Creating a new industry doesn’t happen overnight, yet soybean producers have been part of a movement to develop a new domestic fuel resource that can offset imports and add value for soybeans and other oilseed crops. Biodiesel holds promise for both additional farm income and greater energy independence, yet it could be cut off at the knees before the industry can even get going.

The U.S. Environmental Protection Agency has proposed to require just 1.28 billion gal. of biodiesel under the Renewable Fuels Standard for 2014. That significant cut in biodiesel demand could have a chilling effect on the industry and soybean producers. Coupled with uncertainty about an extension for the $1/gal. biodiesel tax credit, the outlook is cloudy.

The U.S. produced nearly 1.8 billion gal. of biodiesel in 2013. If just 1.28 billion gal. are required in the RFS for 2014, the biodiesel industry would see a 40% reduction from last year’s production.

“Moreover, since refiners can carry over excess 2013 production into 2014 for RFS compliance, the market could be closer to 1 billion gal., or almost half of our 2013 production,” says Anne Steckel, vice president of federal affairs, National Biodiesel Board. “That would be devastating for the industry and for biodiesel producers across the country. It’s difficult to predict the impact that would have on soybean markets, but clearly, biodiesel provides a solid market for excess soybean oil. With the industry contracting to that extent, it would certainly soften those markets, as well.”

Mike Cunningham, a soybean producer from Illinois, is a director on the board of the American Soybean Association. He also serves as treasurer of the NBB. If the EPA’s proposal sticks and there is a large carryover of soybean oil, soybean prices could fall by as much as $0.25 to $0.50/bushel, Cunningham says.

And the country as a whole will be missing an opportunity to diversify its fuel supply and create jobs, he adds.

Lewis Bainbridge, a soybean producer from South Dakota and a director on the United Soybean Board, adds: “The EPA’s proposal could contract the industry. Reduced demand for soybean oil could reduce farm-gate prices.”