New canola crushing capacity will provide an expanded, ready market for western Canadian farmers. The underlying demand comes from government policy changes that support an increase in biofuel use.
While markets can be fickle when based on policy rather than practicality, this market seems to have solid underpinnings.
The flurry of new domestic crushing project announcements in Western Canada since the Biden administration took over in Washington is no coincidence. A return to Obama-like adoption in the United States of the Paris climate agreement should create more demand for biofuels, with or without an expanded biofuel blending mandate.
The European Union is producing less rapeseed for biofuel production and public opinion has cooled regarding palm oil imports for energy use. Canadian canola and canola oil exports are the big winners when it comes to source of choice in Europe.
Biofuel blending mandates from the U.S. Environmental Protection Agency, established during the Trump administration, will likely hold the line with 2020 but the industry expects change next year.
The former U.S. president delayed the annual Renewal Fuels Standard review for 2020 and 2021, likely trying to please two masters before the election: the farming community that wanted a higher percentage of ethanol and biodiesel, and the oil industry that wanted a lower percentage or no change at all.
President Joe Biden doesn’t appear interested in moving more crops into energy this year. It might be a reaction to more limited corn and soy inventories than anticipated. It could also represent recognition that an increase in prices at the pumps would add to household inflation during the pandemic recovery. That would undermine mid-term votes from the working class and reduce support from the energy industry.
Despite this, the move to more biofuel use is likely on the horizon for the United States and that will be good for Canadian canola and soy growers.
The EPA is expected to discuss higher volumes later this summer. An increase in the biofuel mandate will also favour corn and other cereal prices, given that nearly half of American corn is destined for a distillery.
The current American standard for ethanol is 10 percent, which results in billions of gallons of ethanol and biodiesel added to traditional fuels. Biodiesel blends are typically 20 percent and there are tax credits available for operators who use it.
American refiners that haven’t added blending facilities may get more time to do so. The price of tax credits will likely continue to rise along with crop prices, providing they do, and the public continues to demand more “green” products.
U.S. farm organizations and environmental groups are lobbying for expansions in the biofuel use mandate and their efforts seem likely to succeed. Canada’s oilseed crushers are obviously hopeful.
While electric vehicles are popular, the electricity they use is still mostly provided by coal and it will take time for them to be truly green. Electrical energy availability and the grids that supply the juice have been stressed for decades by population growth.
Added demand for motoring power is adding to demands on the system, so power from biofuels will remain a big draw on acres for the foreseeable future.
Karen Briere, Bruce Dyck, Barb Glen and Mike Raine collaborate in the writing of Western Producer editorials.