Argentina's Biodiesel Exports to the U.S. Increased 77 Percent

By S. Patricia Batres-Marquez
Decision Innovation Solutions, 11107 Aurora Avenue, Urbandale, IA 50322 
http://www.decision-innovation.com/
September 2017

In 2016, the United States imported a record volume of 692.9 million gallons of biodiesel, increasing 96 percent from the volume imported in 2015 (352.8 million gallons). Almost 65 percent (448.5 million gallons) of the biodiesel imported by the United States last year came from Argentina. Imports from Argentina were up 129 percent in 2016 compared with the previous year (195.6 million gallons). According to a USDA Global Agricultural Information Report (GAIN report) published in July 2017, Argentina exported 488.8 million gallons of biodiesel in 2016. This indicates the U.S. imported 92 percent of Argentina’s total biodiesel exports.

Other countries supplying large volumes of biodiesel to the United States in 2016 were Indonesia and Canada. 2016 U.S. imports from these two countries increased year over year: 71.8 million gallons in 2015 to 107.3 million gallons from Indonesia, and 61.2 million gallons in 2015 to 104.7 million gallons in 2016 from Canada. 

The United States also imported 222.8 million gallons of renewable diesel in 2016, coming entirely from Singapore. 2016 U.S. renewable diesel imports increased 9 percent from 204.7 million gallons in 2015. Combined U.S. imports of biodiesel and renewable diesel (biomass-based diesel) reached a volume of 915.6 million gallons in 2016, increasing 64 percent from 557.5 million gallons in 2015.

Based on data from the U.S. Energy Information Administration (EIA) and USDA, Figure 1 indicates 2016 U.S. biodiesel imports represented 33.6 percent of 2016 U.S. biodiesel consumption (2.060 billion gallons). 2016 imports from Argentina, Indonesia, and Canada made up 21.8, 5.2, and 5.1 percent, respectively, of 2016 U.S. total biodiesel consumption. Data available up to 2015 indicates 56 percent of U.S. renewable diesel consumption was of foreign origin coming from Singapore. 

Figure 1 also shows the upward trend in U.S. biodiesel and renewable diesel imports. Boosting this trend throughout these years have been the expansion of the Renewable Fuel Standard targets and the biodiesel blender’s tax credit, which has expired and renewed several times since its approval in 2005. The biodiesel tax credit expired for the last time in December 2016. Although the intention of the tax credit was to promote the U.S. biomass-based industry, the tax credit also incentivized biomass-based imports as it went to the blender of the biodiesel with a traditional fuel, rather than to the producer of the biodiesel. The anticipation of the ending of the tax credit last year may have prompted the substantial increase of Argentina’s biodiesel exports to the United States in 2016. 

A bill (S. 944) was introduced in Congress April 26, 2017 that would convert the blender’s tax credit for biodiesel to a $1/gallon production credit for fuels produced in the United States for a period of three years. Moreover, the bill would provide an additional 10 cents per gallon credit for small U.S. biodiesel producers. Companion legislation was introduced in the House of Representatives (H.R. 2383) May 4, 2017. Both bills would change the tax credit from blender to producer of biodiesel and would discourage U.S. imports of this biofuel. As of now, both bills are pending.

Figure 1. U.S. Biodiesel and Renewable Diesel Production, Consumption, and Imports (Million Gallons)

U.S. Imports of Biodiesel and Renewable Diesel: January-June 2017

The latest data from the EIA indicates U.S. biodiesel imports increased 6.4 percent to 201.8 million gallons during the first six months of 2017, compared with the same period in 2016 (189.8 million gallons). Imports of 171.2 million gallons from Argentina made up 84.8% of U.S. total biodiesel imports from January to June 2017. Despite the absence of the blender’s tax credit for biodiesel this year, Argentina’s biodiesel exports to the United States increased 77.1 percent from January to June 2017, with exports in May and June particularly high compared with the same months last year (see Figure 2). On August 22, 2017, the U.S. Department of Commerce issued affirmative preliminary countervailing duty (preliminary CVD) determination on biodiesel from Argentina and Indonesia in response to a petition filed by the National Biodiesel Board Fair Trade Coalition on March 23, 2017. According to a July 2017 USDA report (GAIN report), Argentina was projected to export about 449.1 million gallons of biodiesel in 2017, which was 8.1 percent lower than the previous year exports (488.8 million gallons). This forecast took into account policies in place in July 2017 in Argentina’s main biodiesel market, the United States, and other markets such as the EU and Peru. So the lower projected 2017 Argentina biodiesel exports was due, in part, to the absence of the biodiesel blender’s tax credit in the United States. This indicates the substantial increase in Argentinean biodiesel exports to the United States from January to June 2017 could have been in anticipation of the preliminary countervailing duty determination on biodiesel from Argentina.

The U.S. Department of Commerce finding indicates exporters of biodiesel from Argentina and Indonesia received countervailable subsidies of 50.29 to 64.17 percent and 41.06 to 68.28 percent, respectively. In addition, Commerce determined critical circumstances exist in the Argentina investigation, allowing for collection of duties for a retroactive period of 90 days prior to publication of the preliminary determination in the Federal Register. The U.S. Department of Commerce is currently scheduled to announce its final CVD determinations on November 7, 2017, but this date could be postponed.

Figure 2. U.S. Biodiesel Imports from Selected Countries (Million Gallons)

Meanwhile, U.S. biodiesel imports from Canada declined 28.3 percent to 30.62 million gallons during the first six months of 2017, whereas no biodiesel imports from Indonesia were registered from January to June 2017 (see Figure 2).

Based on five-month U.S. biodiesel consumption data available from EIA for 2017, the proportion of imports from January to May 2017 (102.7 million gallons) relative to biodiesel consumption during the same five months of 2017 (715.9 million gallons) was equal to 14.1 percent compared with 9.5 percent, the percent during the same period last year. 

In addition, from January to June 2017, U.S. imports of renewable diesel (96.5 million gallons) remained unchanged from last year (January to June), and all imports originated from Singapore (see Figure 3).  The total volume of biomass-based diesel (biodiesel plus renewable diesel) was equal to 298.3 million gallons during the first half of 2017.

Figure 3. U.S. Renewable Diesel Imports (Million Gallons)

Potential Impact of Reducing Imports from Argentina During the Second Half of 2017

Countervailing duties on Argentina biodiesel could be as high as 64.7 percent, putting Argentina’s biodiesel out of the U.S. market. Since practically all biodiesel produced in Argentina is made from soybean oil, and considering a conversion factor of 7.55 pounds of soybean oil per gallon of biodiesel, and that 10.7 pounds of soybean oil are extracted per bushel of soybeans, the United States imported from Argentina the equivalent of about 8.6 million metric tons and 3.29 million metric tons of soybeans through the volume of biodiesel imported in 2016 (448.5 million gallons) and during the first half of 2017 (171.2 million gallons), respectively. 

With no biodiesel coming from Argentina for the rest of the year, the U.S. domestic biodiesel industry would demand more soybean oil, the main feedstock in U.S. biodiesel production, to keep up with 2017 domestic biodiesel consumption. Based on the August 2017 projection contained in the EIA’s Short Term Energy Outlook (STEO), that consumption will reach a volume of 2.5 billion gallons, 0.5 billion above the biomass-based diesel RFS target of 2.0 billion. 

Before the affirmative preliminary CVD determination on biodiesel from Argentina and Indonesia from the Commerce Department, Argentina was projected to export a total volume of 449.1 million gallons of biodiesel in 2017. Assuming 92 percent (the U.S. share of Argentina total biodiesel exports in 2016) of those exports was expected to end up in the U.S. (412.2 million gallons), there were still 241.0 million gallons coming from Argentina this year (412.2 million minus 171.2 million, the volume of U.S. biodiesel imports from January to June 2017 from Argentina) the U.S. domestic biodiesel industry now would produce. This extra U.S. biodiesel production would require about 4.63 million metric tons of U.S. soybeans (170.0 million bushels of soybeans equivalent to 1.8 billion pounds of soybean oil). This assumed all this extra U.S. biodiesel production would be made with soybean oil as feed stock; however, in addition to soybean oil, other vegetable oil and animal fat feed stocks are used to produce biodiesel in the United States (e.g., canola and corn oil). The increased demand for soybean oil could indirectly contribute to making the U.S. soybean meal price more competitive.  

USDA’s Oil Crop Outlook report published August 14, 2017, indicated lower expectations for the 2017/18 marketing year U.S. soybean crush, which was reduced by 10 million bushels to 1.94 billion bushels from the July 2017 projection. The lower forecast responded to constrained global soybean meal trade, due to an expected increase in foreign supplies and consumption of rapeseed meal and sunflower seed meal. Under this scenario, the 2017/18 ending stocks of U.S. soybeans were forecast at 475 million bushels, which if realized, would be the largest since the 2006/07 record of 574 million bushels. With the extra demand for soybean oil because of the increased U.S. biodiesel production caused by lower biodiesel imports from Argentina, our estimates indicate about 170.0 million bushels of soybeans would be required. This would contribute to reduce the USDA expected larger soybean ending stock forecast of 475 million bushel for 2017/18.