Burning the Breadbasket

This fall, American farmers will harvest a record corn crop and one of the largest soybean harvests in history. At the same time, China—the single biggest buyer of U.S. soybeans for decades—has largely stepped back from the market. The result is a looming surplus of the two crops that dominate U.S. farmland. And Washington has already decided where much of it should go: into cars and trucks, where it will fuel not just vehicles but also higher prices at the pump and higher greenhouse gas emissions.

Farmer seeking crush

To understand the challenge facing farmers, picture the soybean. Each of the dry, yellow-brown beans can be processed, or crushed, into roughly 2 parts oil and 8 parts meal. The oil is not just used for cooking and as an ingredient in a wide range of processed foods but also to produce bio-based diesel (including biodiesel and renewable diesel). The tan, flaky meal is mainly used to feed chickens and pigs.

In recent years, the United States has typically shipped about 25 million metric tons of whole soybeans—nearly a billion bushels—to China, where they are crushed, the meal feeding the country’s enormous herd of pigs and the oil mostly used for cooking. American farmers rely on China to buy over ⅕ of their soy. However, China halted all shipments of U.S. soy in late May in its bid to gain leverage in trade negotiations, while also cutting nearly all corn purchases.

As the corn and soybeans pile up in grain elevators, pressure is growing to create new markets for them, both internationally and at home. Some of the beans that no longer are shipped to China will surely be sold to buyers in Mexico, Europe, Southeast Asia, and other countries. But that won’t entirely offset the fall in imports from China, which normally buys over half of all U.S. soy exports.

To give farmers a new outlet, Congress and the White House have sought to expand domestic use of soy and corn for biofuel. In July, Congress extended the tax credit for biofuels, known as 45Z, through the One Big Beautiful Bill. They also reshaped it, effectively increasing the size of the tax credit that biofuel producers will receive, while also restricting eligibility to biofuels made from North American corn, soy, and other feedstock. The Environmental Protection Agency also proposed higher mandates for fuel providers to blend over 5.6 billion gallons of bio-based diesel—primarily produced from soy—into their fuel and also created a new penalty for using imported biofuels or feedstocks. Together with new trade agreements aimed at expanding U.S. ethanol exports to the UK and Japan, these moves lock in more demand for biofuels made from U.S. crops.

More biofuel, more costs

At first glance, turning surplus crops into fuel might seem like a clever solution: farmers get a reliable buyer, the US becomes more energy-independent, and policymakers can point to “clean energy” gains.

But there’s a catch: current American soy crushing plants can handle about 2.8 to 3.1 billion bushels a year, and they’re already expected to process about 2.5 billion. That leaves capacity for roughly 600 million bushels at best—not enough to absorb the full China shortfall. Even if every crushing plant and biofuel processor ran flat out, the United States could not turn all those surplus beans into fuel.

Likewise, it’s not feasible to replace the bio-based diesel produced from imported feedstocks (mostly cooking oil and tallow), as the White House seems to envision. Doing so would require about 1.5 billion bushels of soy and therefore about a 50% increase in soybean crushing capacity. Building out that capacity takes time, typically a few years for a new facility.

In the short term, farmers will have to settle for selling their soy internationally for a lower price or storing it for future years.

This comes at a steep cost to the public: the White House has proposed sending farmers up to $15 billion. In addition, the new penalties on imported feedstocks will raise fuel prices, about 10 cents per gallon according to one recent analysis, a senseless tax when domestic crude reserves are plentiful. What’s more, the increased pressure to produce biofuel from domestic sources could divert the soybean oil that’s used for food to the fuel market, further driving up food prices. In fact, this is already happening: food companies and trade associations like the American Baking Association have blamed biofuel mandates for contributing to shortages of edible oil and cuts in production.

Just as concerning are the environmental impacts: the shifts in the biofuel and crop markets will cause more grassland, forest, and land set aside for conservation to be plowed under to expand U.S. soy production. New research from the EPA and University of Illinois, among other institutions, found that U.S. cropland has expanded by nearly 1 million acres for every billion gallons of soybean oil-based biodiesel produced. Even more land will be converted, however, if imports continue to be penalized. To meet the proposed bio-based diesel targets without any imports, U.S. soybean farmers would need to expand production by about 30 million acres, an area larger than Pennsylvania. That land conversion reduces habitat, worsens water quality, and releases enormous amounts of carbon, swamping any avoided greenhouse gas emissions from not burning diesel.

What comes next

With this year’s policy choices—the revamped clean fuel tax credit, EPA’s expanded mandates, and a relentless focus on opening new markets for ethanol exports—Congress and the Administration are working together to steer American agriculture deeper into biofuels. If China’s retreat from U.S. soy and corn continues, the political pressure to continue to do so will only intensify.

Farmers have grown dependent in many ways on government-driven biofuel sales, but they have been tenuous. Federal biofuel mandates raise costs for refineries, which pass them through to consumers, raising prices at the pump and costing consumers billions of dollars. By artificially creating demand to use crops for fuel, federal policy also raises food prices. It is a prime example of the pitfalls of central government planning: EPA must regularly decide how much biofuel to require Americans to buy over the next few years. It’s no surprise their choices raise costs; how much biofuel to produce and buy should be decided by a competitive market, not by fiat. As in the U.S., foreign governments are increasingly questioning the value of crop-based biofuels, making them a volatile source of demand for farmers. For example, the EU is moving to phase down support for crop-based biofuels.

But there is an alternative. Rather than steering more soy and corn into fuel tanks, the United States should focus on expanding international markets for food and feed. Global demand for meat and fish is climbing, especially in Africa and Asia, where rising incomes mean more people are eating chicken, pork, eggs, and fish. U.S. exports of soybean meal help make that growth possible; it is one of the most efficient and affordable feeds for livestock and aquaculture. At the same time, global food demand for vegetable oil is also projected to rise steadily. U.S. soybean oil can help meet that demand as well and, in some cases, substitute for palm oil, which is often linked with deforestation.

While it takes time to establish new trade agreements and international markets, policymakers can act now to re-establish the Food for Peace program, which purchases U.S. farm commodities to send to countries struggling with hunger. Since the State Department took over the program from USAID earlier this year, it has purchased 99% less corn-soy blend than in recent years. Secretary of Agriculture Rollins recently announced a new effort to support farmers by purchasing $480 million of commodities for two other international aid programs, the McGovern-Dole and Food for Progress programs. Congress should follow suit by moving Food for Peace to USDA where it would have the support it needs to operate. Channeling crops into international outlets, both through trade and aid, would do more for global nutrition and the climate than doubling down on biofuels.

What Washington does next on mandates, subsidies, and trade policy will shape whether America’s corn and soy support global nutrition or continue to be diverted into a distorted market that raises consumer prices, relies on taxpayer subsidies, and harms the environment.