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Global oilseed market: Tesla disrupts the situation, and the biofuel market has more porridge

 Last Update: 2022-12-29
 Source: Internet
 Author: User

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Foreign media news on December 4: In the week ending December 2, 2022, global oilseed prices were mixed, and the most interesting event was the collapse
of US soybean oil futures.
In this report, we will focus on the EPA biofuel proposal
that triggered the soybean oil crash.

Chicago Board of Trade (CBOT) January 2023 soybean futures closed at about $14.
385/bu on Friday, up 0.
2% from a week ago; The spot price of No.
1 yellow soybeans for the November schedule of the US Gulf was $15.
685 per bushel, down 0.
7%
from a week ago.
CBOT's January soybean meal was at $424.
1 per short tonne, up 4.
4% from a week ago; January soybean oil futures closed at 65.
22 cents a pound, down 9.
1% from a week ago; Euronext's February 2023 rapeseed futures closed around Eur566.
75/mt, down 3.
9%
from a week ago.
Intercontinental Exchange (ICE) canola for March closed at C$841.
7/mt, up 4.
5% from a week ago; Argentina's upper river soybean FOB spot quotation was $589 per tonne (including 33% export tax), down 0.
5%
from a week ago.

The ICE dollar index closed at 104.
500 on Friday, down 1.
3 percent
from a week ago.

The EPA has proposed blending targets for the next three years

The EPA's blending targets for the next three years, released Thursday, show that U.
S.
biofuels will grow by about 2 billion gallons
overall between 2023 and 2025.
The supply of advanced biofuels, including biodiesel, has grown by just 200 million gallons, and the industry's capacity is already well above the EPA's mandated volume
.

Chicago International Futures analysts said most traders expect renewable fuel blending requirements to increase by 10 to 1.
5 billion gallons in 2023, while the actual announced increase is only 190 million gallons, up from 20.
63 billion gallons in 2022 to 20.
82 billion gallons
.

Tesla disrupts the situation

The EPA's proposal on Thursday to create an e-RIN to expand the renewable fuel program to electric vehicles suggests that the Biden administration's focus on reducing vehicle emissions is advancing the electric vehicle industry rather than using more crops to produce biofuels, meaning the outcome of the "food vs.
fuel" battle is more favorable for food
.
The food fuel debate is about whether more crops should be used to produce food or renewable fuels
.

More than a month ago, there were media reports that Tesla helped the Biden administration develop the e-RIN plan
.
Under the proposal unveiled Thursday, it would be eligible to generate a "D3" RIN
if renewable resources, such as biogas from landfills, were used as electric vehicle power.
With e-RIN coming into effect on January 1, 2024, D3 RIN will also increase significantly from 720 million in 2023 to 2.
13 billion by 2025, each representing 1 gallon of biofuel
.

According to the EPA proposal, electric vehicle manufacturers like Tesla will generate as many as 600 million e-RINs in 2024 and 1.
2 billion by 2025
.
For every 6.
5 kWh electric battery produced by Tesla based on renewable fuels, it can generate one e-RIN
.

Canola also comes to get a piece of the pie

The EPA also allowed canola oil to enter renewable fuel projects
for the first time.
Biodiesel, renewable diesel, aviation fuel and hydrotreated heating oil produced from rapeseed (rapeseed oil) are eligible to generate Class D4 RIN if produced through the hydrotreatment process; D5 RIN is eligible if produced through a process that co-processes renewable biomass and fossil fuels, and naphtha and liquefied gas produced using rapeseed oil using hydrotreatment are also eligible to generate D5 RIN; Biodiesel and heating oil produced from rapeseed oil by esterification are eligible to generate D4 RIN
.

There are more monks and less porridge, RIN falls, and the profit of biodiesel production falls

We can understand RIN as a compliant currency
.
EPA-approved production facilities, such as Tesla, generate a 38-bit RIN code for every 1 gallon of renewable fuels (including ethanol, biodiesel, renewable diesel, and other advanced biofuels) produced, which can be sold to U.
S.
refineries
that need to complete compliance tasks.
This equates to a larger currency pool, and lower-than-expected blending requirements for advanced biofuels based on soybean oil mean less demand to buy a RIN, which in turn puts pressure on RIN prices, further squeezing biofuel producers' margins
.
A sharp decline in soybean crush margins could trigger bulls to close their positions
further in the soybean market.
After the EPA announced its blending target on Thursday, each RIN traded between $1.
65 and $1.
70, down from $
1.
84 in the previous session.

The soybean industry expressed dissatisfaction

EPA is currently seeking feedback
on the proposal.
February 10 is the deadline
for feedback.
EPA is committed to finalizing the rule
by June 14, 2023.
A public hearing will be held in Congress on January 10 next year,

U.
S.
biodiesel and advanced biofuels groups have outspoken dissent, arguing that the proposal fails to reflect the growth of
renewable diesel and other products in the United States.
The Clean Fuels Industry Association believes the EPA is vastly underestimating existing biodiesel production and has failed to provide room for demand growth for additional capacity the industry has already invested, including sustainable aviation fuel (SAF).

The American Soybean Association (ASA) said the blending requirements for the next three years show the EPA's commitment to biodiesel is reversed
.
ASA President Brad Doyle said in a statement after the EPA announcement that billions of dollars have been invested in building and developing the infrastructure needed to support the industry, and President Biden has made a clear commitment to slow climate change and reduce greenhouse gas emissions
.
But the EPA's proposal "puts the brakes"
on biofuels investment and industry development.

The U.
S.
Energy Information Administration expects U.
S.
renewable diesel capacity to grow from less than 1 billion gallons in 2020 to more than 5 billion gallons
by 2024.
Soybean oil is expected to become the most important raw material
.
As of February 2022, the current renewable diesel production capacity in the United States is 1.
5 billion gallons
.

On Thursday, the EPA said more than 5 billion gallons of new renewable diesel capacity has been announced, but it's likely that not all of the announced projects will be built, and not all completed projects will produce renewable diesel
in the next three years.
The EPA believes that raw material sources will be important
given the high cost of renewable diesel plants.
If there is no guarantee that there will be enough feedstock to achieve capacity, it seems more likely that the renewable diesel plant that has been announced will not be built
.

The pace of U.
S.
soybean exports has slowed

The USDA's weekly export sales report showed that US soybean net sales in 2022/23 were 690,000 mt in the week ended Nov.
24, essentially unchanged
from last week.
Sales to China were 930,000 tonnes that week, compared with 720,000 tonnes last week and 660,000 tonnes
in the same period last year.
Total U.
S.
soybean export sales (loaded and unshipped) so far in 2022/23 were 37.
3 million mt, up 0.
4% year-on-year and 1.
4%
year-on-year the week before.
Among them, sales to China were 22.
6 million tons, an increase of 10.
9% year-on-year, and a year-on-year increase of 9.
8%
in the previous week.

Analysts at Chicago Agricultural Resources said China bought four to five cargoes of U.
S.
soybeans with a January schedule and five to seven cargoes of Brazilian soybeans
on a February/March schedule.
China is completing its January purchase plan and moving to South American soybeans
in February.

The pace of soybean sales in Argentina accelerated

Argentine farmers sold 567,815 tonnes of soybeans on Tuesday (Nov.
29), once again refreshing their highest one-day sales in two months and up 90% from Monday's sales of 298,911
tonnes, the Rosario Grain Exchange (BCR) said on Wednesday.

From November 28 to December 31, the Argentine government sold soybeans at an exchange rate of 230 pesos to 1 dollar, nearly 40 percent more than the revenue from selling soybeans at the official exchange rate, thereby encouraging farmers to actively sell soybeans
.
Before the preferential exchange rate was implemented, sales on 25 November were only 78,303 tons
.
This is the second time that the Argentine government has implemented a preferential exchange rate
for soybeans.
Previously, between September 5 and 30, Argentina implemented a preferential exchange rate of 200 pesos to the US dollar, and the official exchange rate at 140 pesos at that time helped farmers sell 13.
3 million tons of soybeans in a month, compared to the usual 4.
4 million tons
of soybeans sold by Argentine farmers per month.

Argentina will have dry and hot weather next week

The weather in South America has been dry
in November.
In mid-to-early November, precipitation was lower than normal in almost the entire major growing areas of the South American continent
.
In the 30 days since the end of October, much of Argentina and Brazil has received about 30 to 75 millimetres (1.
2 to 3 inches) below normal, or about 30-60 percent
of normal.
Rainfall has improved
recently in northeastern Brazil.
Paraguay received near- or higher-than-normal rainfall, with locally heavy rainfall
in Argentina's southernmost growing region.
However, rainfall remained below normal
in Argentina's main agricultural regions, as well as in southern and central Brazil.
Long-term weather models suggest that rainfall in southern Brazil and Argentina will be lower than normal in December
.

Over the next 10 days, rainfall is expected to be normal to above-normal across Brazil's
soybean-growing belt.
The entire southern half of Argentina will be drier
over the next 10 days.
This weekend and next week there will be hot and dry weather all over Argentina.
The previous widespread drought has slowed spring soybean and corn plantings in Argentina
.

More than a third of Argentina's early-planted soybeans will not be rated generally to poor due to persistent drought, and the weather in the first week of December will not improve significantly, temperatures will be higher than normal and rainfall will persistently inadequate
, the Rosario Grain Exchange said on Dec.
1.

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