Editor's note
Biodiesel's impact on the oilseeds market
Biodiesel is produced through a process called transesterification where triglycerides (fats and oils) react with an alcohol (usually methanol) to create fatty acid methyl esters. Various feedstocks, including vegetable oils, animal fats, and recycled cooking oils, can be used. Biodiesel is an environmentally friendly alternative to fossil fuels.
The industry has grown substantially; however, challenges remain, such as competition from other feedstocks, fluctuating oil prices, and the need for consistent regulatory support.
Canola oil in Canada
The canola-oil-to-biodiesel industry has grown significantly over the past few decades, driven by increasing demand for renewable energy sources and sustainable fuel options. Growth in demand is influenced by governments and industries focussing on reducing greenhouse gas emissions. Biodiesel has gained popularity as a cleaner alternative to fossil fuels.
Incentives and mandates, such as the Renewable Fuel Standard in the United States (US) and several policies in the European Union, have incentivised biodiesel production. Improvements in biodiesel production processes have increased yields and reduced costs. The establishment of biodiesel production facilities has increased in regions where canola is grown, particularly in Canada and the northern US.
Overall, the canola-oil-to-biodiesel industry is poised for continued growth as technological innovations and market dynamics evolve, aligning with global sustainability goals.
Soya bean oil in the US
Soya bean oil is increasing in importance in the US for biodiesel production, accounting for nearly half of the biodiesel produced in the country. Policies and demand for lower-carbon fuels are key drivers. The US Department of Agriculture projected a 21% increase in soya bean oil allocation for biofuel in 2024, with significant expansion in biodiesel production expected. Policies promoting renewable fuels have intensified, creating incentives for biodiesel producers to focus on soya bean oil alongside other renewable feedstocks.
However, soya bean oil's role in biodiesel faces challenges from imports of other biodiesel feedstocks such as used cooking oil (UCO) and animal fats, which have a lower carbon intensity. Used cooking oil imports, particularly from Asia, have increased substantially, based on the demand for the US sustainable biodiesel sources.
Palm oil in Indonesia
Indonesia's biodiesel programme, primarily driven by palm oil, has seen notable growth in 2024, with the government increasing domestic allocations by nearly 2% last year. This reflects Indonesia's strong commitment to its B35 mandate (35% palm biodiesel blend) implemented in August last year. The government aims to escalate its programme to a B40 blend by 2025, further strengthening its position in biodiesel production and its role in reducing fossil fuel reliance.
More mandates for biodiesel blends influence the demand for oils such as soya bean and palm, which is likely to put upward pressure on prices. Spikes in biodiesel demand pull vegetable oils away from food markets, causing a tighter supply for food consumption and consequently, prices could increase.
With more countries adopting biodiesel mandates, the competition for low-carbon feedstocks (such as UCO, animal fats, and vegetable oils) is on the rise, contributing to higher prices for preferred oils such as soya bean and palm.
In final thought
The interplay between biodiesel demand and vegetable oil markets is complex, influenced by policy, global supply, and alternative fuel developments, all of which affect the prices of these critical commodities. Biodiesel policies can cause significant fluctuations in vegetable oil prices.
DR ERHARD BRIEDENHANN