September 11, 2008

Drop in grain prices makes biofuel production viable

Production of biofuels have started making more economic sense in the past month with prices of feedstock such as corn, palm oil and soybeans declining, analysts at the World Oils and Oilseeds Convention in Singapore said Thursday (September 11, 2008).

"The recent fall in world prices of grains and oilseeds has made it possible for biofuels companies to break even, which they were not being able to do a few months back," said Siegfreid Meyer, an analyst with Vienna-based Austrian Biofuels Institute.

Meyer said the break-even cost for European bio-diesel manufacturers was EUR150-200/tonne, a level which they are able to earn now.

Still, sustained demand from biofuel makers for raw materials following the decline in prices may trigger a reversal and costs may increase again, said Chris de Lavigne, a Singapore-based analyst with consulting firm Frost & Sullivan.

He said that in 2007, while a number of factors led to the historical rise in food prices, biofuels undeniably played a role in that surge by increasing demand for grain products.

Spikes in prices of grains and oilseeds, feedstock for making biofuels, could recur in the longer run, as world energy demand grows and quality of arable land and availability of water for agricultural needs decline, he said.