RFS 20 Years In: Corn Oil. Biofuel Big Winner.

Welcome to Oilseed Impacts, where I share my viewpoints on the global oilseed landscape. 

This is the 3rd of 8 editions exploring the 8 major oilseeds produced and crushed in the USA. This week we tackle Corn Oil. 

Previous editions covered Cottonseed Oil and Peanut Oil.

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Sources for this article include USDA, Renewable Fuels Association, and DNS.

Of all the vegetable oils, corn oil shines as the biggest winner since the US implemented the Renewable Fuel Standard (RFS) in 2005.

No other oil comes close.

What is driving corn oil’s success?

Let’s dig in.

Here is today’s outline:

1. Corn Oil Production: A New Supply Source

2. Demand Evolution: From Edible Oil to Energy Feedstock

3. Outlook: What’s Next for Corn Oil?

Corn Oil Production: A New Supply Source

Corn oil is an interesting beast. While other oilseeds contain ~18-50% oil, corn contains ~3% oil by weight.  Most of this oil is contained in the germ, which itself is 40-50% oil.

Traditionally, corn oil was produced in the wet milling process. First, the corn germ was removed and separated from the rest of the kernel. Then the germ was crushed using technology similar to soybean or other oilseed crush, usually with hexane extraction.

The resulting products from corn germ crush are edible corn oil and corn germ meal, a protein feed ingredient. 

Here’s a chart of edible corn oil production since 2005. 

Interestingly, edible corn oil production has slipped ~30% since RFS implementation.

A 30% production drop sounds like a headline. But that’s not it.

The real story in corn oil begins with ethanol. Since the RFS kickstarted corn ethanol demand in 2005, ethanol production has increased from 3.9 to 16.2 bil gallons annually. Most of this production is via the dry milling process. In dry milling, the germ remains with the kernel and ends up in DDGs, a feed coproduct.

Initially, little effort was made to extract oil out of the DDGs. Remember, only 3% of the weight of corn is oil. But, as biobased diesel mandates and vegetable oil prices increased, the incentive to reclaim that oil grew. 

Fast forward to today and most dry mills run a reclamation process that removes much of the corn oil from DDGs. This oil product, Distillers Corn Oil (DCO), is considered inedible. The Renewable Fuels Association (RFA) says an ethanol dry mill produces about 0.9 lbs of DCO per bushel processed.

Here’s a look a corn oil production again, this time with DCO layered on top of traditional edible corn oil production.

Amazing. 

With over 4.5 bil lbs produced in 2024, DCO production sits at more than 250% of traditional food grade corn oil production. 

Total U.S. corn oil supply now exceeds 6 billion lbs annually, placing it second only to soybean oil among domestic vegetable oils.

Importantly, corn oil supply growth came as a byproduct of ethanol production. Without ethanol, no DCO and no corn oil supply growth. 

Corn oil is following the same path as cottonseed and peanut oil that we recently discussed. 

Oil supply follows demand for the primary crop output. The real unlock was ethanol, not corn oil demand. 

We will keep revisiting this theme as we move through the veg oils in this series.

Demand Evolution: From Edible Oil to Energy Feedstock

Next let’s look at how demand has changed for corn oil since 2004.

Biofuels are THE story of corn oil.

But it’s intriguing that uptake wasn’t immediate.  

DCO supply ramped faster than biofuel demand from 2011 to 2017. It wasn’t until after the DCO buildout was largely complete that biofuel demand took off. 

Why the lag? 

Costs and incentives.

DCO is harder to process than soy and requires pretreatment CAPEX before use in a biodiesel process. And at this time biodiesel plants were often collocated with, and owned by, soy processors. A few players, notably REG, were early adopters, but much of the industry was structurally incentivized to use soybean oil. 

Meanwhile DCO worked fine in feed rations and its discounted price made it an attractive ingredient.

But eventually, a new incentive changed the game. Carbon pricing.

DCO enjoys a lower carbon intensity (CI) score than other vegetable oils. California’s Low Carbon Fuel Standard (LCFS) created an incentive structure that encouraged low CI biofuels. As Cali’s low CI demand ramped and other states implemented their similar programs, DCO demand as a biofuel feedstock grew and it priced itself out of many feed applications. 

This price chart of edible corn oil and DCO over time shows the impact. With the exception of the COVID effect in 2020/21, DCO has steadily increased in price vs edible corn oil. 

Another point about demand is the loss of the corn oil export market. As edible corn oil production decreased recently, export markets became unnecessary. This too, is part of a macro trend in US vegetable oils. Exports have moved from a consistent, necessary outlet to an on again off again relief valve for temporary stocks builds.

Today edible corn oil maintains a price premium due to quality characteristics, especially in frying applications. The MENA customers I serviced enjoyed corn oil as it does not have the “fishy” flavor that some experience when frying with soy.

Outlook: What’s Next For Corn Oil?

Corn oil’s future growth depends on two things: oil extraction efficiency and ethanol demand.

I mentioned earlier that ethanol dry mills today capture ~.9 lbs of DCO per bu. The best processes today push 1.3 lbs. Moving to 1.3 lbs industry wide would yield an additional 2 bil lbs of DCO to feed growing biofuel demand. 

Even more exciting are ethanol’s tailwinds:

Ethanol exports are increasing, hitting ~1.8 bil gallons in 2024.

Nationwide E15 adoption is expanding.

Improvements in corn ethanol’s own CI scores are to opening paths to new markets, including Sustainable Aviation Fuel (SAF). According to RFA, over 650 mil gallons of Alcohol-To-Jet US SAF capacity was proposed in 2024. 

For all these reasons ethanol could see some of the best medium-term growth in US Ag.

And if ethanol grows, corn oil grows with it.

Corn oil’s best days are yet to come.

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