MITCHELL — The business of soybean oil has never been bigger for the South Dakota Soybean Processors.
And in 2021, it had 254 million reasons why it was time to expand its business, leading the Volga-based company to pursue a second large-scale soybean processing plant south of Mitchell, expected to cost $500 million on a 296-acre piece of land along South Dakota Highway 37.
South Dakota Soybean Processors (SDSP) is looking for final regulatory approval from Davison County’s Board of Adjustment on Tuesday, July 12, which will be considered at 10 a.m. at the Davison County Fairgrounds outside of Mitchell.
The expansion plans come after a staggering year in 2021 for SDSP, which had $254,974,323 in soybean oil revenues, according to the company’s annual report filed with the Securities and Exchange Commission. That reflected a 73.6% increase in revenue over 2020 and exploded over the typical $127 million to $147 million in soybean oil revenue taken in annually from 2016 to 2020.
The rest of the soybean crushing business also took off in 2021, increasing by nearly 25% in revenues from soybean meal and hulls at $335 million, bringing the company’s total revenues to more than $590 million in 2021, a 42% increase year over year and up 57% compared to five years earlier.
In 2021, soybean oil revenues now accounted for more than 43% of SDSP’s business, sending signals to SDSP CEO Thomas Kersting and the organization’s board of managers to look at expansion. He said in the past, soybean meal would account for 70% of the SDSP business and oil would be about 30%. As the numbers show, now it’s closer to 50%-50% or favors soybean oil, depending on the time of the year.
“We’ve been working on this for two years now, looking for the right site, right location,” Kersting told the Mitchell Republic. “The rule of business has been true: location, location, location. We had to understand where every pound of finished product was going to go. We think this area can sustain it and think the end users, the market, their demand is going to be there long enough to sustain it.”
Much of the growth comes from the demand for renewable diesel, which is sourced from products like soybean and sunflower oils. Unlike biodiesel, renewable diesel is not derived from crude oil but is made entirely from feedstock products, such as refined soybean oil, animal fats and used cooking oil. Renewable diesel also usually can be handled in cold weather easier than biodiesel and can be transported in existing pipelines.
Early in 2022, the revenue spike was primarily due to an increase in the average sales price of refined soybean oil. The average sales price of soybean oil increased approximately 62% in the first three months of 2022, leading to a company record net income of more than $18 million for the first quarter.
“Soybean oil continued to drive profitability, as strong demand for oil from the food, fuel and export sectors increased margins to record levels,” the company said in its 2022 first quarter report. “... Looking ahead, we anticipate above-average processing margins for the remainder of 2022 and into 2023. New renewable diesel plants in the Western U.S. are scheduled to begin production in 2022 which is anticipated to keep soybean oil demand well above historical levels.”
Kersting said large oil companies like Phillips 66 and Marathon are pursuing renewable diesel to meet fuel-standard mandates required in western U.S. states such as California and Washington.
“Renewable diesel is really coming on and it’s different than biodiesel, where you’d take crude oil out of the ground and hydrocracking it, and turning it into gas or diesel, they’re taking vegetable oils and cracking it and they’re ending up with the exact same product,” he said. “It’s much easier to use than biodiesel, much more fungible and it works in all kinds of applications from over the road to sustainable aviation fuel.”
The process of soybean crushing, Kersting said, has not changed much since 1996 when Volga’s plant opened, but it has gotten more efficient in areas like energy recovery and dust control.
A potential Mitchell site is exciting, he said, because of its closer access to sunflowers in the central part of South Dakota. Sunflowers can create twice as much oil per acre as soybeans and the Mitchell plant would have the ability to do both.
Increasingly more competitive
SDSP is not the only company with eyes on expansion, which has taken place feverishly throughout the region in the last two years. In February, the same month SDSP announced its plans for Mitchell, a soybean crushing plant near Norfolk, Nebraska announced plans for a similarly sized facility to open in 2024.
Ag Processing Inc., or AGP, which owns the other soybean crushing plant in South Dakota located in Aberdeen, announced in late 2021 it was expanding its existing plant near Sioux City, Iowa and is building a new facility set for 2025 near Omaha, Nebraska. CHS has expanded soybean processing in southern Minnesota at locations in Fairmont and Mankato, and reported increased margins in its oilseed processing business in the third quarter of 2022.
Sixteen companies own 62 processing plants in the U.S., according to SDSP’s annual report, with four companies — AGP, Bunge, Cargill and Archer Daniels Midland (ADM) — controlling nearly 85% of the business. In its annual report, SDSP said its two processing facilities represent “approximately 7% of the total soybean processing capacity in the upper Midwest and 1.3% of the capacity in the U.S.”
The planned Mitchell facility expects to create nearly 300,000 tons of soybean oil annually and will have the storage volume on site to store more than 60,000 tons of oil on its property, which is the equivalent of about 15 million gallons.
SDSP has been processing crude soybean oil since 1996 when its plant in Volga opened and began refining the product in 2002, along with adding a deodorizer in 2011 that allowed SDSP to sell the oil directly to food industry firms. In addition to being used by petroleum and chemical companies, the food industry uses soybean oil in cooking and salad dressings, baking and frying fats, and butter substitutes, among other uses.
According to the company, approximately 80% of a soybean bushel (60 pounds) is processed and sold as soybean meal or hulls. The remaining 20% is extracted as crude soybean oil. In 2021, SDSP sold about 63% of its refined oil to other U.S. states, with 27% being sold locally and 10% exported out of the country.
SDSP believes the location and the market are what will make a soybean plant right for Mitchell.
"We have to look at where the competition is," Kersting said. "We think we're ideally located from a competitive standpoint."