Transcript Slide 1
John C. Baize John C. Baize and Associates National Cottonseed Products Association Annual Convention Destin, Florida May 5, 2007 A combination of high energy prices and fears of global warming have caused nations all around the world to seek to replace fossil fuels with biofuels – ethanol and biodiesel. The current generation of biofuels mostly are made from grains (mostly corn), vegetable oil, animal fats and other feed energy sources such as cassava. The hope is to develop 2nd generation biofuels made from biomass such as wood, grasses, and wastes. Thus far very limited volumes of 2nd generation biofuels have been produced and it likely will be a decade before there is widespread production. U.S. currently has over 2 billion gallons of installed biodiesel capacity. Another 1 billion gallons planned or under construction The total supply of all oils and fats (including animal fats) consumed in the U.S. would make only 4 billion gallons of biodiesel Thus, existing and planned biodiesel capacity would be able to use 75% of total supply of oils and fats and another The only way to prevent this from happening is for food sector to keep price high enough that very little goes into biodiesel production There is a growing battle between the biofuel and food/feed sectors for energy sources. On the food/feed side there is strong demand for corn, vegoils, wheat, rice and other commodities to feed a rapid increase in food demand in China, India and elsewhere in the world. Biofuel demand also is rapidly increasing demand for grains and vegoils The result has been a major increase in prices for all food/feed commodities and in consumer feed prices. Global political pressures are building to slow down or reverse use of food/feed to make biofuels. One United Nations official called biofuels a “crime against humanity” Biofuels at first were promoted as a way to protect the environment and slow global warming. However, there now is a recognition some biofuels are negative to the environment. There are bad if they cause destruction of rainforests or other sensitive areas such as wetlands, peat bogs, and some grasslands. The EU has proposed limitations on the use of biofuels produced from newly-cleared land or which do not reduce CO2 emissions by at least 30% compared to using fossil fuels. Some believe crops that require large amounts of nitrogen fertilizer are worse for environment because of nitrous oxide emissions which is far worse greenhouse gas than CO2. Others oppose biofuels that require large amounts of nitrogen and phosphorus because they increase water pollution. Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total Renewable Fuel 9.0 11.1 12.95 13.95 15.2 16.55 18.5 20.5 22.25 24 26 28 30 33 36 Cellulose Corn 0.6 0.95 1.35 2 2.75 3.75 5.5 7.25 9 11 13 15 18 21 Bio-Diesel 9.0 10.5 12 12.6 13.2 13.8 14.75 15 15 15 15 15 15 15 15 0.5 0.65 0.8 1 1 1 1 1 1 1 1 1 1 1 About half of all U.S. biodiesel output is being exported after being subsidized Trans-fat labeling has reduced soyoil use for food EU policy is to replace 5.75% of petroleum-based fuels with biofuels by 2010 The goal is to replace 10% of petrofuel with biofuels by 2020 EU-27 annually consumes about 410 MMT of petroleum-based fuel. This suggests the EU will need 23.6 mmt of biofuel in 2010 and 41 mmt in 2020 assuming no growth in demand. Recently United Kingdom, Netherlands, and Germany have been pressing EU to reconsider biofuel targets because of impact on food prices and deforestation in Southeast Asia and Brazil Soyoil now trading at CBoT at equivalent of $199/barrel U.S. gasoline consumption in 2006 was about 141 billion gallons U.S. diesel consumption totaled about 63.9 billion gallons Ethanol mandates will reach 24.8% of current gasoline consumption by 2022 -- if 16 billion gallons of biomass ethanol can be produced. 1 billion gallon biodiesel mandate will equate to about 1.6% of current U.S. diesel consumption in 2012 On April 15, 2008 crude oil traded at $113.93/barrel At that price corn has a value as a fuel of $7.67/bushel ($302/MT) based on its energy content. Wheat has a value as a fuel of $9.02/bu. ($331.39/MT) based on its energy content. Vegetable oil has a value as a fuel of $750.62/MT based on its energy content. Compared to the U.S. diesel price of $4/gallon ($1.06/liter) vegetable oil is worth $1,092/MT to blend directly with diesel. Compared to propane selling for $2.20/gallon ($0.58/liter) corn is worth $9.40/bushel ($370/MT) to use as a home heating fuel. All agricultural commodities now are worth far more than 2 years ago solely based on their value as fuel. Brazil – 3% of consumption now mandated, moving to 5% Argentina: likely to produce 1 mmt in 2008 Colombia – 110,000 mt forecasted for 2008 Malaysia: industry facing major problems Indonesia: high domestic prices limiting output China: Mostly using waste oil and jatropha Singapore: Large plants planned Russia: several plants planned South Africa: large net vegoil importer India: mostly will use jatropha Philippines: plans to use coconut oil and jatropha One of the most promising sources of oil for the production of biodiesel is algae. Some algae have oil content of 50% Algae yields as high as 35 mt/hectare have been identified. This could yield as much as 17 mt/hectare (15,167 lbs./acre). This compares with 3 – 4 mt/hectare for oil palms. Major limitation will be finding land area near plentiful water supply and high upfront investments to build facilities. Food demand will almost always win out over biofuels with respect to using grains and vegoils. High prices likely will ration demand by biofuels sector. The big losers from biofuels will be the world’s poorest who will see much higher food prices. Hunger will increase. Concerns about environmental destruction will limit how much land can be used to produce biofuel feedstocks. Biomass-based biofuels are unlikely to be a major contributor to global fuel needs for at least a decade. Even with growing supplies of DDGs from ethanol plants protein meal demand has been good. However, high corn prices and high protein meal prices is taking a toll on livestock and poultry sectors Poultry sector being reduced by 5% or more Swine sector is in midst of large herd reduction that likely will continue for much of 2008 Result likely will be slowing or declining soymeal demand and lower prices This likely will cause lower protein meal prices. Last major Midwest drought was in 1988 Historically major droughts have occurred every 17 – 20 years 16 of the 17 most recent droughts were preceded in previous year by major drought in Southeast. A severe drought occurred in Southeast in 2007. Dry weather in Western Corn Belt associated with La Niña weather pattern which currently exists. Low subsoil moisture in much of Midwest already. Commodity Corn Soybeans Area Yield Average 1985 1987 Yield 1988 Production Average 1985 - 1987 MT/HA Production 1988 Actual MT/HA MMT MMT Illinois 8.4 4.6 35.2 17.8 Iowa 8.2 5.3 39.4 22.8 USA 7.5 5.3 205.2 125.2 Illinois 2.7 1.8 9.7 6.4 Iowa 2.8 2.1 9.1 6.8 USA 2.3 1.8 54.2 42.1 Commodity Carryout 1987/88 Carryout 1988/89 Carryout 2007/08 Corn 108.2 MMT 49.0 MMT 32.6 MMT Soybeans 8.2 MMT 5.0 MMT 4.4 MMT Livestock and poultry sectors implode with major drop in demand base. Food prices rocket upward worldwide Ethanol sector largely shuts down Biodiesel industry largely disappears Foreign grain and oilseed production increases sharply Governments turn against biofuels John Baize John C. Baize and Associates 7319 Brad Street Falls Church, VA 22042 USA Tel: 703-698-5908 Email: jbaize@attglobalnet