U.S. Energy Information Administration.
Canola oil accounted for 16.4 percent of total vegetable oil use in the U.S. biofuel sector in January 2023, up from 5.8 percent one year ago.
Tore Alden, senior agriculture analyst with Fastmarkets, said much of that increase is because of new demand from the renewable diesel sector.
The Environmental Protection Agency approved canola oil as an eligible feedstock for the sector in December 2022.
Prior to the emergence of this new source of biofuel demand the commodity had been making inroads in the human consumption market in the U.S., backfilling for the soybean oil being diverted to the renewable diesel sector.
“If you look at the growth in canola oil non-biofuel demand, it has been really robust this year, like up 50 percent year-over-year,” Alden said during a webinar organized by Fastmarkets.
Canola oil is typically sold at a premium to soybean oil but lately prices of the two commodities have been comparable. Alden thinks that is about to change with the new source of demand for canola oil.
In general, prices for the oils and fats used in the biofuel sector have been falling during the first quarter of 2023.
That surprised many people who expected a surge in values as the first wave of renewable diesel plants come online.
Ryan Standard, managing editor for agriculture at Fastmarkets, said the renewable diesel fuel sector has been operating at 58 percent of capacity during the last four months, which he called disappointing.
That’s down from an average of 74 percent in 2022.
Fastmarkets predicted it will average 60 percent in 2023.
Standard said there have been unexpected problems with boilers, rail service and that type of thing, which have been delaying demand, but the demand will materialize once the new facilities sort out the kinks.
In the meantime, the renewable diesel plants are long on supplies.
“Nobody wanted to miss out on having feedstock,” said Standard.
A fire at a refinery in Europe in December contributed to the shortfall in demand.
Another factor is the large amount of imported palm oil and used cooking oil, which is driving down competing oil and fat prices.
Exports of used cooking oil from China, Malaysia and Indonesia topped 2.5 million tonnes in 2022, a five-fold increase from 2017 levels.
The U.S. imported 98,000 tonnes of the product in the first two months of 2023.
“I can’t stress how big a volume that is for this market,” said Standard.
If a 15,000-tonne vessel had landed in Houston five years ago, it would have collapsed the entire U.S. market, he said.
He expected continued strong imports of used cooking oil over the next two quarters.
However, there will likely be a contraction of tallow supplies as U.S. ranchers cut down on herd size because of rising feed costs.
Alden said the soybean oil market has endured huge price swings, rising US18 cents per pound during the first two quarters of 2022 and then falling 22 cents the following three quarters.
Fastmarkets forecasted 13 billion lb. of soybean oil feedstock demand from the biofuel sector in 2022-23, which is higher than the USDA’s estimate of 11.6 billion lb.
Total soybean oil demand is forecast at 27.2 billion lb.
Demand is expected to increase around May, peaking at close to 85 million lb. per day in the August/September period, which would be well above the five-year average of about 65 million lb. per day for that time of the year.
The problem is that soybean stocks totalled 1.69 billion bushels as of March 1, down 13 percent from year-ago levels.
“There is a real question about whether we’ll have enough soybeans to crush based on our forecast for demand for soybean oil and soybean meal,” said Alden.
U.S. exports might have to be curtailed this summer, which shouldn’t be too much of a problem because Brazil harvested a record crop, and the beginning of its export program was delayed.
“We probably can depress U.S. exports more than we normally would and provide enough soybeans to crush,” he said.
But supplies are going to be tight and the rationing of soybeans means higher prices ahead.
“If you look at the soybean spreads, they have really started to explode higher, indicating the market is trying to pull supplies forward so that we don’t export them in the summer,” said Alden.
Contact sean.pratt@producer.com
