The Big Miss? Why USDA's 10-Year Price Projections Left Out Dynamic Soybean Demand From Sustainable Aviation Fuel

USDA’s recent release of 10-year price projections for both crops and livestock showed economists expect crop prices to decline over the next decade, while livestock prices could see a slight improvement. But for analysts and economists digging into the numbers, there was one major miss in soybeans: sustainable aviation fuel (SAF) and renewable diesel.

The exclusion of the potential demand boon from SAF contradicts the Biden administration’s push to reduce airlines’ carbon footprint. While airlines have discussed ways to reduce air traffic’s carbon footprint, going electric isn’t an option today. Instead, the Biden administration says it’s setting a lofty goal: eliminate the airline industry’s fossil fuel usage by 2050.

USDA Chief Economist Weighs In

USDA Chief Economist Seth Meyer was a guest on U.S. Farm Report last weekend, and he defended USDA’s 10-year projections, saying as more processing plants continue to be announced, and in the early stages of coming  online, the entire process is in the very early stages.

“I think it's too early to incorporate things like SAF, or sustainable aviation fuel. I think from our position at USDA, we want to make sure that U.S. feedstocks are at the table when SAF decisions come down,” Meyer told U.S. Farm Report. “So for us, that's the most crucial element when it comes to it. I think that we are always concerned that growth in renewable diesel concerns about competition between renewable diesel and fame. So, there is growth there. And it's pretty sharp growth, but we have to expect that there'll be some competition given where we've seen soybean oil prices run to.”

How Big of a Demand Boon is SAF?

So, just how big is the demand potential? Peter Meyer of S&P Global Platts says as airlines continue to ramp up demand for SAF, the energy transition away from fossil fuels will require more renewable fuel production. Currently, S&P Global Platts says only half a dozen plants are currently online, with more than 20 still in the development stage, as announcements continue to take place.

“The fact of the matter is that, in our opinion, by the year 2025 we will need 40 billion pounds of feedstock to keep the renewable energy refineries running,” says Peter Meyer.

Today, he says the U.S. is only producing 12 to 14 billion pounds of fats and tallow a year, which is a far cry from the 40 billion needed. And S&P Global Platts thinks the gap can happen with the help of soybean oil.

S&P Global Platts thinks the potential is so large, renewable diesel and aviation fuels made from soybeans could be bigger than what ethanol was for corn in the first couple of decades of the 2000s. As a result, he says the U.S. will become less dependent on China for needed soybean demand, a country that is currently the largest buyer of U.S. soybeans.

“What's going to happen is you're going to see these renewable diesel plants, sustainable aviation fuel plants, and a domestication of U.S. soybean production, which means we will be impervious to all sorts of issues that are going on in China and elsewhere. We're going to be able to use it if we can get the crush capacity,” Peter Meyer says.

ASA Says It's Food and Fuel

The biggest gap right now is the need for more crush plants. And as that happens, soybeans will be crushed for the oil instead of the meal, which in turn could mean more feed available for livestock producers. And that’s something American Soybean Association (ASA) CEO Stephen Censky says is another reason SAF and renewable diesel is not a food versus fuel debate.

“With the soybean, you have both the oil portion which we're talking about, which is about 20% of the bean, but the other 80% is protein and that's that means soybean meal. And the more that we crush here domestically puts more soybean meal on the market, that lowers the cost to our livestock producers,” says Censky. “All other things being equal, that should result in lower meat prices for consumers as well. So yes, vegetable oil may go up a little bit, but your meat might go down.”

Censky says farmers are already responding to the increased demand for soybeans, with both production and possibly acreage decisions in 2022.

“We're responding to the market where plant were harvesting and, and are just about done harvesting the largest soybean crop ever," Censy says. "And that includes the largest amount of soybean oil ever. And so far, soybean farmers are responding where there's been at least seven new crush plants that have been announced, in addition to the extra capacity that's being added. And so we're responding.”

USDA’s 10-year projection shows beef cattle and broiler prices are expected to post a modest increase in the early years of the projection period before leveling off to slower growth. USDA economists say that could result in a 8% to 17% increase over the next decade.