CHS sees 'bullish' demand in soybean oil, citing renewable diesel

MANKATO, MINN. - Where the Blue Earth River empties into the Minnesota River, a plant has been crushing farmers' soybeans since the 1930s.

One of the largest soybean oil-producing refineries in the world, the facility has been humming since California's aggressive low carbon fuel standard triggered higher demand for renewable feedstocks from diesel manufacturers.

"More gets crushed here [in Mankato] on a daily basis than anywhere in the world," said Joe Smentek, executive director of the Minnesota Soybean Growers Association. "The industry goes quietly about its business, but it's a huge economic driver for the state."

Last fall, CHS, the nation's largest farmer-owned cooperative, announced a $60 million expansion project to the Mankato refinery, which extracts oil from flattened soybeans.

Historically, most of that oil has been processed for human consumption, such as in salad dressings or cooking oils. But CHS leadership says the facility will also aim to fill in a "demand pull" from a West Coast increasingly seeking cleaner-burning diesel fuels, some made from soybean oil.

Talk of additional markets adding low carbon fuel standards — such as New York — has agriculture executives eyeing unprecedented opportunity.

"The demand pull, just for California, has created this exuberance," said John Griffith, CHS' ag business vice president, in an interview late last month. "You could consume all of the soybeans that we export to the world, just in those two markets [California and New York]."

Renewable diesel can be made from more than oilseed. For instance, Minnetonka-based agriculture giant Cargill will convert beef tallow into oil at a planned Nebraska facility. But soybean purveyors see an advantage in extracting oilseed from a crop grown plentifully across the Midwest.

In North Dakota, Marathon Petroleum has teamed up with Chicago-based commodities trader Archer-Daniels-Midland to open a facility that is expected to produce over half a billion pounds of soybean oil as feedstock for renewable diesel.

Like corn, soybean is a crop that keeps on giving. While 80% of the bean is crushed and made into meal, which is mostly fed to livestock, another 20% goes into extracted oil.

"The question 20 years ago was, 'What are we going to do with all the soybean oil?'" Smentek said. "Now, we ask, 'What are we going to do with all this soybean meal?'"

Renewable diesel — different than biodiesel, which must be mixed with gasoline to power vehicles — is chemically identical to petroleum-based diesel. In other words, it can replace traditional diesel in a heavy-duty vehicle's engine. Since renewable diesel burns cleaner — or with fewer emissions — than traditional diesel, it's also highly valued for its low carbon footprint, especially in progressive states.

It's this demand that CHS says it's chasing. The cooperative finished a $105 million expansion last year at a soybean crush facility in Fairmont, Minn., just north of the Iowa border. Plant workers say they see as many as 500 trucks a day, many bringing crushed soybeans back up to Mankato for refining.

"The truck traffic has picked up quite a bit," said Brandon Nordstrom, the Fairmont plant manager. "As a local farm kid, I see how important it is to the farm community around here — what a difference having a larger user of their soybeans is."

The state's soybean crop has been erratic in recent years. In 2019, the production of soybean fell by more than 20% in Minnesota as trade wars and poor weather abounded. The cash crop has since bounced back, with over 7.5 million acres in the state in soybean production, behind only Illinois and Iowa.

On a cold morning in late October, Dale Stenzel, a farmer from Montgomery, released soybeans from his hopper into the grates below the elevator on the crush side of the Mankato plant. Some locals still call this place by its old name, "Honeymead."

"The whole thing takes five minutes," said Stenzel, who swiped a CHS card to register his load.

"If there's increasing demand for vegetable oils, it's going to be like 2005 all over again, when there's a food-versus-fuel debate," said Walter Kunisch, senior commodities strategist at Hilltop Securities. "But nobody's talking about it right now."

As neighbors in farm country have long known, what's good for the corn farmer can be bad for the hog producer, and vice versa. Still, for the plant along the river in Mankato, momentum is building.

Jim Graham, plant manager, has been with CHS in Mankato since the early 1990s. He says the plant employs roughly 240 people. In addition to refining and crushing, the plant also operates one of the nation's only soy flour production facilities. For an industry predicated on a quiet, lunch-pail ethos, the last 18 months still take some getting used to.

"In the 30 years I've been here, I've never seen this," said Graham, holding up a trade publication announcing new, proposed crush sites during an interview with the Star Tribune last month. He's used to incremental growth — not booms. "This is an industry that doesn't do this."