March 1, 2007

 

US analysts: More grains will be devoted for biofuel

 

 

The recent sharp gains in crude oil along with the implementation of new policy programs are expected to help propel biofuel production upwards in the years ahead, analysts said at the annual Grain World conference o February 27.

 

However, the expansion of the biofuel industry will be hindered by the fact capacity will easily outstrip feedstock production, particularly in the U.S.

 

According to Patricia Mohr, vice president of economics, industry and commodity market research for Scotiabank Group in Toronto, high oil and gasoline prices have encouraged biofuel expansion in recent years and the level of public support in the U.S. in the form of incentives and subsidies is "very strong".

 

She said U.S. President George Bush's January 2007 State of the Union address, targeting a 20 percent reduction in regular gasoline consumption by 2017 through stepped up use of ethanol and tighter vehicle fuel efficiency standards, was one such program that will further encourage biofuel growth. The current U.S. blenders' credit was another such program.

 

Mohr predicted that prices for crude oil would not fall below US$50, which would be good news for the biofuels sector.

 

She forecast crude oil would average around US$58.50 per barrel during calendar year 2007, and then around US$60 during 2008 and into 2009.

 

Steady energy requirements globally were expected to keep crude oil values firm.

 

The biofuels drive was currently being lead by Europe, but programs in the U.S., Brazil, Argentina and Southeast Asia were also fostering this sector, said Nancy DeVore, a senior economic analyst with Bunge Global Agribusiness in Washington.

 

Much of the development of biofuels in Southeast Asia was concentrated in the production of processors wherein local biofuel industry process vegetable oil and export it to China and Europe, she said.

 

Biodiesel production alone in 2006/2007 was estimated at roughly 8 million metric tonnes, which would compare with just 2 million during 2004/2005, DeVore said. However, by 2009/2010, biodiesel production globally will be around the 16 million- ton level.

 

Supplying the biodiesel market with the appropriate vegetable oils will be the challenge, DeVore said, as demand was easily seen outstripping production.

 

She noted that palm oil production is a function of mature growing areas, which means that output in the short run has a limited ability to respond.

 

Soybean production, meanwhile, was currently seen as a function of soymeal demand, given that 80 percent of the soybean is meal, and only 19 percent oil.

 

The best chances of meeting the biodiesel demand will be in soft seeds, meaning canola and sunseed, DeVore said, noting that production of these commodities does respond to price, but there will still be a year or two lag.

 

In terms of ethanol production, capacity in the U.S. was expected to grow to 12.470 billion gallons by the end of 2008-09, said Ross Korves, an economic policy analyst with the ProExporter Network.

 

However, here too the size of the U.S. corn crop was not expected to be able to meet the demand of the industry.

 

Korves said agricultural land in the U.S. generally was in the 160 million acre range on a yearly basis, and there were limits on how much more area that can be brought into production.

 

The area that will be seeded to corn in 2007-08 was estimated by Korves at 86.242 million acres, which would be up from the 2006-07 level of 78.327 million. By the year 2010-11, Korves said corn plantings in the U.S. could be in the 90.547 million acre range as the ethanol sector continues to grow.

 

Korves said despite the continued rise in seeded area to corn, ending stocks of the commodity will continue to remain tight. U.S. corn carryout in 2006-07 was pegged by Korves at 743 million bushels, in 2007-08 at 808 million and 2010-11 at only 795 million.

 

As for biodiesel, Korves said U.S. soybean production will not be able to keep up, especially with the low oil content and the ongoing corn move.

 

However, he said there will have to be thought given to switching from soybeans to a higher-yielding oilseed such as canola in order to meet this sector's ever-growing needs.