President of Ag Resource Company on Biodiesel

With the end of the year quickly approaching, analysts are looking ahead to what the market movers will be in the new year.

Renewable energy could become a driving factor for commodity prices as agriculture moves into a new cycle.

“We think the super cycle will last two to three years. Energy will be the upside leader, this transformation from fossil fuels, to green fuels to ultimately electrical power or nuclear power is a bumpy road. And so, the price of crude oil, the price of ethanol, the price of biodiesel, these are things that will really keep underpinning the agricultural markets.”

Dan Basse, President of Ag Resource Company, thinks biodiesel will be one of the most disruptive fundamentals over the next 3 years.

“If I take the existing under construction and proposed or announced plants, and we just had two new ones announced overnight, I come up with us soybean oil demand doubling over the next three years. Now on these plants, I’m assuming a utilization rate of 80%. My oil industry friends tell me that I’m too low on that number. Nonetheless, a jump of twofold jump in oil demand would be dramatic.”

He is projecting an additional 1.2 billion pounds of additional biodiesel demand coming online in the first quarter of 2022, which will continue to grow over time.

“In US acres of soybeans over the next three years this would model out to an additional 40 million acres, it seems impossible. And I believe it is impossible because there is no way if we’re at peak land, then all of those soybean acres could come online and just and displace corn or sorghum or cotton or other crops and so I don’t know how this is all going to play out. But this is a big fundamental that we all need to monitor over the next year or so.”

Basse says the growth may be a challenge if the US has reached “peak utilization” of farmland, with competing interests for a limited number of acres.

“We have been stealing land from hay and CRP to get more principal crop acres. And we now believe that with Secretary Vilsack wanting to have more land in the CRP conservation reserve program for those that you that don’t know the acronym, that land of course, will be increasing. He’s looking at adding somewhere between three and 5 million acres, and they’re now bidding upwards as close to 240 or $250 an acre to secure that fragile land into CRP.”

In addition to an increased focus on conservation acres, hay acres are also at their lowest level since 1909, which Basse says is another indicator that it may be challenging to find any more marginal land to put towards principal crops.

Basse is also forecasting that China’s growing demand for corn imports to feed their hog herd will also be a driving factor for agriculture over the next year.


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