Illinois bets on biodiesel: Expanding the market for domestic soybeans

GILMAN – At Incobrasa Industries, one of four soybean processing and biodiesel manufacturing companies in Illinois, a construction project is expected to roughly double the company’s production capacity by mid-June.

The expansion reflects Illinois’ yearslong investment in biodiesel, a renewable fuel made from soybean oil. In April, Incobrasa was shipping out biodiesel faster than it was making it as rising diesel prices and Illinois’ tax incentives drove increased demand, according to the company.

The surge highlights how global oil shocks, brought on by the U.S. war with Iran, and trade uncertainty have increased interest in homegrown energy alternatives.

Illinois, the nation’s largest soybean-producing state, has long depended on China as a major buyer of U.S. soybeans. But sharp swings in exports over the last decade — driven by tariff disputes and growing competition from Brazil — exposed how vulnerable the industry was to geopolitics, pushing Illinois farmers, processors and lawmakers to invest more heavily in domestic markets for the crop.

“We’re absolutely looking to use more of our product here, to make sure that we’re insulated from trade instability,” said David Kubik, the Illinois Soybean Association’s biofuels and trade policy manager. “Regardless of national politics happening around trade, it’s important to diversify these markets.”

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In recent years, more U.S. soybeans have been processed domestically through “crushing,” which separates the beans into soybean meal for livestock feed and soybean oil used in products like biodiesel. According to the U.S. Department of Agriculture’s Economic Research Service, domestic soybean crush is expected to consume 57% of the U.S. soybean crop this year, up more than 10 percentage points from 2017.

Kubik said that after the U.S.-China trade war in 2018, farmers and lawmakers increasingly sought to support biodiesel, which offered both a new domestic market for soybean oil and a lower-emissions alternative to traditional diesel fuel. With soybean crushing facilities and widespread diesel use already in place across Illinois, industry leaders viewed biofuels to build stronger in-state demand.

By crushing more soybeans to expand biodiesel production, processing plants like Incobrasa also generate more soybean meal as a byproduct, lowering livestock feed costs and helping keep meat prices down.

State Rep. Charlie Meier, R-Okawville, who helps operate his family’s southern Illinois farm, said he saw biodiesel as a way to support soybean farmers, create jobs and promote cleaner fuel alternatives.

“I’ve burned biodiesel in my tractors and combines for years,” Meier said. “Why wouldn’t I support the product that’s supporting us?”

Backed by the Illinois Soybean Association and bipartisan lawmakers including Meier, Illinois passed a bill in 2022 that gradually increased the amount of biodiesel required to qualify for a sales tax exemption for retailers. Beginning in April, only B20 — diesel blended with 20% biodiesel — qualified for the incentive, marking the final step in the law’s implementation.

“The incentive is pretty strong. 90% of all gallons sold at the retail level are taking advantage,” Kubik said. “So if you’re fueling at a diesel pump — at a Love’s, a Pilot, a Casey’s — there’s a 90% chance that gallon is going to be at the blend.”

Retailers that sell qualifying biodiesel blends receive a sales tax exemption, allowing B20 to consistently be priced 20 to 40 cents cheaper than traditional diesel, Kubik said.

The Illinois Soybean Association estimates the new policy could expand biodiesel demand from the roughly 165 million gallons per year supported under the state’s previous 11% content threshold (known as B11) to about 255 million gallons.

Kubik added that expanding biodiesel production can also help lower traditional diesel prices by adding another source of fuel to the market. Lower fuel costs can reduce transportation expenses across industries that rely heavily on diesel to move goods, potentially lowering costs for consumers more broadly.

University of Illinois agricultural economist Scott Irwin said biodiesel is unlikely to replace petroleum diesel entirely, particularly because it remains more expensive to produce over the long run and still depends heavily on government incentives and renewable fuel mandates.

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But as diesel prices surged this spring because of the war with Iran, Illinois’ growing biodiesel supply may still have helped cushion some of the shock by adding another source of fuel to the market, Irwin said.

For years, Illinois’ biodiesel investments were largely framed as a long-term strategy to support soybean farmers and reduce emissions. But this spring’s oil shock transformed the policy into an immediate economic test of whether expanding domestic biofuel production could help stabilize fuel supplies during a global energy disruption.

The B20 policy’s final rollout in April coincided with the fallout from Iran’s closure of the Strait of Hormuz, which sharply increased operating costs for industries that rely heavily on diesel to move freight, operate farms and power industrial equipment — costs that can ultimately be passed on to consumers.

Diesel markets also tend to operate with tighter inventories than gasoline, making them more vulnerable to disruptions.

The oil shock has provided a temporary boost for the biodiesel industry, said Incobrasa quality control manager Kerry Fogarty. But the rising cost of nearly everything else — including growing and transporting soybeans, shipping products and purchasing equipment — has largely offset the additional revenue generated by higher demand.

Incobrasa anticipated the conflict and stockpiled large amounts of biodiesel ahead of the disruptions, Fogarty said. Even so, the plant was loading trucks up faster than it was making new fuel. He added that if the company’s expansion had been completed before the oil shock, the increased production capacity could have helped Incobrasa both capitalize on the surge in demand and maintain a steadier fuel supply.

Some of the equipment needed for the expansion is not manufactured in the United States, Fogarty said, making it subject to steep import tariffs.

“Not just for Incobrasa, but in general for companies trying to expand, tariffs have put an unnecessary financial burden on the company,” Fogarty said. “In some cases, this burden actually prohibits growth.”

Naomi Taxay is an undergraduate student in journalism with Northwestern University’s Medill School of Journalism, Media, Integrated Marketing Communications, and a fellow in its Medill Illinois News Bureau working in partnership with Capitol News Illinois.

Capitol News Illinois is a nonprofit, nonpartisan news service that distributes state government coverage to hundreds of news outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation.