A processing system for producing starch based expanded products useful as packing material for shipping, packaging and insulating applications. Generally, two processing steps for forming materials are involved. In a first step, dense pellets or granules are formed from starch and a plasticizing agent, such as a plasticizing polymer, for example, polyvinyl alcohol. The starch in the pellets is generally formed, for example with an extruder, into a thermoplastic or thermosetting form for further processing. The pellets generally have an individual density of at least about 70 lbs./cubic foot and a small size for convenient delivery for the second processing step. The second process step is based on the expanding of the material from an extruder with water as the expansion agent in which the dwell time in the extruder is short. The process is designed such that a less expensive single screw extruder is suitable for extruding the expanded material. The starch based pellets are convenient for shipping closer to the end use location.