- Used Cooking Oil
From the land grant university in Urbana Champaign, Illinois, this is the closing market report. Heim University of Illinois Extension's Tug Gleeson. Visit us online at willag.orgwilm ag.org. Coming up, no update of the commodity markets this afternoon. However, we will hear again from Jackie Fatka at CoBank.
Speaker 1: 00:21I spoke with her during the November National Association of Farm Broadcasting Convention about sustainable aviation fuel, sometimes called SAF or SAF, and wanted to know why her bank was so terribly interested in it as it relates to agriculture. I also talked with the president of the National Grain and Feed Association about used cooking oil or EUCO and what that might mean in the marketplace as well. It's an interesting energy version of agriculture. I hope you will stay with us for this edition of the closing market report from Illinois Public Medium. It is public radio for the farming world online, on demand, anytime you'd like, or in your favorite podcast applications.
Speaker 1: 01:12Todd Gleason services are made available to WIL by University of Illinois Extension. CoBank is one of the largest private providers of credit to the US rural economy. Now the bank delivers loans, leases, and other financial services to agribusinesses, rural infrastructure, and farm credit customers in all 50 states. It has a vested interest, therefore, in anything that might improve commodity prices. Jackie Fabka follows the biofuels industry for CoBank.
Speaker 1: 01:40Her expertise lies in ag policy, biofuels, trade, regulations, ag labor, climate smart agriculture, and farm management. I spoke with her at the National Association of Farm Broadcasting Convention in Kansas City, and we took up sustainable aviation fuel, sometimes called SAF or SAF. I wanted to know why CoBank, a lending institution, found SAF, a biofuel that can be made from either corn or soybean, so intriguing.
Speaker 2: 02:10Oh, I mean, historically, CoBank has been a a major partner as we've built out the ethanol industry over the years. Obviously, as we look forward towards the next generation of biofuels, renewable diesel is is coming to that picture, but a lot of those renewable diesel plants can also do sustainable aviation fuel. When you talk about the feedstocks that are really viable today for SAF, we're looking at the half a process. So our soybean crushers, we've seen a significant expansion within the soy crush space. And as well as, you know, we've got the livestock partners in there too.
Speaker 2: 02:43So, you know, a lot of distaste is sometimes for tallow, but we've got a lot of tallow that we're using, some joint ventures here with US companies that we are partnering with, who also have those GVs with Brazil to help bring the tallow in here. So it's a big interest to ours. You know, obviously, with commodity prices where they are, everybody's hoping for that SAF to provide that new demand boost. We got a lot of things that have gotta come, together to really see that industry take off.
Speaker 1: 03:09When CoBank enters a space like this, is it all through financing?
Speaker 2: 03:13You know, and I will say my role in the knowledge exchange team at CoBank is to just help research, help provide some of that insight of where the market is today, where it could go, and and what we need to think about as we move forward. And and, again, the feedstocks. Right? I mean, we're not necessarily right now funding any SAF plants, but we're there to come alongside those customers as they're looking at expansion, looking at maybe new opportunities to be in that space.
Speaker 1: 03:37When you're looking at that space, of course, you talked about, tallow. However, corn, soybeans both would be capable. Which is the primary that you think the, airline industry would be most interested
Speaker 2: 03:50Well, today, really, the production cost of producing a HEPA based sustainable aviation fuel is is a is much less than the alcohol to jet, and that's really why we're seeing all the SAF that is produced today with the HEPA process. You know, there's some pilot plants for alcoholic jet, but, again, we're it's gonna take time. You look back at the ethanol industry, though, it took time for us to improve those efficiencies, improve the over the history of ethanol. It was not economical at the start, but those efficiencies is approved. You know, hopefully, we'll get that way with Alcohol and Jet because we do have a lot of corn that needs to be used.
Speaker 2: 04:26So but, again, that's a longer term outlook. We gotta get some of these markets maybe established with the half a process today, get those introduction into the the airline space. They they using them using those lower prices, keeping the airlines competitive too because it does cost more for them today.
Speaker 1: 04:43So let me make sure I understand this. The difference in those two processes, between FAME, I'm guessing, and the HEPA process within the soybean oil or vegetable oil industries?
Speaker 2: 04:55Okay. So, the HEPA process uses, same feedstocks as as as FAME. Alcohol to jet is a totally different process, and they have a total different cost structure. And how you process that down to make your final fuel is what's different, and the cost is quite a bit different without getting too far into the weeds.
Speaker 1: 05:14Yeah. So just for clarification, the alcohol to jet fuel process is an ethanol process, and the other is a biofuels process. Primarily, we would think about soybeans. FAME is the normal process under which we have produced soy diesel for decades, and then the HEPA process is the process that would be for sustainable aviation fuel. Is it also for renewable diesel?
Speaker 2: 05:41Yes. And so that HEPA process can toggle back and forth between renewable diesel and SAF. You're seeing more, renewable diesel facilities come online that actually could have half of their capacity renewable diesel, half of it SAF. And also too, as the market drives that, they could actually go more towards one than the other. So, say, California market needs more renewable diesel, they could produce more renewable diesel.
Speaker 2: 06:02If you start to establish SAF, more cup cost competitive, you have states who come in like Illinois who does have a SAF bonus per se, right, with their tax structure, you could see more of those plants shifting towards SAF. Again, the all of those pieces coming together to push maybe more production into SAF.
Speaker 1: 06:22The Phillips 66 Rodeo plant in California is, I think, the largest one now, in the United States, maybe on the planet. How important is it to have it in place as a driver for sustainable aviation fuel or renewable diesel for that matter?
Speaker 2: 06:40You know, I think just just overall as going back to the 3,000,000,000 gallon goal that the Biden administration had. 3,000,000,000 gallons is about 10% of our current, use of aviation fuel. We're at 52,000,000 gallons was our first half of twenty twenty four. That's a drop in the bucket. Right?
Speaker 2: 06:57So we need these bigger plants. We need something bigger than the the pilot sales. And so you talk about Phillips 66 for Rodeo. It's a bigger one. Right?
Speaker 2: 07:04You gotta have more market penetration, and that's where you're gonna start to see that when you see these bigger facilities come online.
Speaker 1: 07:10When you look forward with the change of administration, how do you see this playing out? What role do states play, for instance, California as opposed to the federal government?
Speaker 2: 07:20You know, California's got their low carbon fuel standard, which is actually a huge reason why we're seeing more renewable diesel than SAF because of the fact that it is more profitable to make renewable diesel. Now they have a 20% cap coming on veg oils that will limit corn and soy or soy oils use in their renewable diesel. But they don't have that cap on SAF. Maybe that pushes a little bit more into SAF in California state. Right?
Speaker 2: 07:44Overall, you know, the federal, we're waiting for 45 z, which is a tax credit that's supposed to go into effect January 1. With this new Trump administration, do we see that paused? Probably. How long? We'll wait and see.
Speaker 2: 07:56But there is a little more unknowns on the federal level. So, you know, when we might see some states step in, airlines still have overall goals they're trying to meet. And so, again, market mandates for you know, market decisions versus government mandates, we're gonna have to see which one is the greater driver.
Speaker 1: 08:12The airlines is actually a market decision based on what they believe the whole of the planet thinks about traveling by air, and what those airline travelers want from the airlines.
Speaker 2: 08:25And you're starting to see some airlines who are actually asking if their customers are willing to pay for their emissions. You're starting to see that at the end of your receipts if you're looking at that. Some are paying for that. I guess, you know, I've heard numbers between 8 12% of of customers today are making a decision of, hey. I'm willing to pay a higher price.
Speaker 2: 08:43Now are you willing to pay all of that higher price? Maybe not, but maybe fractions of that. You know, airlines, do have their own microscope on them from folks around the world. We may be stepping out of Paris Climate Accord as a country of United States, but these these same, airline companies operate in all these other countries. You look at the EU, they have a 2 percent mandate.
Speaker 2: 09:03So any of our airlines who are based here that also operate in the the EU, they're gonna be having to abide by those EU rules. We may start making SAF and shipping it over to the EU to help them meet their mandate as well.
Speaker 1: 09:15When you look across the regions in the US, where do you expect SAF facilities to be located? Usually, they're colocated with a refiner, a refinery. That would put them on the Gulf Coast, probably on the West Coast, unlike the ethanol industry with which built out right where the corn, was supplied.
Speaker 2: 09:39You know, really gotta be close to those major airports. Right? A big cost of SAF is getting the SAF from the facility just to the air airport. Right? You know, we look at Chicago Midway's got a a partnership there to to work with the airline Southwest Airlines.
Speaker 2: 09:55You gotta get it close to that. But in Minnesota, there's Camelina producers who are producing a crop, sending it to Montana. Montana Renewables is processing it, and then they're sending it back to Minneapolis and Detroit. Somehow, that doesn't seem quite sustainable, so we really probably gotta get some of these facilities, refineries close to those airports that are gonna use the most of it.
Speaker 1: 10:13Which brings me back to ethanol. The plants are already located. If you say Chicago, you have the ethanol plant located nearby. I believe there's already a pipeline as well, which is the most efficient way to move this product. Why soybean or vegetable oils rather than alcohol to jet?
Speaker 2: 10:32It goes back to cost. The alcohol to jet cost, plant producing that final SAF, the cost are just a lot higher. And in in our mind, we think it just doesn't make sense, but the cost, the how to process that down, how to process the the the corn kernel down to what is usable and sustainable aviation fuel is a lot different than what is being used. If you think about it too, soybeans aren't the ones that are being processed into your SAF. You gotta get a soybean oil that's then processed into it.
Speaker 2: 11:01So those plants have an oil that's already coming in. Something that's a little more processed than, like, your corn corn kernel that would arrive.
Speaker 1: 11:09In your crystal ball, when you think about this, and the location of those plants near primary hubs, that would put them in Atlanta and Minneapolis and O'Hare for Chicago, New York, likely LAX. Do you see farmers in those areas or other people building out SAF plants? I don't know whether I wanna call them refineries, but an SAF plant much like they built out the ethanol industry in the, late 2000?
Speaker 2: 11:41I mean, look at where the Georgia Lanza Jet plant is. Right? I mean, that's that's our first real alcohol to jet one. I mean, the other one that we are pretty far along on is the Gevo one in South Dakota. You know, Lands' the Jet's making that choice.
Speaker 2: 11:53Things that are coming in are are able to come in off the gulf too. You might be able to import in things and but in our minds, we wanna see rural America thrive. Right? So how do we make sure that this is beneficial to all? I think we're gonna have to wait and see.
Speaker 2: 12:05I don't know if my crystal ball is clear enough to show me that.
Speaker 1: 12:07Well, I I I think my Chris what I was asking was whether your crystal ball was telling you that, they're going to have to build a vegetable oil plant for SAF as opposed to a alcohol to jet for SAF?
Speaker 2: 12:21So so the challenge, we do become feedstock constrained with the HEFA process. We have much more potential to make a lot of SAF with our corn versus making a lot of SAF with, say, soybean oil. And so you're more feedstock constrained, which is, again, hopefully, we can get that alcohol to jet cost down so that it can be another really big opportunity like the ethanol industry was to really take that to the next level of the production capacity to produce SAF.
Speaker 1: 12:53Jackie Fabka is the lead economist for farm supply and biofuels at CoBank. It's an agricultural facing lending institution. She wrote an article in October titled charting the path forward for SAF. To the key takeaways as she sees them are that SAF needs additional government and market incentives to encourage expansion, and that these incentives must be great enough, in the case of soybean, to turn refineries away from producing renewable diesel and to the much larger potential sustainable aviation fuel market. The incentives, by the way, are what University of Illinois agricultural economist Scott Irwin refers to as the policy stack.
Speaker 1: 13:35Essentially subsidies are regulations which encourage the use of sustainable fuels as defined by governments. I moderated a pair of webinars that Scott presented on the subject. Thursdays, December 4th 11th. You may find the details of these in the calendar at willag.org or under the webinars events tab on the FarmDoc Daily website. You're listening to the closing market report from Illinois Public Media.
Speaker 1: 14:07It is public radio for the farming world online, on demand, anytime you'd like at willag.org. That's willag.org. Just click and play from the website, the closing market report, commodity week, the opening market report as well. Again, the address willag.org, or search them out by name in your favorite podcast applications. Let's stay with energy policy and biofuels for a moment, but we'll switch to logistics.
Speaker 1: 14:46Fuel as a liquid is relatively easy to transport. However, when using a feedstock like soybean to make renewable diesel or sustainable aviation fuel, the other product in the stream is protein. We give you the price of those two products here on Illinois Public Media most days when reporting from the CME Group soybean oil and soybean meal futures. The oil pressed from the soybean is made into cooking oil, and fuel, and a whole bunch of other things. The solid part left over contains protein, and it's called soybean meal.
Speaker 1: 15:22It's usually fed to animals. The push for more fuel to be made from soybean is causing more soybean meal to come onto the marketplace. It needs to be shipped further, and that as you'll hear in a bit is a logistical issue the National Grain and Feed Association has been considering. I spoke with its president and CEO, Mike Seifert. He'll first tell us what the NGFA does and who it represents, its grain elevators, but here's how he tells it.
Speaker 3: 15:51Three key things we really do. We advocate, for the industry, a lot of advocacy in Washington. We do a number of safety programs, for the industry. And then we also, we've been in association for a 128 years and for about a 123, 24 of that, we have run a, arbitration program and trade rules. So kinda really kinda the true rules of trade governing the industry, as well.
Speaker 3: 16:17And those are kind of the 3 primary things we do for our membership along with a lot of, educational opportunities
Speaker 1: 16:23in the areas or in your specialties?
Speaker 3: 16:26Yeah. Absolutely. We spend a lot of time working on transportation issues, whether it's rail, whether it's water, whether it's highways. Obviously, huge importance for our members being able to move that product. And so that is a I I would kinda say if you when it comes to policy and advocacy work, if you ask the majority of our members, they would probably tell you that's one of the most important things we do for them on policy and that's kind of our bread policy.
Speaker 1: 16:52Advocate in that? Is it talking about advocating for the lock and dam systems? Is it advocating for roads and bridges? Is it advocating for rail spurs? What what sorts of things?
Speaker 1: 17:06Yes.
Speaker 3: 17:07I thought so. So so we will do a lot of work, obviously, working with Capitol Hill. You know, one of the things that we're working on right now is the Water Resources Development Act reauthorization. Locks and dams, particularly on the Mississippi system, the Illinois River, the Ohio River. A lot of focus, a lot of time on that both for for the upgrades that we need.
Speaker 3: 17:29A lot of those locks and dams, you know, had an original 50 year life was what they were targeted for. They were built in the 19 thirties. We're getting close to the 20 thirties. So on that, also, we'll put a lot of focus on the river dredging and the channels and making sure particularly on the lower Mississippi that we can continue, to move those facilities. On the rail side, lot of work with the hill, lot of work with the surface transportation board, in terms of oversight regulation, other railroads.
Speaker 3: 17:56And then we do all the class ones are our member companies, but we also do a lot of work with the class ones and our membership to really kinda try and make sure, we're working with them in a way, that can keep these products moving. And then obviously, highway infrastructure, is important as well whether it's the highway infrastructure or hours of service regulations, weight limits on trucks. Those are areas that we split a lot
Speaker 1: 18:24closer together. The class one railways, and this is the question I really wanna answer and I'm running out of time. But, I I I'd like you to I don't know whether you've been doing work on this or not. As the development of renewable diesel and SAF have come into play, there is it's it's fairly easy to move being oil, not so easy to move being meal. It appears that we'll need to be railed somewhere else.
Speaker 1: 18:49And I don't think our facilities and cars enough to manage that as we build out those facilities. What kind of logistical issues have you been working on, if at all, in this area?
Speaker 3: 19:03Well, I I think certainly one of the things is folks trying to determine exactly how much of that crush is going to come on. But there have been discussions that that may change the rail traffic. It may change the room movement. You know, you may be doing more domestic movements on the initial front than you are export, but you're probably gonna have to export some of that soy meal that you haven't done previously. And so I know that is something certainly those carriers that are in the regions where a lot of this crush is at or or proposed to take place or taken a look at.
Speaker 3: 19:35You're also seeing, some of our member companies that are in the export business are now building or upgrading facilities to kinda be focused more on specifically that soy meal or to have a better better capability to handle it. And so you're definitely you're you're seeing those changes begin to take place in the transportation system and certainly that preparation beginning to take place, for those adjustments.
Speaker 1: 20:01So not many worries at this point about that part of the industry you think the build out will happen?
Speaker 3: 20:07I think from a transportation standpoint, I I think those adjustments will happen. I think there's still some questions. Obviously, you've had some drops in pricing. You've you've had, for some folks, the UCO issue, but, I think there's a lot of discussion too. I think how much of that will come on.
Speaker 3: 20:25You've had capital investment cost, but obviously interest rates are coming down. So will that help bring some of it on? And I know there's some folks also watching, you know, there's been a lot of talk of tariffs, under the new administration. But, you know, I've actually talked to some who have said that might actually lead to some of this expansion depending on what happens on the UCaaS side. So it's it's interesting how something that may be a heartburn issue for one sector of ag may not be for the others or you push 1, it's kinda like whack a mole.
Speaker 3: 20:54You do push one thing here and something else pops up over there. And so I I think that's one of the you know, I think there's gonna be a lot of work trying to figure that out probably over the next year or so would be my guess.
Speaker 1: 21:03Yuko is shorthand for used cooking oil. You've likely heard the Grain Analyst here on Wil Egg discussing the import of used cooking oil into the United States over the past few months. It comes from China and some other countries into California where it's being processed into renewable diesel. There are two reasons this has been the case. First, it costs less than US harvested soybean oil, or has.
Speaker 1: 21:27That might be changing as China adjusts its export policies. And secondly, its carbon footprint is better than soybean. It's used, so the UCO, or used cooking oil, carbon footprint does not pick up until it's been thrown away at the restaurant or wherever it might be first sourced. Soybean oil's carbon footprint runs its whole supply chain, so used cooking oil looks more sustainable because it's being reused, and the first use isn't counted in the carbon footprint. Mike Seifert, whom you just heard, is the president and CEO of the National Grain and Feed Association.
Speaker 1: 22:06I spoke with him during the National Association of Farm Broadcasting Convention in Kansas City. You've been listening to the closing market report from Illinois Public Media. It is public radio for the farming world online on demand. Anytime you'd like to listen, just visit our website, wllag.org. Click and play from the website or search it out in your favorite podcast applications.
Speaker 1: 22:40Now if you're at the website, you'll find not only the daily agricultural broadcast programming, but also information from the agricultural economist along with the animal scientist and the crop scientist right there in written form, print, blogs, all the kinds of things that you might want from University of Illinois Extension and the researchers on campus at the U of Iats at will dotorg. That's willag.org. I'm Todd Gleason.