Passage of an $858 billion tax bill in the United States could lend support to Canadian grain and oilseed prices.
Included in the bill was a one year extension of the 45-cent-a-gallon ethanol tax credit and the $1 per gallon biodiesel tax credit. The biodiesel tax credit will be applied retroactively to Jan. 1, 2010.
The subsidies have a direct impact on corn and soybean prices, which are the primary feedstocks for the U.S. ethanol and biodiesel industries. Those two commodities in turn influence Canadian grain and oilseed prices.
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The U.S. Department of Agriculture expects the ethanol industry to consume 38 percent of the 2010-11 corn crop and the biodiesel sector to use 15 percent of U.S. soybean oil production.
The U.S. biodiesel sector had been operating without its tax credit since Dec. 31, 2009, resulting in a 35 percent decline in biodiesel production in 2010 compared to 2009 levels.
Without the credit, biodiesel is uncompetitive with petroleum diesel.
Alan Kemper, president of the American Soybean Association, said the retroactive subsidy will inject new life into a beleaguered industry.
“(It) will allow a lot of plants to start running again,” he said.
Biodiesel plants produced an estimated 1.8 billion litres of fuel in 2010, falling well short of federal mandates. Kemper figures the industry will easily meet the 2011 mandate of three billion litres now that the tax credit has been restored.
“It helps secure our marketplace,” he said.
Bill Nelson, senior grain analyst with Doane Agricultural Services, said many people had lost hope that a tax credit would ever be renewed, given the budgetary problems facing the U.S. government.
“Lo and behold Congress just kind of lit it all up and passed goodies for everyone,” he said.
The political tide was turning in Washington in late November.
“The market certainly took notice of this. It was a bit of a surprise,” he said. “Analysts became more comfortable dialing in demand strength from soybean oil for biodiesel for next year.”
January soybean oil futures contracts that were trading for around 48 or 49 cents per pound a month ago were trading at 54 cents per lb. late last week.
Canadian canola prices are more influenced by U.S. soybean oil prices than soybean seed prices since canola has such high oil content.
Nelson said 40 percent of soybean value has traditionally been attributed to soybean oil prices and 60 percent to the meal.
That ratio has changed to about 45 to 55 due to the recent soybean oil rally.
“(Last week), we saw soybean oil extend its gains to new recovery highs whereas the meal has been a laggard,” he said.
Nelson agreed with Kemper that passage of the omnibus tax bill will reinvigorate the moribund U.S. biodiesel industry.
“One would suspect that it means a doubling or better of production from the rates we’ve been seeing lately,” he said.
