US Renewable Diesel Boom Has Peaked: Economist

Soybean farmers have reaped significant benefits from the renewable diesel surge, yet agricultural economist Scott Irwin said he believes the boom has peaked.  

Irwin, of the University of Illinois, said during a presentation at the Purdue Top Farmer conference earlier this month that with total US renewable diesel production capacity already outstripping White House mandates, the boom is set to fizzle. 

“The renewable diesel boom we have in place today, that’s been raising soybean prices, it’s going to remain,” he said. “We’re just not going to take the next leg up that a lot of people have been talking about, at least not in 2024.” 

High production costs make renewable diesel notably more expensive than traditional petroleum diesel, typically running as much as US$1 to $2/gallon above, and at times as much as $5 higher, Irwin said. Given that cost disparity, the industry largely survives on government blending mandates which currently demand 4 billion to 4.5 billion gallons of renewable diesel and biodiesel be blended into the nation’s fuel supply by 2025.  

Irwin pointed out that without these mandates, the high production costs would make renewable diesel unattractive to consumers, essentially bringing its market demand down to zero. Regardless, US renewable diesel production capacity has been on the rise, with projections reaching up to 5.5 billion gallons by the end of this year and 7.5 billion beyond 2025 – well in excess of the government mandates.  

By his own estimates, Irwin said the renewable diesel boom has added about $2.50/bu to the price of soybeans in the last three crop years. 

However, Irwin said that may be as much as farmers get. He said he doubts there will be any increase in government blending mandates in the short term and doesn't foresee the US exporting its way out of the oversupply. Eventually, the supply-demand imbalance may force a reduction in production capacity, affecting both new and existing plants. 

While the government's mandate ensures a stable market for renewable diesel, it also caps its potential growth, potentially leading to challenges in 2024 for the production side of the industry. 

Irwin, however, sees potential in sustainable aviation fuel (SAF), though he cautions that its full impact on agricultural markets might not be felt for several years.