Feedstock Prices
50
40
Billion litres
30
20
10
0
2000 2001 2002 2003 2004 2005 2006
Brazil US EU Other
Sources: Unica, EIA, UEPA, FO Licht
World Biodiesel Production
5
Million tonnes of biodiesel
0
2000 2001 2002 2003 2004 2005 2006
US EU Brazil SE Asia
Sources: EU Commission, US Census Dept., LMC Estimates
The Impact of Biofuel
Demand on the Allocation
of World Vegetable Oil
Demand Growth Between
Fuel and Food
World Oil Demand Growth, 1999-2006 by Use
5
Million Tonnes of Oils
0
1999 2000 2001 2002 2003 2004 2005 2006
Biodiesel
World Oil Demand Growth, 1999-2006 by Use
5
Million Tonnes of Oils
0
1999 2000 2001 2002 2003 2004 2005 2006
Biodiesel Other Industrial
World Oil Demand Growth, 1999-2006 by Use
5
Million Tonnes of Oils
0
1999 2000 2001 2002 2003 2004 2005 2006
Biodiesel Food Other Industrial
World Oil Demand Growth, 1999-2006 by Use
4 80%
3 60%
2 40%
1 20%
0 0%
1999 2000 2001 2002 2003 2004 2005 2006
Biodiesel Food Other Industrial % Food
Vegetable 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 year’s rise in vegetable oil prices,
the direct burning of oils as fuel and their
blending in diesel have become uneconomic.
Links Between Fuel
and Commodity Prices:
The Experience of
Sugar, Maize and
Vegetable Oils
Sugar Cane Allocation by Use in Brazil
450 44
% Cane to Ethanol
43
Cane Production (million tonnes)
400
350 42
300 41
40
250
39
200
38
150 37
100 36
50 35
0 34
1999/00 2001/02 2003/04 2005/06
600
500
US$ per tonne
400
300
200
100
0
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-
94 95 96 97 98 99 00 01 02 03 04 05 06 07
Brent Crude Oil Brazil Hydrous Ethanol Raw Sugar
Oil-to-Ethanol Price Linkages in
Selected Major Fuel-Consuming States
World Ethanol Price (US$/lt)
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
20 30 40 50 60 70 80 90 100
World Oil Price (US$/bbl)
São Paulo Paraná Rio de Janeiro Minas Gerais
Source: LMC estimates
Sugar: Brazil Shows How Links Develop
Between Biofuel and Product Markets
Brazil has the world’s longest running biofuel
programme, making alcohol from sugar cane.
Brazil’s 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 to
the more profitable product, i.e., between sugar
and ethanol, thus linking the two sets of prices.
Maize Price vs. Brent Crude (A Bad Fit)
200 600
Maize Price, US$ per tonne
600 400
450 300
300 200
150 100
0 0
Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07
Palm Oil Rapeseed Oil CNO Brent Crude Oil
Comparing Product and Fuel Prices
Unlike with sugar, a biofuel link has not yet tied
maize 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 to
influence the entire structure of product prices.
Another reason may be that the connections
between agricultural product and energy
markets are diluted by the effects of national
fuel policies, which often change over time.
Correlations Between
Monthly Fuel and
Commodity Prices
Since 2002, When
Energy Prices Took Off
Correlations between Monthly Commodity
and Brent Crude Oil Prices, 1997-2007
Correlation between commodity and Brent
100%
80%
60%
40%
crude prices
20%
0%
-20%
-40%
-60%
-80%
-100%
Soybean Palm Oil Rapeseed Coconut Raw Natural Maize
Oil Oil Oil Sugar Rubber
1997-2001 2002-2007
Correlations Between Product & Brent Crude
Prices 2002-04 & 2004-07 (Oils fit badly in 2004-07)
Gold
Natural Rubber
Raw Sugar
Rapeseed Oil
Coconut Oil
Soybean Oil
Palm Oil
Maize
25%
Biofuel % of World Demand
20%
15%
10%
5%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Sugar Maize Rapeseed Oil Soybean Oil Palm Oil
The Growing Use of US Maize for Ethanol
11 225
10 205
9 185
7 145
million tonnes
6 125
5 105
4 85
3 65
2 45
1 25
95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07
HFCS Glucose & Dextrose Starch Fuel Alcohol No. 2 Corn Price
When Do Prices Become Linked?
Whereas rapeseed oil is now linked to energy
prices, coconut oil prices are not, nor are the
prices of other leading oils.
Links between commodity and energy prices
have strengthened since 2002, but major
biofuel crops, such as maize, are not yet
linked to energy prices.
10% of world output destined for biofuel use
seems to be a threshold for a link.
Forecast Shares of Output Used in Biofuels
Share of Output to Fuel Uses
25%
20%
15%
10%
5%
0%
2004 2006 2008 2010 2012 2014
% of US Maize to Ethanol % of World Oil Output to Fuel
The Implications of
EU Biodiesel Policy
for CPO Prices
EU Trade-offs 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 the
production of biodiesel sold in the EU in each
EU member state in 2010, if we assume that
Brent crude oil sells at US$60 per barrel.
2010 EU Biodiesel Trade-off: Fuel Price vs. CPO
(National policies create price-sensitive ranges)
1,200
Break-even US$ per tonne, CPO
800
600
400
In this region, it is not profitable for users to buy
SE Asian palm biodiesel when FOB CPO is US$675
200
0
0 2 4 6 8 10 12
Million tonnes, vegetable oil
800
600
400
In this region, it is not profitable for users to buy
SE Asian palm biodiesel when FOB CPO is US$675
200
0
0 2 4 6 8 10 12
Million tonnes, vegetable oil
800
600
400
In this region, it is not profitable for users to buy
SE Asian palm biodiesel when FOB CPO is US$675
200
0
0 2 4 6 8 10 12
Million tonnes, vegetable oil
800
600
400
In this region, it is not profitable for users to buy
SE Asian palm biodiesel when FOB CPO is US$675
200
0
0 2 4 6 8 10 12
Million tonnes, vegetable oil