View From The Cab

By David Tollefson, Columnist

As we grain and livestock farmers go through periods of boom and bust in our farming careers, it is good to look back in history to see if the past can indicate what will happen in the future of farming.

A good writer for Farm Futures magazine, Mike Wilson, had such an article in their May/June issue recently. Here it is:

Cycles have always been part of farming. 

Chris Hurt, longtime ag economist at Purdue University, said at his retirement in 2020 that the nature of the farm economy has always been short periods of booming income and land values, followed by long periods of lower, but much more stable, income.

I last interviewed Hurt about ag cycles in October 2017, when he believed it would be about two more years before ag hit another boom era. Though, he said any black swan event could upset his analysis.

Talk about a premonition! Some 2.5 years later, we had a pandemic, generous government support, supply chain snafus. War in one of the world’s great breadbaskets and a Brazilian drought, all driving a supply shortfall in nine commodities even as demand, eventually, exploded.

There’s no way to predict the start or end of cycles, but some old axioms still hold – namely high prices cure high prices.

NEW DEMAND DRIVER

One segment that could keep this bull market hot is renewable diesel and sustainable aviation fuel.

Demand drivers come and go, and rarely become permanent. But due to climate warming and a global concern over carbon, California, Oregon, Washington and British Columbia passed low-carbon fuel standards that will require low-carbon feedstocks like soybeans and canola.

Now, oil and ag stakeholders are planning soybean crush and refinery projects. If they come to fruition, renewable diesel capacity would grow over sixfold to 6.5 billion gallons per year by 2030.

The question I’ve been asking economists all spring is, will renewable diesel be to oilseeds what ethanol is to corn?

Consider the ethanol playbook. Just 15 years ago, we saw a major demand shift driven by the Renewable Fuel Standard. In the 10 years before the RFS, U.S. farmers annually planted 78 million to 80 million corn acres. In the 10 years after the RFS, farmers planted about 90 million to 94 million acres – up 14 million acres.

What about now?

“We will increase soybean processing capacity by 25%, once it’s all said and done,” says University of Minnesota grain marketing economist Ed Usset. “We will need 600 million more bushels of soybeans.  At 54 bushels per acre, that’s 11 million more acres.”

New renewable diesel processing facilities are happening mainly in the northern Corn Belt. Representing $3 billion in investments, 16 major projects will either open this year or by 2026.

“Stop and think about that for a minute,” Usset says. “If you thought we had acreage battles in the past, I’d say, you ain’t seen nothin’ yet.”

And the battles may include more than the big three commodities.

“There will be a fight for acres between not just the major crops but also canola, rice, cotton and hay,” says Rabobank analyst Stephen Nicholson. “There’s a serious market reckoning that is yet to take place.”

Meanwhile Chevron, Corteva and Bunge teamed up to add renewable diesel capacity at Chevron’s facility in Geismar, Louisiana. That project includes a proprietary winter canola to increase vegetable oil feedstocks for this growing market.

“At Chevron, we believe the future of energy is lower carbon, and there’s no better way to do that but to provide new feedstocks to the fuel sector,” says Kevin Lucke, president of Chevron’s Renewable Energy Group. Lucke also happens to own a farm in Iowa.

For farmers, hearing oil and ag companies singing from the same hymn sheet might take some getting used to, but it’s welcome news regardless of how you view it. Climate change is widely considered the world’s greatest existential threat.

“What we’re doing with Corteva and Bunge illustrates that traditional partnerships won’t work for what we’re trying to do,” Lucke says. “This problem is large, and it requires us to think differently to solve for lower carbon fuels.”

* * * * * * * * * * * * *

As I write this on June 8, we’ve had rain two days in a row. Those two days have given my farm in southern Pope County .65 inches of rain. That happens to be about half of what my farm received in the entire month of May. Yes, it came late, but “better late than never.”

Heidi Olson-Manska at the West Central Research and Outreach Center in Morris, sends me email summaries every month of the weather at the station. If we thought it was dry here in May, it was drier yet in Morris. Their rainfall for the month of May was only .71 inches, 2.28 inches below the average of 2.99 inches.

As you might expect with low rainfall, temperatures at the station were 6.5 degrees above the average of 56.3 (1886-2022). The low temperature for May was 32ºF, on May 2. The high for the month was 91º on May 24. The record high temperature ever recorded in Morris was 106º on May 31, 1934.

Concerning our crop development, they measure the temperatures in “growing degree days.” May in Morris accumulated 443 growing degree days, over the average of 311 GDD’s.

With the latest rains, crops are really progressing. I’m sure that somewhere in Pope County there may be “knee high” corn right now.

Alfalfa producers had a very nice first crop, which in my neighborhood is harvested either as baled hay or chopped as silage and put in bunks or bags.

Unfortunately, the dry and warm weather has encouraged alfalfa weevils, so producers are spraying for those pests right now; if they did not, one neighbor told me that the pesky insects eat the alfalfa sprouts as the second crop is growing, resulting in drastically reduced yields.

* * * * * * * * * * * * *

Please contact David Tollefson with thoughts or comments on this or future columns at: adtollef@hcinet.net