Published by Global Banking and Finance Review
Posted on March 20, 2025
By Karl Plume and Ed White
CHICAGO/WINNIPEG (Reuters) - U.S. and Canadian biofuel companies are throttling back production to limit losses amid uncertainty over U.S. President Donald Trump's approach to green fuel subsidies and the potential for a worsening trade war.
The splintering relationship between the North American neighbors could upend a multi-year biofuel industry boom that has provided farmers growing demand for their crops as fuel makers have soaked up record volumes of vegetable oils.
Trump's wavering approach to tariffs is rippling down to processors on both sides of the border, who crush oilseeds into meal and oil, and to farmers, who are finalizing their spring planting plans.
While new U.S. tariffs are threatening to make imported feedstocks unaffordable, uncertainty over U.S. biofuel subsidy programs, including a Biden-era tax credit that determines how much producers pay for the oils and fats they make into biofuel, is further hobbling the industry.
The contraction of the green fuels sector could also hurt rural communities and efforts to decarbonize the economy, experts said.
"If this uncertainty drags on, which is what we expect, the biodiesel and renewable diesel industry will contract but not disappear. It will shrink, painfully at times," said Paul Niznik, director of energy at Capstone LLC in Houston.
Citing uncertainty and rising costs, Federated Co-operatives Limited has shelved a renewable diesel and canola processing plant project in Saskatchewan, one of five projects slated to expand Canada's canola crush by 60% over five years.
In the U.S., a biodiesel plant in Iowa was idled in late December and others have slowed production, resulting in the lowest output of the fuel in five years. In January, renewable diesel production fell 17% from the 2024 monthly average, according to Environmental Protection Agency data.
U.S. capacity to produce biodiesel and renewable diesel, two chemically unique fuels made from animal fats and vegetable oils like canola and soy, has grown around 60% since 2022, government data shows, spurred by federal policy to lower greenhouse gas emissions and reduce reliance on foreign oil. The United States is the world's largest producer and consumer of biofuels.
U.S. soybean crush capacity increased 10% in that time as grain giants like Archer-Daniels-Midland and Bunge raced to meet growing demand.
Record oilseed processing margins helped the two companies, which operate half of Canada's canola plants and represent nearly 40% of U.S. soy crush capacity, turn in their best ever profits in 2022 and 2023.
Now, there is a glut of diesel made from non-fossil sources and both ADM and Bunge have warned that 2025 earnings could sink to the lowest in six years due to the uncertainty.
US TURMOIL
Canada dodged a February tariffs deadline only to see Trump impose 25% duties on imports on March 4. Two days later, levies on some products were paused until April 2.
"Just how do you set a price when you don't know if you're going to be wrong a day later, a month later, six months later?" said Capstone's Niznik.
Meanwhile, Trump's administration has yet to provide clarity on clean fuel tax credits.
Former U.S. President Joe Biden transformed U.S. biofuels policy in his signature Inflation Reduction Act, moving from a flat $1 per gallon blenders credit for biomass-based diesel to a variable producers credit based on the carbon intensity of feedstocks.
Biden, however, left office without finalizing guidance about how the policy, known as 45Z, would be implemented. Now, it is unclear whether those rules will take effect at all, industry sources said.
That uncertainty is the main reason Western Dubuque Biodiesel, a million-gallon-per-year biodiesel plant in Farley, Iowa, has been idled since late December, its lengthiest downtime since 2010, according to General Manager Tom Brooks.
"If I were to run today, I lose 46 cents a gallon under 45Z. Under that previous credit, I would have made 15 to 20 cents a gallon," Brooks said.
The industry is also urging the Trump administration to increase biofuel volumes under the Renewable Fuel Standard, another crucial source of government support for producers.
Under existing RFS volume mandates set to expire this year, the amount of biodiesel and renewable diesel production backed by the RFS is only 3.35 billion gallons annually, well below the industry's capacity of around 5 billion.
The EPA, which administers the RFS, did not respond to a request for comment.
RISKS ON THE FARM
Canada shipped $6.02 billion in canola and canola products to the U.S. in 2023, including $4.37 billion in oil. Those products, and any Canadian-produced biofuel, face 25% tariffs starting April 2.
"Given the risk, prices are going to drop. Shipments are going to slow. Long-term contracts are going to get very, very tenuous," said Rick White, president and CEO of the Canadian Canola Growers Association.
Analysts say the uncertain future has already depressed canola prices by up to $100 per metric ton.
U.S. soybean growers are also expected to slash plantings this spring amid a supply glut and tepid demand, with crush margins down almost 60% from a year ago.
Kody Blois, Canada's new agriculture minister, said on Monday that he was working with Prime Minister Mark Carney to create more demand in Canada.
Meanwhile, Alberta farmer Andre Harpe still has canola from the 2024 harvest.
"Right now we don't know if we should be selling or holding or dumping," Harpe said.
Farmers can alter what they plant this spring, but for a giant crushing plant built to feed what had been a growing market for vegetable oils, adaptation is no easy thing.
"Not knowing what your biggest market is going to do tomorrow is frustrating, to say the least," Canadian Oilseed Processors Association Executive Director Chris Vervaet said.
(Reporting by Karl Plume in Chicago and Ed White in Winnipeg. Additional reporting by Stephanie Kelly and Jarrett Renshaw. Editing by Emily Schmall and Marguerita Choy)
Explore more articles in the Finance category
