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Another link in the grain price chain - barrels of oil

The link between the price of a barrel of oil, biofuel production and the grain price was described in a recent paper - if the cost of a barrel of oil stays high, don't expect grain prices to fall sharply.

The link between the price of a barrel of oil, biofuel production and the grain price was described in a recent paper given at Pig Focus Asia in Bangkok - if the cost of a barrel of oil stays high, don't expect grain prices to fall sharply.

That was the clear message from Gerardo Morantes of Cargill Animal Nutrition, USA.

He related the price of a barrel of oil to the equivalent grain price, which could be used for economic biofuel (ethanol) production (see Table 1).

Table 1. Relationship of oil price and grain price for biofuel production.

Oil price
($/barrel)

Grain price
($/bushel)
Grain price
($/metric tonne)

20

2.09

82.28

50

4.08

160.62
100 7.38 290.54 (€189)


As oil prices had just gone over $105/barrel at the time of writing this, it means that grain at prices of approximately €198 (£151) could still be used to continue to produce biofuel economically.

Continuous demand
If the US maintains its strategy to increase biofuel production from 4 billion gallons of ethanol to 7.5 billion gallons over the next 5 years (about 5.4% of current gasoline consumption) this could have a continuous demand on grain markets and supply and keep prices high, as it could utilise the equivalent of 67 million tonnes of grain per year or about 25% of the current 267 million tonnes of maize production.

Europe is also looking at this and biodiesel and would like to increase their biofuel consumption to a similar 5.75% by 2010.

This is starting to be a very complex game with no clear light at the end of the tunnel.

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    Nigel Horrox

    Pig Focus Asia 2008 was a great conference. Looking forward to the next one in 2010.

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