U.S. biofuel target boosts soyoil, canola

Oilseed prices, including canola, rose following the announcement of new U.S. biofuel targets last week.

The U.S. Environmental Protection Agency’s overall biofuel target of 19.28 billion gallons for 2017 was larger than expected and the component for advanced biofuels of 4.28 billion gallons, which includes biodiesel from vegetable oil, was particularly strong.

On Nov. 27, the day of the an-nouncement, soy oil futures jumped nearly seven percent. Canola futures rose 1.5 percent.

The primary feedstock for U.S. biodiesel fuel is soyoil, so the EPA’s targets should tighten domestic soyoil stocks.

The U.S. Department of Agriculture currently projects U.S. soyoil stocks at the end of the 2016-17 marketing year at 1.658 billion pounds.

“No matter how you cut the mustard, you are going to take some of this carry-out down, probably half a billion pounds,” said Charlie Sernatinger, an analyst with ED&F Man Capital.

The markets determined that the soy oil futures rally was overdone and pulled back the day after the announcement, but for the week the January contract gained 7.7 percent. Canola rose 2.7 percent.

The oilseed complex was also supported by stronger than expected U.S. soybean exports.

The EPA requirements include 15 billion gallons for conventional biofuel, which is mainly corn-based ethanol.

However, corn futures did not respond to the news. Even with somewhat stronger ethanol production, the U.S. corn year-end stocks are expected to be ample. Also, U.S. corn is expected to face strong competition from South American corn in a few months when the harvest there gets going.

The oil industry is expected to renew its effort to persuade the U.S. Congress to repeal the Renewable Fuel Standard program.

The EPA plan is “completely detached from market realities and confirms once again that Congress must take immediate action to remedy this broken program,” said Chet Thompson, president of the American Fuel and Petrochemical Manufacturers.

President-elect Donald Trump had strong support from farmers in Midwestern states and the oil industry, so it is not clear how his administration will view the biofuel program.

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