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8/7/2019 Biofuels, feedstock, maize prices 2007
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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
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IntroductionIntroduction Impact of biofuel growth on vegoil demand
Link between fuel and commodity prices When do prices become linked
Implications for the future
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BiofuelBiofuel
Supply/DemandSupply/Demand
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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
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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
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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
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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
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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 Other Industrial
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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 Food Other Industrial
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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
0%
20%
40%
60%
80%
100%FoodS
hareofT
otalGrowth
Biodiesel Food Other Industrial % Food
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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.
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Links Between FuelLinks Between Fuel
and Commodity Prices:and Commodity Prices:
The Experience ofThe Experience of
Sugar, Maize andSugar, Maize and
Vegetable OilsVegetable Oils
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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
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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$pertonne
Brent Crude Oil Brazil Hydrous Ethanol Raw Sugar
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OilOil--toto--Ethanol Price Linkages inEthanol Price Linkages inSelected Major FuelSelected Major Fuel--Consuming StatesConsuming States
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
20 30 40 50 60 70 80 90 100World Oil Price (US$/bbl)
W
orldEthan
olPrice(U
S$/lt)
So Paulo Paran Rio de Janeiro Minas Gerais
Source: LMC estimates
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Sugar: Brazil Shows How Links DevelopSugar: Brazil Shows How Links Develop
Between Biofuel and Product MarketsBetween Biofuel and Product Markets
Brazil has the worlds longest running biofuel
programme, making alcohol from sugar cane.
Brazils sugar and ethanol markets have been
increasingly liberalised over the past decade. The result has been that Brazil has effectively
pulled world sugar and fuel markets together,
switching cane juice from the less profitable tothe more profitable product, i.e., between sugarand ethanol, thus linking the two sets of prices.
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Maize Price vs. Brent Crude (Maize Price vs. Brent Crude (A Bad FitA Bad Fit))
020
40
60
80
100
120
140
160
180
200
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07
MaizePrice,US$pertonne
060
120
180
240
300
360
420
480
540
600BrentCrude,US
$pertonne
Maize Brent Crude Oil
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Vegetable Oil Prices vs. Brent Crude (Vegetable Oil Prices vs. Brent Crude (Poor FitsPoor Fits))
0
150
300
450
600
750
900
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07
V
eg.OilPrices,US$pe
rtonne
0
100
200
300
400
500
600Bren
tCrude,US$pertonn
e
Palm Oil Rapeseed Oil CNO Brent Crude Oil
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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.
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Correlations BetweenCorrelations Between
Monthly Fuel andMonthly Fuel and
Commodity PricesCommodity PricesSince 2002, WhenSince 2002, When
Energy Prices Took OffEnergy Prices Took Off
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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
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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
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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.
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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
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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
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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.
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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
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The Implications ofThe Implications of
EUEU BiodieselBiodiesel PolicyPolicy
for CPO Pricesfor CPO Prices
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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$60 per barrel.
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2010 EU Biodiesel Trade2010 EU Biodiesel Trade--off: Fuel Price vs. CPOoff: Fuel Price vs. CPO
((National policies create priceNational policies create price--sensitive ranges)sensitive ranges)
0
200
400
600
800
1,000
1,200
0 2 4 6 8 10 12Million tonnes, vegetable oil
Break-even
US$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$675
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2010 EU Biodiesel Trade2010 EU Biodiesel Trade--off: Fuel Price vs. CPOoff: Fuel Price vs. CPO
((National policies create priceNational policies create price--sensitive ranges)sensitive ranges)
0
200
400
600
800
1,000
1,200
0 2 4 6 8 10 12Million tonnes, vegetable oil
Break-even
US$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$675
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2010 EU Biodiesel Trade2010 EU Biodiesel Trade--off: Fuel Price vs. CPOoff: Fuel Price vs. CPO
((National policies create priceNational policies create price--sensitive ranges)sensitive ranges)
0
200
400
600
800
1,000
1,200
0 2 4 6 8 10 12Million tonnes, vegetable oil
Break-even
US$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
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Thank You!Thank You!