It is the night before, yet another “big USDA report”.  Your loyal scribe is holding to his earlier assertion that the USDA corn number will increase from 159.5 bushels per acre to 163 bushels per acre giving us the mother of all corn crops.  In my estimation the wonderful weather in the western corn belt will give us a lot more corn than we ever thought possible.

Of course that is my prognostication just like the many others that you have heard this past week.  I will be commenting on the whole commodity issue in total this weekend when I write Market Trends for the Ontario Corn Producers Association/Grain Farmers of Ontario.  I am sure that when the USDA releases its report Friday some of our markets will go into convulsions.  I guess the question I have is what happens if Mother Nature decides to throw Jack Frost in the mix in another 10 days?

That would be the proverbial outlier from hell, which no market watcher can see.  I’m not wishing for it but keep in mind it seems everybody’s looking for these huge crops with blinders on.  This is agriculture people, getting sideswiped by weather is a natural occurrence.

The fireworks from the USDA report on Friday will surely focus on the supply side of the commodity equation.  This past week I had a question from one of my readers about the demand side of the equation.  Specifically I was asked about what I thought about future ethanol production in the province of Ontario.  However you could expand that out and ask about the future biofuel horizon for all of Canada.  With the USDA to weigh in with huge crop numbers these commodities have to be used up somewhere.  Where biofuel was one seen as an answer for that question something tells me it’s not quite like that now.

Or is it?  For instance in the United States this crop year corn usage for ethanol is supposed to come in at about 4.2 billion bushels.  So in other words one out of three kernels of corn in the United States will eventually end up being burnt as ethanol fuel. That’s a pretty impressive statistic.  With the price of corn down and the price of oil down compared to the summer of 2008 some of those mothballed ethanol plants in the American Midwest are suddenly finding reasons to open again.  If the corn price moves down further it just makes the ethanol economics a little bit better.  That should make that 4.2 billion bushel number remain solid and increase further.

So you might say it’s still all about the American renewable fuel standards or RFS.  In many ways those standards are still operating below the radar.  I say that because it has become obvious over the last 12 months that “ethanol “and “biofuels “did become a dirty word in the media discourse.  Building biofuel plants became synonymous with starving children in the developing world.  In my mind that is exactly why the Ontario government rescinded its promise to bring 10% ethanol blends to Ontario gasoline.  Sometimes optics and symbolism, which resonate with urban populous make politicians conveniently, forget the farm.

In many ways the current economics of ethanol are acting as a springboard for the American biofuel industry.  In other words given the right set of economics with regard to the price of corn oil and gasoline and the American ethanol industry will ramp up really quickly.  However I don’t feel the same in Canada. Our biofuel industries are much more fragile and they do not enjoy the political support of many provincial governments in Western Canada.  For instance where one time I toured Alberta and talked about using wheat and canola in biofuel plants, much of that talk has fallen right off a cliff.  Nobody wants to talk about biofuels with their own Canadian domestic oil and gas industry slumping.

Let’s put it this way.  Like it or not the Ontario government put out $520 million dollars over a 12 year period to jumpstart ethanol production.  I believe this funding runs out in 2015.   Is it reasonable to expect the Ontario government to do that again?  Is it reasonable to expect the Ontario government to boost or change that in any way?  Or are the political realities surrounding biofuel and ethanol essentially making the way forward a rocky road?  I think so.

It seems such a paradox where we are now compared to the day only a few short years ago where industrial use of grain and oilseeds was seen as our way out from constantly low farm prices. Still, one kernel out of three going to ethanol in the US is nothing to sneeze at.   Going forward the future of agricultural biofuels depends on political realities but also the price of oil and gasoline and the feedstock.

It raises the question that maybe farmers should switch gears again and look for even more ways to utilize our crops.  With new technologies in seed genetics growing almost exponentially it would seem our supply issues are growing more onerous.  Friday’s report may be a poster child for that.  The challenge of course is to keep boosting our biofuel sector and keeping that industrial use robust.  It was a long and winding road getting here and going back to something else is not an option.