Soaring oil pushes up biofuel prices
But there’s even better to come, according to many global commodity analysts. “In inflation-adjusted terms, prices for agricultural commodities are still below their real highs, so their valuations remain very attractive,” said Michael Lewis, head of commodities research at Deutsche Bank.
As future prices for crude oil surged to $100 a barrel, the price trend for maize went to $4.66 a bushel, within touching distance of its recent 11-year high.
Maize is a key raw material for biofuels, and the price therefore tends to follow the oil price.
Meanwhile, soyabean future prices in the US jumped to a 34-year high, and wheat prices neared their recent all-time high. Both crops compete with maize for acreage, and in the global animal feed market.
Jeffrey Currie, head of commodities research at Goldman Sachs, said global biofuel demand could increase 20% per year, from 10 billion gallons a year in 2005 to 25bn gallons annually by 2010.
The 2007 Energy Bill in the US reveals plans to use 36bn gallons of renewable fuels by the year 2022, of which maize-based ethanol would reach 15bn gallons per year in 2015, and stay at that level.
This requires doubling the current US maize-based production capacity. The most challenging aspect of this target will be producing enough maize to keep these plants supplied without shortchanging other users, such as the livestock industry and supplying acres for other crops.
The current $4.66 per bushel of maize future prices is attributed not to the current supply and 2007-2008 marketing year needs, but the battle for 2008 acres with soyabeans.
In turn, livestock production trends will follow crop trends, resulting in strong global prices.
