Grain Prices

Grain growers await the good oil on price recovery

Neil Lyon, in Perth, March 1, 2017

David Jackson addressing the GRDC Research Update in Perth.

 

IN an era when grain prices have become intrinsically linked to the world price for oil because a significant proportion of food crops is now being grown for biofuels, prices are unlikely to rise until the price of oil goes up.

That’s the view of LMC International* director and head of its oilseeds research team, David Jackson, Oxford, UK, who said the drop in grain prices since 2012 was largely in line with the fall in petroleum prices.

Speaking at the Grains Research and Development Corporation (GRDC) Research Update in Perth, Mr Jackson said the 10 years from 2000-10 became known as the ‘biofuel decade’ where biofuels had tied almost all world crop prices to the price of petroleum.

“In the 1990s we didn’t need any crops for fuel. But in the 2000s – the biofuel decade – we had to find 140 million tonnes of food crops to burn (as fuel). That changed the market,” he said.

“In the 2000s there was 20pc growth a year in demand for food crops for fuel. The biofuel decade pushed prices up.”

An estimated 20 per cent of the world’s corn and 20pc of global vegetable oil production is now used for fuel and other industrial applications.

In the United States – the world’s biggest producer of corn – 40pc of their corn crop goes into their ethanol program.

Mr Jackson said the demand for food crops for fuel pushed prices up in the 2000s, but since 2012 and the drop in oil prices, interest in biofuels had waned as the economics no longer stacked up.

“Suddenly we have gone off using food for biofuels in Europe and America. The enthusiasm has waned,” he said.

“Biofuels is a very expensive way of solving the fuel situation. It makes sense when oil is $100/barrel. It makes no sense when oil is at $40/barrel.”

Mr Jackson said with the total area of cropped land around the world remaining relatively static and a diminished enthusiasm for using food for fuel, there would be changes to the ratio of crops grown.

He predicted an expansion in the area of soybeans, corn, oil palm and canola, but a shrinking in the area of rice and wheat.

“So, for a Western Australian grower, that doesn’t mean you will have to grow less wheat but somebody in the rest of the world will have to grow less wheat,” he said.

 

* LMC International is a consulting company, focusing on agribusiness.

 

 

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