Biofuels, feedstock, maize prices 2007

8/7/2019 Biofuels, feedstock, maize prices 2007

1/36

BiofuelsBiofuels, Energy and, Energy and

Feedstock PricesFeedstock Prices

BiofuelsBiofuels && FeedstocksFeedstocks PhilippinesPhilippinesMay 23May 23--24,24, 20072007

By Philip DiggesBy Philip DiggesLMC International Ltd, Oxford, UKLMC International Ltd, Oxford, UK

www.lmc.co.ukwww.lmc.co.uk


2/36

IntroductionIntroduction Impact of biofuel growth on vegoil demand

Link between fuel and commodity prices When do prices become linked

Implications for the future


3/36

BiofuelBiofuel

Supply/DemandSupply/Demand


4/36

World Ethanol ProductionWorld Ethanol Production

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006

Billionlitres

Brazil US EU Other

Sources: Unica, EIA, UEPA, FO Licht


5/36

World Biodiesel ProductionWorld Biodiesel Production

Sources: EU Commission, US Census Dept., LMC Estimates

0

1

2

3

4

5

2000 2001 2002 2003 2004 2005 2006Milliontonn

esofbio

diesel

US EU Brazil SE Asia


6/36

The Impact of BiofuelThe Impact of Biofuel

Demand on the AllocationDemand on the Allocation

of World Vegetable Oilof World Vegetable Oil

Demand Growth BetweenDemand Growth Between

Fuel and FoodFuel and Food


7/36

World Oil Demand Growth, 1999World Oil Demand Growth, 1999--2006 by Use2006 by Use

0

1

2

3

4

5

1999 2000 2001 2002 2003 2004 2005 2006

MillionTonneso

fOils

Biodiesel


8/36


0

1

2

3

4

5

1999 2000 2001 2002 2003 2004 2005 2006

MillionTonneso

fOils

Biodiesel Other Industrial


9/36


0

1

2

3

4

5

1999 2000 2001 2002 2003 2004 2005 2006

MillionTonneso

fOils

Biodiesel Food Other Industrial


10/36


0

1

2

3

4

5

1999 2000 2001 2002 2003 2004 2005 2006

MillionTonneso

fOils

0%

20%

40%

60%

80%

100%FoodS

hareofT

otalGrowth

Biodiesel Food Other Industrial % Food


11/36

Vegetable Oil Demand GrowthVegetable Oil Demand Growth An increasing share of global demand growth

for vegetable oils has arisen from biodiesel and

other industrial end-uses. (These industrial uses include oleochemicals,

the direct burning of oils, the blending of

vegetable oils in diesel fuel and animal feed.) In 2006, food uses of oils accounted for barely

half of the entire growth in world oil demand.

NB: After this years rise in vegetable oil prices,the direct burning of oils as fuel and their

blending in diesel have become uneconomic.


12/36

Links Between FuelLinks Between Fuel

and Commodity Prices:and Commodity Prices:

The Experience ofThe Experience of

Sugar, Maize andSugar, Maize and

Vegetable OilsVegetable Oils


13/36

Sugar Cane Allocation by Use in BrazilSugar Cane Allocation by Use in Brazil

0

50

100

150

200

250

300

350

400

450

1999/00 2001/02 2003/04 2005/06

CanePr

oduction(milliontonnes)

34

35

36

3738

39

4041

42

43

44%Ca

netoEthanol

Ethanol Sugar % Cane to Ethanol


14/36

World Sugar, Brazilian Ethanol & Brent CrudeWorld Sugar, Brazilian Ethanol & Brent Crude

Prices (Prices (Note the close link of sugar with ethanolNote the close link of sugar with ethanol))

0

100

200

300

400

500

600

700

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

US$pertonne

Brent Crude Oil Brazil Hydrous Ethanol Raw Sugar


15/36

OilOil--toto--Ethanol Price Linkages inEthanol Price Linkages inSelected Major FuelSelected Major Fuel--Consuming StatesConsuming States

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

20 30 40 50 60 70 80 90 100World Oil Price (US$/bbl)

W

orldEthan

olPrice(U

S$/lt)

So Paulo Paran Rio de Janeiro Minas Gerais

Source: LMC estimates


16/36

Sugar: Brazil Shows How Links DevelopSugar: Brazil Shows How Links Develop

Between Biofuel and Product MarketsBetween Biofuel and Product Markets

Brazil has the worlds longest running biofuel

programme, making alcohol from sugar cane.

Brazils sugar and ethanol markets have been

increasingly liberalised over the past decade. The result has been that Brazil has effectively

pulled world sugar and fuel markets together,

switching cane juice from the less profitable tothe more profitable product, i.e., between sugarand ethanol, thus linking the two sets of prices.


17/36

Maize Price vs. Brent Crude (Maize Price vs. Brent Crude (A Bad FitA Bad Fit))

020

40

60

80

100

120

140

160

180

200

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07

MaizePrice,US$pertonne

060

120

180

240

300

360

420

480

540

600BrentCrude,US

$pertonne

Maize Brent Crude Oil


18/36

Vegetable Oil Prices vs. Brent Crude (Vegetable Oil Prices vs. Brent Crude (Poor FitsPoor Fits))

0

150

300

450

600

750

900

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07

V

eg.OilPrices,US$pe

rtonne

0

100

200

300

400

500

600Bren

tCrude,US$pertonn

e

Palm Oil Rapeseed Oil CNO Brent Crude Oil


19/36

Comparing Product and Fuel PricesComparing Product and Fuel Prices

Unlike with sugar, a biofuel link has not yet tiedmaize or vegetable oil prices to mineral oil

values, despite US and EU biofuel programmes.

One reason may be that the scale of biofuel use

of grains and oils is not yet large enough toinfluence the entire structure of product prices.

Another reason may be that the connections

between agricultural product and energymarkets are diluted by the effects of nationalfuel policies, which often change over time.


20/36

Correlations BetweenCorrelations Between

Monthly Fuel andMonthly Fuel and

Commodity PricesCommodity PricesSince 2002, WhenSince 2002, When

Energy Prices Took OffEnergy Prices Took Off


21/36

Correlations between Monthly CommodityCorrelations between Monthly Commodity

and Brent Crude Oil Prices, 1997and Brent Crude Oil Prices, 1997--20072007

-100%

-80%

-60%

-40%-20%

0%

20%

40%

60%

80%

100%

Soybean

Oil

Palm Oil Rapeseed

Oil

Coconut

Oil

Raw

Sugar

Natural

Rubber

MaizeCorrelationbetwe

encommodityandBrent

cru

deprices

1997-2001 2002-2007


22/36

Correlations Between Product & Brent CrudeCorrelations Between Product & Brent Crude

Prices 2002Prices 2002--04 & 200404 & 2004--07 (07 (Oils fit badly in 2004Oils fit badly in 2004--0707))

-100% -50% 0% 50% 100%

Maize

Palm Oil

Soybean Oil

Coconut Oil

Rapeseed Oil

Raw Sugar

Natural Rubber

Gold

Correlation with Monthly Brent Crude Price

2002-2004 2004-2007


23/36

CommodityCommodity--Fuel Price CorrelationsFuel Price Correlations

Since fuel prices started to surge in 2002, theprices of only a few commodities the unlikelytrio of gold, rubber and sugar have beenclosely correlated with fuel prices.

A puzzling feature is that the links were

generally much worse in the second period,when fuel prices reached their highest levels.

There is no evidence that vegetable oils, with

possible exception rapeseed oil, have yetjoined sugar as products tied to fuel prices.


24/36


25/36

Proportions of World Output of VariousProportions of World Output of Various

Commodities Destined for Biofuel Use, 1997Commodities Destined for Biofuel Use, 1997--20072007

0%

5%

10%

15%

20%

25%

30%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Biofuel%ofWorldDema

nd

Sugar Maize Rapeseed Oil Soybean Oil Palm Oil


26/36

The Growing Use of US Maize for EthanolThe Growing Use of US Maize for Ethanol

1

2

3

4

5

6

7

8

9

10

11

95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07

milliontonnes

25

45

65

85

105

125

145

165

185

205

225

No.2Y

ellowCornPrice

($/tonne)

HFCS Glucose & Dextrose Starch Fuel Alcohol No. 2 Corn Price


27/36

When Do Prices BecomeWhen Do Prices Become Linked?Linked?

Whereas rapeseed oil is now linked to energyprices, coconut oil prices are not, nor are the

prices of other leading oils.

Links between commodity and energy prices

have strengthened since 2002, but majorbiofuel crops, such as maize, are not yetlinked to energy prices.

10% of world output destined for biofuel useseems to be a threshold for a link.


28/36

Forecast Shares of Output Used in BiofuelsForecast Shares of Output Used in Biofuels

0%

5%

10%

15%

20%

25%

2004 2006 2008 2010 2012 2014S

hareofO

utputtoF

uelUses

% of US Maize to Ethanol % of World Oil Output to Fuel


29/36

The Implications ofThe Implications of

EUEU BiodieselBiodiesel PolicyPolicy

for CPO Pricesfor CPO Prices


30/36

EU TradeEU Trade--offs for CPO vs. Fuel Pricesoffs for CPO vs. Fuel Prices

In the next diagram, I have taken account of

Palm methyl ester processing costs in S. E. Asia

and The biodiesel targets, tax incentives and

penalties in each EU member state

in order to determine

The break-even S. E. Asian CPO prices for theproduction of biodiesel sold in the EU in eachEU member state in 2010, if we assume thatBrent crude oil sells at US$60 per barrel.


31/36


32/36

2010 EU Biodiesel Trade2010 EU Biodiesel Trade--off: Fuel Price vs. CPOoff: Fuel Price vs. CPO

((National policies create priceNational policies create price--sensitive ranges)sensitive ranges)

0

200

400

600

800

1,000

1,200

0 2 4 6 8 10 12Million tonnes, vegetable oil

Break-even

US$pertonne,CPO

Brent Crude $60/bbl. Malaysia CPO Price

In this region, it is profitable for users to buy SEAsian palm biodiesel when FOB CPO is US$675

In this region, it is not profitable for users to buySE Asian palm biodiesel when FOB CPO is US$675


33/36



0

200

400

600

800

1,000

1,200


Break-even

US$pertonne,CPO





34/36



0

200

400

600

800

1,000

1,200


Break-even

US$pertonne,CPO





35/36


36/36

Thank You!Thank You!

Biofuels, feedstock, maize prices 2007

Documents

Transcript of Biofuels, feedstock, maize prices 2007