By Karen Templeton
MSU Ag Communications

MISSISSIPPI STATE -- Biodiesel production has created a new market for soybean oil, and although the demands for this alternative fuel fluctuate, the industry remains strong.

Biodiesel is manufactured from feedstocks such as new and used vegetable oils, animal fats and recycled restaurant grease, and it serves as a substitute for conventional fuels. Soy biodiesel is made from soybean oil and is usually blended with diesel to meet clean air standards. This type of biodiesel has been an important commodity during a time of skyrocketing oil prices.

“Substitute fuels are tied to oil prices,” said Keith Coble, professor of agricultural economics at Mississippi State University. “When oil prices go up, so does the demand for alternatives such as soy biodiesel.”

Coble said less than 100 million gallons of biodiesel was produced in the United States in 2005, and when oil prices shot up in 2008, the country produced 600 million gallons of the alternative fuel.

A new study by the United Soybean Board and the soybean checkoff program shows the demand for biodiesel brought U.S. soybean farmers an additional $2.5 billion in net returns.

“The demand has been a benefit to soybean farmers in Mississippi and across the country,” said Jimmy Sneed, United Soybean Board director for Mississippi. “Using soybeans for alternative fuels is helping meet food, feed and fuel demands all at once.”

Sneed said soybean farmers took a hit in 2006 when trans fats were eliminated from many food products because of U.S. Food and Drug Administration labeling requirements.

“The soybean oil used by the biodiesel industry is offsetting the amount we lost because of trans fat labeling,” Sneed said.

Soybean farmers wanting to take advantage of the biodiesel market face some challenges. Critics have said that the use of agricultural commodities for alternative fuel is partly to blame for increased food prices.

“When processed, soybeans produce 80 percent soybean meal and 18 percent crude soybean oil. Only the oil is used for biodiesel production,” Sneed said. “This is a win-win situation because as the demand for soy biodiesel increases, the amount of available soy protein also increases and reduces the price of meal used for feed.”

Another challenge facing the industry is the Environmental Protection Agency’s proposed rule on the federal Renewable Fuel Standard. To participate in the EPA program, biodiesel must reduce greenhouse gas emissions by 50 percent, and the agency has concluded that biodiesel derived from vegetable oils reduces them by only 22 percent.

“If soybeans do qualify under this new rule, the industry could see a significant boost,” Coble said. “The industry will be presented with some serious challenges if the EPA decides they don’t qualify.”

The soybean industry is encouraging all U.S. soybean producers to mobilize and voice concerns to the EPA.

“We disagree with the figures being used in the proposed rule. This regulation is based on flawed science,” said Danny Murphy, Mississippi’s director for the American Soybean Association. “The best thing we can do is comment on the proposed rule and urge them to consider the tremendous positive impacts soy biodiesel use has in the United States.”

The industry, still in its infancy, already has opened doors and faced opposition.

“Soybean farmers and biodiesel producers are no strangers to this type of volatility,” Coble said. “For instance, there were export opportunities in Europe that closed because of imposed tariffs. Europeans argued the U.S. was subsidizing the commodity and competing with their production.”

For now, the industry remains strong as the demand for biodiesel continues to increase.