President Bush last week signed into law the omnibus energy bill that Congress has been laboring over for the past two years. Congressional Democrats immediately promised they would introduce additional energy legislation early in 2008 to address issues not covered in the latest bill.

The energy bill mandates 500 million gallons of biodiesel usage in 2009 that expands to 1 billion gallons in 2012. This locks in roughly 3.75 billion pounds of vegetable oil and animal fat demand during 2009 and roughly 7.5 billion pounds of demand in 2012. It appears that the initial target for 2009 is doable as biodiesel production has been running at an annual rate of 500 million gallons or better since May, but that rate has declined in September and October and the target for 2012 could be hard to reach if mandates elsewhere in the world are too large. While the biodiesel mandate does not kick in until 2009, a higher RFS schedule for ethanol goes into effect for 2008 and beyond that ensures that most all of the new ethanol production capacity slated to be completed will have to operate. This does not necessarily portend higher corn demand than analysts currently project, but is does provide a higher floor for prospective corn usage and may make it harder for soybeans to attract acreage.

Key features included in the latest energy law:

• A mandated 40 percent increase in fuel efficiency by 2020, from the current 25 miles per gallon to 35;
• A mandate that 36 billion gallons of renewable fuels be used by 2022, with 15 billion gallons being corn-based ethanol by 2015; and
• A mandate that 1 billion gallon biodiesel be used mandate by 2012.

In related news, the recently passed Senate farm bill also has major renewable energy items. They include:

• Biodiesel tax credits: Extends for two years (through December 31, 2010) the $1.00 and 50-cent production tax credits for biodiesel. Extends for four years (through December 31, 2012) the 10-cent per-gallon tax credit on the first 15 million gallons of biodiesel production for producers with annual capacity of not more than 60 million gallons. Cost: $267 million over ten years.

• Renewable diesel incentives: Extends for two years (through December 31, 2010) the $1 tax credit for diesel created through a thermal depolymerization process and caps, on a per facility basis, the $1 credit at 60 million gallons per year. Cost: $211 million over ten years.

U.S. soybean exports got off to a slow start this marketing year due to stiff South American competition. The U.S. export pace now is picking up with South American shipments diminishing as the U.S. has a huge book of outstanding sales to ship against. While the shipment pace to date does not suggest that a 2007-08 export forecast of 27.9 million tonnes can be attained, the overall level of export commitments suggest that it can be easily reached. It appears that the odds are becoming greater that South American soybean production will fall short of current forecasts than exceed them. Argentina is experiencing dry weather that typically is associated with La Nina conditions, which has delayed soybean plantings and threatens to undermine soybean yields there. In La Nina years, Argentine soybean yields typically are no better than trend and resulting moisture shortages can cause losses of up to 4 million tonnes.

The Brazilian soybean crop generally has been treated favorably thus far and planting is nearing completion. However, Brazilian government agencies see soybean area increasing by less than 2 percent. Also, Brazil’s CONAB typically understates area increases by 3 percent in years of sizable increases. Yield ideas for this year’s crop also may have to be trimmed in light of last year’s crop appearing to be overstated by perhaps 2 to 3 million tonnes given what Brazilian exports and the crush are looking to be. Last year’s crop was treated very favorably and a downward revision in that crop could reduce its yield below what currently is forecast for this year’s crop.

The Census Bureau reported a larger-than-anticipated November crush of 4.26 million tonnes that was about 40,800 tonnes above trade expectations as the difference between the Census and NOPA crush widened further. The Census Bureau confirmed that soybean oil stocks remained just above 1.36 million tonnes and reflected an even large contra-seasonal increase in the soybean oil yield than was implied by the NOPA report. Soybean meal production and the meal yield were surprisingly large for November with the meal yield in October and November running slightly above what the NOPA report would suggest. As a consequence of the larger crush and meal yield, November domestic soybean meal usage is not off nearly as much as previously thought, undermining indications that current high prices may be reining in ongoing soybean meal demand.

China has eliminated export tax rebates on a range of food commodities as part of a series of measures to secure domestic supplies and control rising food prices, according to. The tax incentives on exports of crops including soybeans, wheat, rice, corn, barley and oats, as well as flour milled from these grains, was eliminated beginning December 20, according to a statement on the central government’s Web site. Soybean meal was not included in the statement. China’s food costs gained 18.2 percent last month, pushing inflation to the highest in 11 years. The government has sold corn, wheat and vegetable oil from state reserves and asked local authorities to boost emergency stockpiles.

The soy complex closed mixed on December 20 with soybean futures closing at new highs. The deferred contracts continued to exhibit the most strength last week as the carries in the old-crop contracts expanded and the new-crop/old-crop inverse eroded further after widening considerably this month. Soymeal futures also posted gains on higher soybean prices and at the expense of lower soyoil prices that were under pressure from lower petroleum prices. January bean futures closed up $0.64, finishing at $426.50; March gained $0.73, closing at $433.48; and May was up $1.10, ending at $439.36. January meal increased $1.54 closing at $358.36; March was $2.31 higher, finishing at $365.85; and May meal closed up $1.65 ending at $369.71. January oil decreased $4.41 to finish at $1028.00; March was down $3.09, closing at $1041.45; and May was $1.98 lower, closing at $1054.90

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