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Renewable Diesel · Professional Ag Marketing Podcast

• 0:01
  SPEAKER_01: Welcome to the Professional Egg Marketing Podcast.
• 0:04
  SPEAKER_01: If you want a deep dive into the egg markets and risk management strategies, your search is over.
• 0:10
  SPEAKER_01: Come here after every Friday to get your weekly commodity recap.
• 0:14
  SPEAKER_01: Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
• 0:21
  SPEAKER_01: This is your host, Mike Minor.
• 0:22
  SPEAKER_01: Let's get started.
• 0:24
  SPEAKER_00: All right, Mike Minor.
• 0:25
  SPEAKER_00: It is the day after Thanksgiving.
• 0:28
  SPEAKER_00: Perfect day to talk about renewable diesel.
• 0:32
  SPEAKER_01: I agree.
• 0:34
  SPEAKER_00: Jeff Holgendorn here, joining Mike Minor for the Professional Egg Marketing Podcast.
• 0:40
  SPEAKER_00: You know, renewable diesel has been a topic uh for, I don't know if it's been a year, year and a half, something like that.
• 0:47
  SPEAKER_00: We've been kind of watching this thing develop, and um we kind of thought today would be the day to you know spend some time digging in a little bit deep, hopefully not too deep that we get into too many details and things like that.
• 1:00
  SPEAKER_00: And we do have, we kind of did a special on this.
• 1:03
  SPEAKER_00: Um we do our weekly summaries on the hog cattle and and grains.
• 1:07
  SPEAKER_00: We added renew a renewable uh diesel kind of version to it here for Thanksgiving week.
• 1:13
  SPEAKER_00: So there's gonna be some good charts on that.
• 1:15
  SPEAKER_00: There's gonna be probably quite a bit more detail than what Mike and I are gonna jump into here on this podcast.
• 1:22
  SPEAKER_00: So, you know, if you find yourself looking for some more information, that might be a great place to go and kind of have our own spin on what's become a pretty popular topic here.
• 1:32
  SPEAKER_00: Mike, why don't you kick us off by giving us, you know, what the heck is renewable diesel and and why are we talking about that?
• 1:40
  SPEAKER_01: So renewable diesel is fuel that is chemically the same as petroleum diesel.
• 1:46
  SPEAKER_01: And it would be compared to petroleum diesel or compared to something like biodiesel.
• 1:51
  SPEAKER_01: So renewable, biodegradable fuel that's blended with petroleum diesel.
• 1:56
  SPEAKER_01: That's biofuel.
• 1:57
  SPEAKER_01: This is just a straight drop-in product.
• 2:00
  SPEAKER_01: It's the same exact molecule, so it doesn't have to be any different, uh differently blended.
• 2:07
  SPEAKER_01: They don't have to watch it.
• 2:08
  SPEAKER_01: It's not like ethanol or biodiesel, which those things have to be watched a little bit closer with their blending methods.
• 2:14
  SPEAKER_01: Uh this has many benefits to it, many more benefits than biodiesel, so uh they're pushing it for some good reasons because it's an easier, easier thing to use, it's a better product, which uh at least they're moving in the right direction that way, I guess.
• 2:32
  SPEAKER_01: So when we look at um the biodiesel and renewable diesel, they're not the same.
• 2:37
  SPEAKER_01: The process of renewable diesel is much different than it is biodiesel, and uh and the renewable diesel has met the criteria as petroleum diesel in and of itself.
• 2:53
  SPEAKER_00: So two very different animals.
• 2:54
  SPEAKER_00: Yes.
• 2:55
  SPEAKER_00: You run the new, more refined renewable diesel, your trucks don't smell like french fries.
• 3:02
  SPEAKER_01: Yeah, that is one that is one positive, I must say.
• 3:05
  SPEAKER_01: And it's interchangeable with regular diesel, so it's uh you know, it doesn't have issues with bacteria growth, cold temps, increased maintenance, any of that stuff.
• 3:14
  SPEAKER_01: And then it also so like why is renewable diesel a thing, right?
• 3:18
  SPEAKER_01: Why do they why do they want it?
• 3:20
  SPEAKER_01: Well, it reduces emissions by up to 80% compared to the regular petroleum diesel.
• 3:26
  SPEAKER_01: And the the other than that, really, the reductions in pollution, hydrocarbons, carbon monoxide, nitrogen, you get the picture, Jeff.
• 3:34
  SPEAKER_00: So very much uh less emissions, ex very much exchangeable for petroleum diesel.
• 3:42
  SPEAKER_00: That's why um this demand has jumped so much here in the last 12 to 18 months.
• 3:48
  SPEAKER_01: Well, one of the reasons that demand has jumped here is mainly California.
• 3:53
  SPEAKER_01: They're the ones who have been the real leader in this.
• 3:56
  SPEAKER_01: And uh when we start talking about their impact on this, they've really kickstarted it.
• 4:01
  SPEAKER_01: They've been really the only place that's been selling it, which it's been been sold at a very similar price level to normal diesel.
• 4:09
  SPEAKER_01: So, like uh ethanol, for example, if you use E85, it's a lot cheaper to buy E85 right now than it is regular gas.
• 4:16
  SPEAKER_01: These two actually follow each other incredibly close.
• 4:19
  SPEAKER_01: I mean, you're getting the same product, right?
• 4:21
  SPEAKER_01: So the the price sold is gonna be the same at the pump, pretty much.
• 4:26
  SPEAKER_01: But uh when we're looking at uh things like the Inflation Reduction Act, uh, which really isn't a reduction act in inflation, but that's what they called it anyways, they upped the subsidies on carbon sequestration from fifty dollars a ton to over eighty-five now, is what they can get up to it.
• 4:47
  SPEAKER_01: Okay.
• 4:47
  SPEAKER_01: So that act is incentivizing things like renewable diesel to take off in a in a big way.
• 4:52
  SPEAKER_01: That pushes a lot of these projects well into the black, well into get them funding.
• 4:58
  SPEAKER_01: Um so that that's kind of where it it's gone in the last two years, and that's kick-started it for the next two years now, with the way the current administration is looking.
• 5:08
  SPEAKER_01: They're very incentivized to try to get stuff done in in a short period of time here.
• 5:12
  SPEAKER_01: So it's we saw this develop in ethanol before, but honestly, it's a similar process to what we saw ethanol do from after 05, but now it's gonna happen a lot faster with this program because it's got the capital there, uh it's got uh the tax incentives, the subsidies, everything's in line waiting for it.
• 5:34
  SPEAKER_01: The problem really holding it up is just labor at this point.
• 5:37
  SPEAKER_00: So I'm I always struggle, Mike, um to jump on the bandwagon um from a political standpoint.
• 5:45
  SPEAKER_00: You know, obviously the differences between the two parties here in the US continue to grow.
• 5:50
  SPEAKER_00: Um so you've got the last two years, the next two years, administration kind of being the same.
• 5:57
  SPEAKER_00: Um you know, I I always worry, of course, what's the other side of the coin look like if we flip things back um to a different party?
• 6:05
  SPEAKER_00: Does some of this uh dry up?
• 6:08
  SPEAKER_00: But you know, one thing I've really encouraged our crew to look at is you know, kind of watch their feet instead of their mouth type of thing.
• 6:16
  SPEAKER_00: And what one of the things I think is interesting about this is you know, we already have many refineries either in the remodel stage or in the building stage to generate this renewable diesel.
• 6:31
  SPEAKER_00: And another thing I think is interesting is it's a lot of the big money, oil type money that's doing the refineries.
• 6:40
  SPEAKER_00: Is would you agree with all that?
• 6:42
  SPEAKER_01: Yes, and uh, you know, they're actually incentivized in this project to encourage it.
• 6:47
  SPEAKER_01: Where like ethanol, you've been butting heads with big oil this whole time, where big oil's actually involved in this process.
• 6:55
  SPEAKER_01: They're the ones that control it, and they can take a very small refiner for normal petroleum diesel and make it into a big refiner for renewable diesel.
• 7:05
  SPEAKER_01: So it's a way of taking their smaller plants, older technology, revamping it into a really good-sized renewable diesel refinery.
• 7:15
  SPEAKER_01: So that that's a nice way for them to transition some of their old into new greener energy as well.
• 7:21
  SPEAKER_00: So it kind of gives them a way out of some of the older facilities, probably, or very good way out.
• 7:26
  SPEAKER_00: You uh so today, largely the demand is centered around California.
• 7:31
  SPEAKER_00: That's what we hear about.
• 7:32
  SPEAKER_00: They're about 20% of all the diesel in in California was renewable in the last year.
• 7:39
  SPEAKER_01: Um and other states are adopting that method as well.
• 7:42
  SPEAKER_01: So Washington, Oregon, a lot of them are taking the California act and using that same thing.
• 7:51
  SPEAKER_00: Gotcha, gotcha.
• 7:52
  SPEAKER_00: So as far as going forward, it looks like we're we've got the demand, we've got um the right kind of money building some of these refineries.
• 8:00
  SPEAKER_00: So that's where you start to get into some of these crazy numbers.
• 8:03
  SPEAKER_00: I I think there's a few of them in the in the summary that we have written.
• 8:07
  SPEAKER_00: I can't remember off the top of their head, but the the demand for this thing looks to be growing at such an exponential rate, it's going to be awful hard to keep up with um from a soybean standpoint.
• 8:18
  SPEAKER_00: So the next stage in my mind is to jump down and say, okay, so you know that you know most analysts would agree that the demand for this is going to far out exceed what maybe we can accomplish from a agriculture standpoint.
• 8:34
  SPEAKER_00: So the to me the next thing to be watching is how many soybean processing plants are getting built.
• 8:42
  SPEAKER_01: So the numbers would suggest just the new crush under construction.
• 8:49
  SPEAKER_01: Uh you're gonna need somewhere around, you know, that would equate to 700 million bushels over the next two years, right?
• 8:57
  SPEAKER_01: So you're you're leading up to somewhere around 12 million added acres just for of soybeans at the average yield today, using um using the expansion that's already under construction, not just proposed.
• 9:11
  SPEAKER_00: So plants that are on the books and or starting to be built.
• 9:15
  SPEAKER_01: Shovels in the ground.
• 9:16
  SPEAKER_00: Okay, shovels in the ground.
• 9:18
  SPEAKER_00: First one coming online here in Iowa.
• 9:21
  SPEAKER_00: Um, supposing the next month or two, they got a January bid on a new plant, uh, you know, for a for soybeans.
• 9:28
  SPEAKER_00: Um 700 million bushels.
• 9:31
  SPEAKER_00: Um and if you're gonna simply just take if if that was just gonna be a simple equation that you had to plant more soybeans to make up for that demand, that's 12 million acres of beans.
• 9:41
  SPEAKER_01: And that's annual added.
• 9:43
  SPEAKER_01: Yep.
• 9:44
  SPEAKER_01: And you know, those acres, it's really hard when you start talking about where those acres come from, because historically those acres would come from corn.
• 9:54
  SPEAKER_01: But you know, with uh sustainable aviation fuel, that's in the same boat from the inflation reduction act.
• 10:00
  SPEAKER_01: That's gonna try to pull back another five million acres of corn.
• 10:04
  SPEAKER_01: You're gonna try to add to supply that.
• 10:06
  SPEAKER_00: So the avian, the avian fuel, that's a corn product, right?
• 10:11
  SPEAKER_01: Aviation fuel will be a corn product.
• 10:13
  SPEAKER_00: That's a that's a corn product, all right.
• 10:18
  SPEAKER_00: All right, so we're expanding that.
• 10:19
  SPEAKER_00: We're also got this bio or this uh renewable energy renewable diesel, excuse me, on the soybean side.
• 10:26
  SPEAKER_00: So you got both of them kind of suggesting that we're gonna increase demand for both beans and corn.
• 10:33
  SPEAKER_00: Yes.
• 10:34
  SPEAKER_00: So let's flip over to the other side of the coin here, of course.
• 10:39
  SPEAKER_00: So China, they take what, roughly 62% of the world's soybeans that get traded.
• 10:45
  SPEAKER_00: Yep.
• 10:45
  SPEAKER_00: Right?
• 10:46
  SPEAKER_00: Uh on the export market.
• 10:48
  SPEAKER_00: So, and they historically at least, and uh from my chair, I would sure think they would continue to um want both the oil and the soybean meal.
• 10:58
  SPEAKER_00: Because that's the big equation here, right?
• 11:00
  SPEAKER_00: We're gonna grind, it's almost pretty much it's it's already the the bed's been made that we are going to grind more beans um or crush more beans into meal and oil here in the US.
• 11:11
  SPEAKER_00: Yes.
• 11:11
  SPEAKER_00: Those that's gonna happen.
• 11:13
  SPEAKER_00: And those plants, they're gonna get the bean first before it goes on a ship to somebody else.
• 11:19
  SPEAKER_00: So that's that's going to happen.
• 11:20
  SPEAKER_00: You're gonna use more beans, you're gonna have more meal, you're gonna have more oil, but the demand for the oil seems to be um pretty much endless at this stage of the game.
• 11:30
  SPEAKER_00: So, what's China's gonna do in your in your opinion, Mike?
• 11:33
  SPEAKER_01: So when you talk about the 2.1 to 2.5 billion bushel exports that you get from the United States of soybeans annually, you're looking at about 900 million of those are coming are going to Mexico.
• 11:48
  SPEAKER_01: Those aren't gonna go away.
• 11:50
  SPEAKER_01: That it just logistically, you're not gonna take those away.
• 11:53
  SPEAKER_01: That's just not happening.
• 11:54
  SPEAKER_01: But China, in their aspect, you're probably gonna take away most of our exports from the United States to China.
• 12:03
  SPEAKER_01: China's gonna go to another avenue, like Brazil, for example, which they continue to shift more business to Brazil anyways.
• 12:10
  SPEAKER_01: This will help speed that process up.
• 12:12
  SPEAKER_01: So this supports the idea of deglobalization.
• 12:15
  SPEAKER_01: You're talking about U.S.
• 12:17
  SPEAKER_01: corn and soybeans getting used in the US and not exporting quite as much.
• 12:22
  SPEAKER_01: And if we are exporting it, logistically, it's probably going to Braz Mexico, south of us.
• 12:28
  SPEAKER_00: So Mexico, I I could see them taking some meal.
• 12:31
  SPEAKER_00: They've been a they've been a large portion or large partaker in the meal exports from the U.S.
• 12:36
  SPEAKER_00: as well.
• 12:37
  SPEAKER_00: And I think you're right on I think you're right on the China versus Brazilian relationships.
• 12:43
  SPEAKER_00: It just seems to me like China, they're going to continue to want the bean, um, take the bean over there, have the oil and the meal both.
• 12:51
  SPEAKER_00: So you start to see how that can shift.
• 12:53
  SPEAKER_00: So today you have roughly half the beans get exported, half the beans get crushed into meal and oil here in the US.
• 13:01
  SPEAKER_00: Um, so you can start to see where maybe we can start to reduce the export portion of the beans, um, maybe increase the meal export some, but that still would start to look like there'd be a deal plenty of meal left over for end users.
• 13:19
  SPEAKER_00: But at the end of the day, you know, you've got the six or seven hundred million more soybeans that are gonna want to get processed here.
• 13:28
  SPEAKER_00: You probably don't have that much upside in yield.
• 13:33
  SPEAKER_00: It's a little hard to draw a trend line yield on on soybeans.
• 13:37
  SPEAKER_00: So, you know, maybe you can get an extra hundred million or two hundred million from an increased yield.
• 13:43
  SPEAKER_00: So at the end of the day, you're really you're gonna have to probably you see a fight for acres between corn and soybeans.
• 13:51
  SPEAKER_00: And we're talking big picture stuff here, right?
• 13:53
  SPEAKER_00: We're talking 2023 and beyond, 2024 and beyond type stuff, maybe even 25 and 26.
• 14:01
  SPEAKER_00: Um but you you know, so the balance sheet will continue to look pretty tight in my mind.
• 14:08
  SPEAKER_00: For corn and soybeans.
• 14:09
  SPEAKER_00: Yep, for both of those.
• 14:10
  SPEAKER_00: I mean, unless you see some breakthrough in the yield or something like that.
• 14:14
  SPEAKER_01: Well, this helps support that theory because none of the other alternatives are um scalable.
• 14:20
  SPEAKER_01: Let's call it that.
• 14:21
  SPEAKER_01: Like this this Inflation Reduction Act, they had seven different categories that you could look at, whether it was algae or whatever else.
• 14:29
  SPEAKER_01: None of those other options are really scalable unless you look at corn and soybeans.
• 14:34
  SPEAKER_01: So it's gonna help support demand of that.
• 14:36
  SPEAKER_01: You've got the money in place to help support renewable diesel.
• 14:40
  SPEAKER_01: You've got the the push from the United States government.
• 14:43
  SPEAKER_01: We've already seen this with ethanol, it's happening.
• 14:45
  SPEAKER_01: Got another two years to really push it through more.
• 14:48
  SPEAKER_01: And it's not like you mentioned it earlier a little bit, you were wondering what happens after that point, but really the right side's not they're they're not pushing against this in a very hard way.
• 14:57
  SPEAKER_01: I mean, it's helping you know, mm big oil is getting money to incentivize them to switch towards greener energy, and they can turn their older technology into newer technology to do that, and they're getting paid to do it.
• 15:10
  SPEAKER_01: So that that's awesome for them.
• 15:12
  SPEAKER_01: Agriculture, I mean, uh on the grain producer side, you probably like it because it'll lead to higher grain prices or a better floor, uh, probably an improved ceiling.
• 15:22
  SPEAKER_01: But from a um from an input side, it's ri it's probably a really tough situation for the end users in in livestock.
• 15:32
  SPEAKER_00: Yeah, I think that's definitely something we're gonna continue to pay attention to.
• 15:36
  SPEAKER_00: I've I've got a little bit more hope that um corn can maybe uh out yield uh the demand over time, but that it's gonna be an uphill battle for sure.
• 15:46
  SPEAKER_00: You know, the soybean meal side on the on the hog side of the business, that probably gonna help us some.
• 15:52
  SPEAKER_00: You know, there's some folks this summer running around talking about feeding meal for energy um for nutrition geeks.
• 15:59
  SPEAKER_00: That's that's a tough hill to climb in my mind, too.
• 16:03
  SPEAKER_00: I have a hard time believing the market's gonna let that happen.
• 16:06
  SPEAKER_00: Um, but I think this is gonna just kind of be a pretty nice tailwind for grain prices um going forward the way it looks to me, and and we're gonna have to keep a close eye on this.
• 16:17
  SPEAKER_01: We'll one thing this does do is though, it tightens up the global balance sheets.
• 16:22
  SPEAKER_01: N like look outside of the United States for a second here.
• 16:26
  SPEAKER_01: If we shut a lot of our exports off in the soybean market, you know, you're looking at a situation where the global balance sheet outside of us, that's where it starts to get touchy, because we're the backstop.
• 16:37
  SPEAKER_01: We can get grain in every corner of the world in like a month timeframe.
• 16:43
  SPEAKER_01: And when you don't have access in as big of a way to that backstop, or when you start to tighten up everybody else's third world balance sheets, it just doesn't improve living conditions uh for them globally, especially when you know 8% inflation's bad for us.
• 16:59
  SPEAKER_01: When you start talking about some of these other countries that have 80% inflation annually, um yeah, that's where it starts to get really interesting, I think, in a global balance sheet.
• 17:09
  SPEAKER_00: So you're gonna have some folks that aren't gonna be real happy with uh you know food inputs continue to increase.
• 17:16
  SPEAKER_00: Um you're also gonna have a lot of motivation across the globe to grow you know all sorts of uh small, either small grains or or soybeans or corn.
• 17:26
  SPEAKER_00: So yeah, I mean we don't we sure don't have all the answers.
• 17:29
  SPEAKER_00: Hopefully, this discussion kind of brings some additional light to the discussion.
• 17:34
  SPEAKER_00: I know a lot of people have been t uh talking about it, and there's a lot of different numbers out there.
• 17:40
  SPEAKER_00: And and one thing I I can promise is that we'll continue to keep an eye on, you know, I I think in the shorter term, it's how many of these bean plants are are getting built.
• 17:49
  SPEAKER_00: Um, because I do think they're once they're built, they're gonna run.
• 17:52
  SPEAKER_00: Um so that that's gonna give us the you know 12 to 24 month outlook pretty easily of you know what's the increase look like on the crush capacity and figure you know good 90 to over 100, a little over 100% of that's gonna be utilized.
• 18:07
  SPEAKER_00: Um so we'll keep kind of talking through it and having the conversation and hopefully we can all make uh intelligent decisions uh based on the information we have.
• 18:17
  SPEAKER_01: It's a lot to try to fit into one podcast.
• 18:20
  SPEAKER_01: So if you do have questions or want to chat, please give us a call and take a look at the uh the recommendation here this week.
• 18:26
  SPEAKER_01: Thanks for coming, Jeff.
• 18:27
  SPEAKER_01: And thank you to all our listeners.
• 18:29
  SPEAKER_01: Please reach out to us from our website at professionaleggmarketing.com.
• 18:34
  SPEAKER_01: Or check out our newly added hog specific podcast named Hog Market Talk that's released every Thursday.
• 18:40
  SPEAKER_01: Trading commodity futures and options involve substantial risk and loss that is not suitable for all investors.