November 01, 2008
by Arvin Donley
The impact of demand for food and fuel on oilseed supplies and prices took center stage at Soyatech’s "Soya & Oilseed Summit 2008: Growing Sustainable Opportunities in Global Agribusiness," held Sept. 17-19 in St. Louis, Missouri, U.S.
The third annual conference, which was attended by several hundred delegates from 11 countries, included representatives from the food industry, government, financial services and academia.
With biodiesel production continuing to demand a larger share of the oilseed market, the speakers at the conference offered a wide range of opinions about the impact biofuels was having on supplies and commodity prices.
In his keynote address, Dr. Gale Buchanan, undersecretary for research, education and economics for the U.S. Department of Agriculture (USDA), called achieving sustainable energy security "one of the four grand challenges for agriculture during this century." The other challenges, he said, were global climate change, water quality and availability, and food safety and security.
Buchanan said for many years a standard paradigm in agriculture has been using grain and oilseeds to produce food for humans, feed for livestock and fiber for clothing. "Today, you have to include producing it for fuel or energy," he said.
He said the USDA is working toward ensuring the sustainability of biofuels through the Biomass R&D Board, a U.S. government interagency coordination group. On Oct. 7, the USDA and Department of Energy released the National Biofuels Action Plan that included accelerating federally supported research in the areas of sustainability, feedstock production, feedstock logistics, conversion science and technology, distribution infrastructure, blending and environmental health and safety.
Buchanan said he believed the increased demand for grain and oilseeds for biofuel production has played a relatively minor role in the surge in agricultural commodity and food prices during the past year. He cited increased demand for protein-based foods in growing economies like China and India and the dramatic and sudden increase in the price of crude oil that occurred during the spring and summer as playing a larger role.
"We increased exports of corn 14% last year and are projected to increase exports again this year," Buchanan said. "There is plenty of grain available."
Other experts at the conference disagreed with Buchanan’s assessment, including Bill Lapp, president of Advanced Economic Solutions. Lapp said the U.S government’s "holy trinity of subsidies, tariffs and mandates" has artificially driven up ethanol demand and contributed to the record-high grain and food prices.
Lapp said some studies estimate that as much as two-thirds of the growth in world coarse grains demand is due to the U.S. corn ethanol industry. He said that even though the soybean based biodiesel market in the U.S. is much smaller than the corn-based ethanol market, the price of soybeans have been driven higher because of reduced supply as farmers switch acreage from soybeans to corn.
Given that the amount of corn used to produce ethanol over the next four years is projected to rise from 4 billion bushels to 5.5 billion, Lapp estimates that nearly 100 million additional acres for corn may be needed to meet that production figure. With only so much arable land available, even if the USDA releases more Conservation Reserve Program (CRP) acres into production, Lapp predicts that soybean acreage will lose the battle against corn.
He said world demand for oilseeds is growing at an average of 4% per year, while soybean demand is growing at a slightly faster rate (6.7%). Global soybean acreage in 2007-08 was just over 90 million hectares, but Lapp estimates that an additional 14 million hectares will be needed by 2012.
"I can’t tell you where we’re going to get that, but the growth in demand is going to drive a greater need for soybeans," Lapp said.
SUPPLYING CHINA, INDIA
China and India, the world’s two largest countries in terms of population and also two of the fastest-growing economies, are by far the biggest importers of oilseeds and vegetable oil. China, in 2007-08, accounted for about 47% (36.5 million tonnes) of the world’s soybean imports and about 26% (2.75 million tonnes) of global soybean oil imports.
Chinese soybean production has been essentially flat during the past decade, with output typically ranging from 15.5 to 16.5 million tonnes. Consequently, China has remained dependent on imports from the world’s three biggest soybean producers: the U.S., Brazil and Argentina.
"Soybean yield in China has actually declined, according to the USDA, so China is very dependent on world supplies of oilseeds," said Lapp, adding that Chinese demand for soybeans, soybean meal and vegetable oil are likely to increase in the coming years. "Economically, it is a more difficult crop for them to produce in large quantities."
With soybean acreage and production expected to remain stagnant in the U.S., it appears Brazil and Argentina are the best candidates to fill that demand.
Anne Frick, senior oilseed analyst for Prudential Bache Commodities, said that in 2007 the southern hemisphere surpassed the northern hemisphere in soybean production for the first time. "The output in the southern hemisphere (for 2008) is uncertain at this time, but it is expected to increase," Frick said. "In the northern hemisphere, production is really stagnating; the growth is coming in South America."
While there’s more potential for soybean acreage and production increases in Brazil and Argentina, the two countries also have issues that may limit the amount of soybeans and soybean oil that they can export, Frick said. For instance, the Brazilian government currently mandates that 2 million tonnes of soybean oil goes to domestic biodiesel production. Argentina doesn’t mandate nearly as much soybean-based biodiesel production, but it does have a 32% export tariff on soybean oil, compared with a 16% export tariff with a 2.5% rebate on biodiesel.
"Argentina is by far the world’s largest soybean oil exporter," Frick said. "So if (Argentina’s) export supplies and Brazil’s supplies decline and the U.S. supplies remain a small amount of the total, it means there will be more demand for palm oil in the world vegetable oil trade."
Palm oil production is growing at a faster rate than any of the other vegetable oils. Frick said palm oil made up only 1% of global vegetable oil trade 10 years ago, but today that total is up to 10%. The USDA forecasts that China will import 5.9 million tonnes of palm oil in 2008-09, almost triple its import total from 2000-01.
The 2007-08 rapeseed crop increased from the previous year among the world’s leading producers, incuding the E.U., China, Canada, Ukraine, Australia and India. The USDA estimates the world rapeseed crop at 48.2 million tonnes, the second-largest behind 48.5 million in 2005-06, and is projecting a record crop of 54 million tonnes in 2008-09.
"Almost every major rapeseed producer is seeing an increase in production this year," Frick said. "Ukraine has emerged as a significant producer of rapeseed, surpassing Australia."
USDA is also estimating a record rapeseed oil output of 18.2 million tonnes in 2007-08, with the E.U.-27 accounting for 7.5 million tonnes of that total. Rapeseed oil in the E.U. is primarily used in the production of biodiesel.
While a recent Rabobank study projected a 15% increase in rapeseed oil production from 2006 to 2010, it also forecast rapeseed’s share as a biodiesel feedstock dropping from 70% to between 40% and 45% by 2010.
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