A biodiesel trade war in the United States should result in new demand for Canadian canola oil, says an economist.
The U.S. commerce department issued a preliminary ruling last week paving the way for antidumping duties on imports of biodiesel from Argentina and Indonesia.
The duties range from 54 to 70 percent on soy biodiesel from Argentina and 51 percent on palm biodiesel from Indonesia.
That is in addition to countervailing duties of 50 to 64 percent on biodiesel from Argentina and 41 to 68 percent on biodiesel from Indonesia that were established in August.
The duties are collected as cash deposits and held in trust until final rulings are in place. The final ruling on the countervailing duties is scheduled for Nov. 8 and the final ruling on the antidumping duties is scheduled for Jan. 3, 2018.
Scott Irwin, agricultural economist with the University of Illinois, said everybody he talks to in the biodiesel industry expects no changes in the final rulings.
He said it is impossible to statistically determine what impact the duties have had on imported biodiesel because the most recent import data is a few months old. However, there is plenty of anecdotal evidence.
“Of all the people I’ve talked to in the industry, it’s a full-on stop of biodiesel imports to the U.S. from Argentina and Indonesia,” he said.
The U.S. imported 3.5 billion litres of biodiesel in 2016, including 1.7 billion litres from Argentina and 386 million litres from Indonesia.
That is 2.1 billion litres of supply that is going to have to come from somewhere else now that the duties are in place.
“The simple answer is that the U.S. then uses all of its own biodiesel production capacity,” said Irwin.
There are 15.9 billion litres of biodiesel production capacity in the U.S. but only about 7.6 billion litres of actual annual production.
“We’ve got a lot of excess capacity that could easily make that up domestically,” he said.
The question is, is there enough soybean oil to feed those plants?
“I suspect that the U.S. just might see its soybean oil exports dry up completely and we’ll just use it all domestically,” said Irwin.
The U.S. exports 2.1 billion pounds of soybean oil annually, which is enough to produce 1.1 billion litres of biodiesel. That still leaves a shortfall of one billion litres.
“It’s hard to see how we’re not going to have to import some soybean oil, canola oil or something,” he said.
Argentina could export soybean oil instead of biodiesel to the U.S., but it faces a hefty 27 percent export tax. That gives Canadian canola oil a big advantage.
Irwin believes some of the 13.8 billion lb. of soybean oil used for food, feed and cosmetics in the U.S. could be diverted to the biodiesel sector. That diverted soybean oil could be replaced by Canadian canola oil imports.
Whether canola oil is used directly by the biodiesel plants or as a replacement for displaced soybean oil in the food sector, it would be a new source of demand for the product that could boost prices.
Irwin said it is important to keep in mind that the biodiesel duties are not going to increase overall vegetable oil demand in the U.S., but it will reshuffle the deck in terms of what oil is used where.
“Undoubtedly, I believe in the transition there will have to be some price pressures to bring about these readjustments,” he said.