Higher prices for grains and oilseeds are here to stay, with the rapid expansion of the US biofuel sector causing a “one-time shift in the demand curve”, says American Farm Bureau Federation senior economist Terry Francl.
“What we are seeing is a permanent shift in the market,” he told Farmers Weekly in Washington last week. “The era of cheap grains is something we won’t see again, at least not until some other new technology comes along.”
The last time there was such a fundamental change was back in 1971, when the then Soviet Union and China came on to the world market. Until then, maize had been trading in a range of 50c-$1.50/bushel ($20-$60/t). But the presence of two new big buyers pushed this up to $2-$3/bushel ($80-$120/t), which was the trading range for the next 30 years.
But the massive boost in demand for biofuels means a new trading range for maize and other coarse grains has been established at $3-$5/bushel ($120-$200/t).
“The USA is hugely concerned about its oil vulnerability,” said Mr Francl. “Our dependence on OPEC has proved very costly, especially in terms of our exposure to terrorists and hostile regimes. So we are going to do something about it.”
At the start of this year, ethanol plant capacity in the USA stood at 5bn gallons. With the number of new plants in construction, this is expected to double by the end of the year. Industry figures suggest that capacity could reach 20bn gallons by the end of 2008, setting the USA well on the road to achieving President Bush’s target of reducing gasoline use by 20% in the next 10 years.
The White House wants to see 35bn gallons of renewable and alternative fuels in production by 2017. It is, therefore, offering a range of grants and tax breaks to encourage new capacity and keep biofuels competitive at the pumps.
The drive to higher ethanol production is apparent in the latest planting figures from the US department of agriculture. These show that maize is expected to rise a massive 15% this spring to 37m hectares (91m acres), indicating a record crop.