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US corn ethanol fuels food crisis in developing countries

Indians grapple over free food distributed in 2011 after a sudden rise in food prices [AFP]

Article by Al Jazeera

Financial investors betting on the price of food are dangerously driving up prices, threatening millions of impoverished people in food-importing countries who will go hungry, critics warn.

But the issue of food speculation by banks, hedge and pension funds is a controversial one, and many observers say there is no evidence that gambling on food causes price increases and volatility.

Opponents are demanding that G-20 leaders take urgent action to halt agriculture commodity speculation, after summer drought ravaged US corn crops, and lower-than-expected wheat yields in Russia, Ukraine and Kazakhstan.

Activists say while nothing can be done about the effects of drought devastation on prices, the trade of agricultural financial products can – and must – be immediately halted.

About one billion people around the globe already go hungry. It is predicted the number will jump by 53 million by the end of 2012, according to the UN World Food Programme.

Countries in the Middle East and north and sub-Saharan Africa are most vulnerable to the latest global food-price spike, the third in five years. Some analysts are warning food riots – similar to those that erupted in 2008 and 2010 – could be on the horizon.

In just one year, maize prices have jumped by 174 per cent in Malawi and 129 per cent in Mozambique. Wheat prices have surged 52 per cent in Sudan since July 2011, according to the World Bank.

Financial speculation is “among the various drivers of increased price levels and volatility”, according to a recent release by three UN agencies.

G-20 officials are discussing the issue and could call an emergency meeting to try to head off a potential global food crisis.

But some are sceptical any real action will be taken. If an emergency meeting is called, expect “nothing from the G-20 on financial speculation”, Simon Evenett, professor of international trade at the University of St Gallen, Switzerland, told Al Jazeera.

France’s Agriculture and Food Minister Stephane Le Foll has blamed skyrocketing prices partly on excessive food speculation. He urged taxation of financial transactions and “position limits” – which cap the amount speculators are allowed to invest.

“There have been transfers, speculators leaving other markets to come to food markets. We need to stop this,” Le Foll recently told French television.

Others sceptical

While some point a finger directly at agriculture speculation as playing a significant role in food-price spikes, others deny any such link.

“At most, financial speculation has been a minor aggravating factor,” Evenett said.

Peter Schiff, an economist and CEO of Euro Pacific Capital, said agricultural trading does not affect prices, and halting the practice could compound the problem.

“If you took all the speculators out of the market, the prices might even be higher,” Schiff told Al Jazeera’s Inside Story.

Shenggen Fan, director general of the International Food Policy Research Institute, said “the evidence so far is inconclusive”, when asked if speculation was driving up prices.

But others contend with ample food supplies over the past few years, the volatility and price surges cannot be explained by supply and demand alone. Read the rest of this entry »

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Biofuels Industry under scrutiny amidst drought

U.S. corn is suffering under historic drought conditions, causing crop yield projections to drop over the past two months. As result, corn prices have increased by more than 50 percent since the first quarter of 2012.

As the largest global producer and exporter of corn, the United States is under domestic and international pressure to keep prices as low as possible. Though the drought is the primary cause of the recent price increases, growing biofuel production spurred in part by U.S. government mandates over the past decade has also heightened demand for corn, adding upward pressure on prices. Even if these mandates were to be removed, however, prices would not necessarily decrease since ethanol production is only one of many factors influencing the commodity.

Analysis by Stratfor (click here to visit their excellent website)

Field corn accounts for the vast majority of the crop produced in the United States, and the starch derived from it can be used as the feedstock, or starting material, for ethanol production. By contrast, sweet corn, the kind most often used in canned or frozen foods or eaten fresh, accounts for less than 1 percent of total U.S. corn production. More than one-third of the country’s field corn gets used to make ethanol, with the rest used as livestock feed or as a base in a variety of foods such as corn syrup and flour.

Ethanol production began to increase significantly in the early 2000s after becoming a popular gasoline blending component used to increase octane levels and meet Read the rest of this entry »

 

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QUOTE OF THE WEEK

The cost of corn and soyameal, the main ingredients in animal feed, have set records this month as the worst drought in half a century and extreme heat damages crops in the US, the world's main surplus producer.

“I thought that $6 corn was end of the world. I never could have realised that I would be thankful to be buying it at $7.”

-Larry Pope, CEO of Smithfield Foods, the US based meat producer to the Financial Times. The cost of corn and soyameal, the main ingredients in animal feed, have set records this month as the worst drought in half a century and extreme heat damages crops in the US, the world’s main surplus producer.

Read the rest of this entry »

 
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Posted by on August 3, 2012 in Agriculture

 

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The US Ethanol Market – A quick synopsis

US ethanol exports reach highest level in more than two decades:

In November, the US exported 152.5 mil gallons of ethanol, the largest monthly volume in more than 20 years. Between January and November 2011, the US exported 1.02 billion gallons of ethanol.

This export volume over 11 months is more than 2.5x the export volume from the entirety of 2010 and about 6.0x higher than the previous five full-year average export levels. The top importers of US ethanol in the first 11 months of 2011 include Brazil, which imported about one-third of US exports, followed by Canada (26%), the Netherlands (12%), and the United Kingdom (9

%). Ethanol exports likely accounted for 7% to 9% of total US ethanol production in 2011.

How much ethanol will the US be able to export in 2012? Taking into account increased US ethanol production capacity for 2012 (+8.1%y/y) and higher 2012 Renewable Fuel Standard (RFS2) mandate levels for blending in the US, we estimate US ethanol exports could be as high as 1.4 billion gallons in 2012. Our assumptions are based on the following. Weekly EIA data show that as of December 30, 2011, the US had ethanol stocks of 753.7 mil gal.

According to the Renewable Fuels Association, as of January 10, 2012, 14.2 bil gal of ethanol production in the US are operational (with a nameplate capacity of 14.7 bil gal). We assume that, on average, ethanol capacity utilization in 2012 will be 96%, implying production of about 14.1 bil gal. The new RFS2 rules mandate blending of 2.0 bil gal of ethanol-equivalent volumes of advanced biofuels into the US fuel supply— about 75% of this volume will need to be met with biomass-based biodiesel.

We forecasted earlier that most of the remaining 490 mil gal of ethanol-equivalent volume necessary to meet the advanced biofuel requirement will likely come from imports of sugarcane-based ethanol (mostly from Brazil). If we assume higher US ethanol imports from Brazil, it would not be surprising to see total US ethanol imports exceed 500 mil gal in 2012. To put this in perspective, between January and November 2011, the US imported 240 mil gal.

In summary, US ethanol supplies in 2012 could reach 15.4 bil gal. RFS2 mandates that a minimum of 13.2 bil gal of ethanol be used to meet the annual blending requirements. Allowing for a roughly unchanged ending stock level of 750 mil gal implies that about 1.4 bil gal would be available for export. This figure is likely an upper bound for US ethanol exports in 2012—it hinges upon strong capacity utilization and a minimum level of discretionary blending above the mandated levels.

Most likely, some level of discretionary blending and domestic stock building will keep US ethanol exports below 1.4 bil gal, but still well above 2011 levels. We estimate about 25% of available ethanol exports will be shipped to Brazil. It is unlikely that Brazil’s sugar production will increase significantly from 2011/12 harvest levels, making an ethanol exchange between the US and Brazil necessary in order for both countries to maintain their respective blending mandates, especially as Brazil has recently extended its zero-tariff policy on ethanol imports until December 31, 2015.

 
 

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Food vs Fuel – US Dept. of Defense joins the party

High Oil prices and imported supplies is turning the US’s defense department towards algae, seed oils and animal fat based substitutes adding yet another demand –side factor in the food vs. fuel debate

We know that the energy stored in a pound of pork or a bushel of corn can either feed a person or fuel a car. Now our food is also going to be used to fuel fighter planes and warships!

US Companies such as Dynamic Fuels, co-owned by Tyson Foods that make synthetic fuels from animal fats, greases, and vegetable oils and Solazyme that converts algae into fuel will supply the US The Navy 450,000 gallons of biofuel worth $12 million in what is being considered the largest biofuel purchase in U.S. government history.

Every 25-cent increase for a gallon of jet fuel adds $1 billion to the U.S. Defense Department’s annual energy costs and about 60 % of the department’s energy consumption in fiscal year 2010 was attributable to petroleum-based jet fuel. At the current market value of about $3 a gallon, jet fuel costs the department more than $12 billion a year.

Using cleaner, domestically produced fuels will reduce greenhouse gas emissions in addition to increasing energy independence, reckons the Pentagon, the US’ single biggest energy consumer.

The US’ Navy and Marine Corps have fixed themselves a goal of ensuring that 50 % of the services’ energy supply comes from alternative energy such as biofuels and solar power by 2020; cutting fossil fuel use by its non-combat vehicles in half by 2015; and reducing fuel consumption on ships 15 percent by 2020.

Click to read announcement of US Navy 13.78 MW Solar Farm Construction

The Pentagon’s spending on renewable energy increased 300 percent between 2006 and 2009, from $400 million to $1.2 billion, and it is projected to reach more than $10 billion annually by 2030, according to a report issued last week by the Pew Project on National Security, Energy and Climate.

Press releases below:

http://wapo.st/nd7MOs

http://bit.ly/w5WHJT

http://bit.ly/Arnr7i

 

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Brazillian Ethanol Industry Readies for Growth

Brazil is the largest ethanol exporter in the world, and is second only to the United States in terms of production.   The industry is on the cusp of major growth.

Brazil biofuel largely comes from sugarcane, a more efficient fuel source than the corn used in the United States.  Sugarcane is widely considered to be the best of the alternative transportation fuels commercially produced today.

Major corporations have increased their interest in Brazilian sugarcane ethanol production  in recent years.  Shell, for example, launched a $12 billion biofuels joint venture with Brazilian firm Cosan last month.  The new firm, Raizen, will merge ethanol, sugar and conventional fuel divisions and will be the fifth largest company in Brazil in terms of revenue.

“Shell got involved because it believes the amount of energy needed by the world is not going to be possible just by [relying on] fossil fuels… and the motivation for Cosan was to transform sugarcane ethanol into an international commodity,” explained Raizan’s new CEO, Vasco Dias.

Domestic demand for ethanol is very high in Brazil, where 86% of all vehicles will be “flex-fuel” by the year 2020.  “Flex-fuel” vehicles are able to operate on gasoline, ethanol, or any mixture of the two.  In 2010, 54.2% of all sugarcane was used to produce ethanol, and that percentage is predicted to rise to 68.5% by 2020.

The U.S. political decision to repeal $6 billion in ethanol subsidies and remove a $0.54 per gallon tariff import tax on ethanol was welcome news to the Brazilian ethanol industry which anticipates market growth as a result.  Indeed, the outlook for sugarcane ethanol is so positive that the Brazilian government  reportedly changed its legal status from an agricultural commodity to a “strategic fuel.”

Although China and Russia have accused Brazilian ethanol policies of driving up the cost of sugar to 30 year highs, Brazil disputes these claims and furthermore says it can increase production of sugar and ethanol without resorting to land clearing, which is a major contributor to  climate change.

 

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