Over the 38 years that I’ve been writing this column I have often brought up the spectre of sending grain to the moon. When I say this, I have often referred to grain surplus driving down cash prices and we need to get rid of the grain somewhere. If we add a pipeline to the moon at least we get rid of it and maybe prices would increase. However, we all know that that is fanciful never going to happen.   We are left with trying to find markets here on earth or at least utilizing that grain in a more value-added fashion.

Over the years we have had great examples how this can be done. One of the best examples in the grain trade is the transformation of corn demand over the last 15 to 20 years. About 20 years ago there was a push by the American government to rid themselves off the tyranny of foreign oil. This was politically attractive and was part of the reason for the renewable fuel standard encouraging ethanol production at that time. In fact, we were asking the market to create 5 billion bushels of new demand for corn.  Today, many farmers take that for granted as it’s all dialed in. For instance, in the last USDA report ethanol demand from corn was listed at 5.375 billion bushels.

For those of us who were there we all know what happened.  The corn economy was transformed and so were corn prices. Ethanol became part of the demand conversation on a continual basis. At the same time in Ontario, we got lucky as a previous Liberal Premier liked the idea of ethanol. That translated into 1/2 a billion dollars of taxpayers money being poured into both the construction and production of selected ethanol plants.  It meant that 1/3 of Ontario corn would go for domestic usage. As a biased Ontario corn producer, it’s been all good.

Needless to say, the world has changed from that quaint time over 20 years ago when ethanol wasn’t a thing. Prices reach new levels at both the high and low end but at the end of the day we’re still needing that grain pipeline to the moon.  It begs the question, is hope on the way?

Interestingly enough there are rays of hope, not much talked about but very real on the demand side of the grain and oilseed equation. In the United States the same renewable fuel standard in a different iteration is leading to a big increase in the amount of renewable diesel being produced in the United States. That renewable diesel is produced with soybean oil and other vegetable oils as a feedstock. It is commonly referred to as the new demand “Ethanol 2.0” In other words, domestic soybean demand (crush demand) in the United States is rising to satisfy this renewable diesel standard, forecast to increase by 23% in the next 3 years.

What you say? Well, keep in mind that the Inflation Reduction Act is expected to boost biofuels in the United States by providing tax credits and funding for next generation renewable diesel as well as other biofuels.  Keep in mind that biodiesel is different than renewable diesel. Biodiesel is commonly blended with petroleum diesel, for instance B20 which is 20% biodiesel and 80% petroleum diesel. Renewable diesel on the other hand, is more standalone almost identical to fossil diesel.  It could be used without modification and existing diesel engines.

As it is, major oil companies have embraced renewable diesel as many new soybean crushing refinery projects have been planned. There are all kinds of forecast of expected growth in soybean oil based renewable fuels which will need a lot more soybeans to satisfy the demand.  The wind is in the sales of these renewable fuel diesel hawks, so much so that there are predictions of much higher soybean acreage in the United States versus today. However, I will leave those statistics out, simply because they seem too high to your loyal scribe.

Let me put it this way, there are some that say that we might see soybeans imported into the United States going up the Mississippi to satisfy this future demand!  I’ll just let you chew on that for a while.

This is happening in an environment where soybean crushing margins have been high. However, remember this is a highly competitive market and plants will be competing against each other.   There are also US imports of canola oil, used cooking oil and palm oil imports which are at record highs. This might have the effect of spoiling the party. Needless to say, if American farmers have a new crush facility coming into their area, it might mean $0.20/bu more on the basis and a positive for soybean production.

Is there risk here or is it all blue skies ahead? Oh boy. There’re many things that could happen including crazy undisciplined money coming into these plants who are not used to the ups and down of agriculture.  It might be a bit like the boom and bust of ethanol but at the end of the day that gets evened out.  However, expect an adventurous ride into renewable diesel heaven.

Keep in mind the soybean prices usually are about the meal side versus the oil side. However, with this renewable diesel boom it’s much more about soybean oil versus the meal. However, what to do with the meal? Yes, you can look overseas but also Brazil and Argentina and others are competing in the soybean meal market. We can only feed so many livestock. Just like ethanol 20 years ago, it could be a long story.

At the end of the day, it’s probably a good demand story. Canadian canola oil will flow south into these plants.  However, the Canadian renewable diesel story will never be like the United States. We simply have to piggyback back on.  Most of the time, our American friends hardly notice that.