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Agricultural Review

Global bio-energy demand will prop up commodity prices, USDA economist says

The global demand for bio-energy will continue to have a significant impact on commodity prices, a U.S. Department of Agriculture economist said at the third annual Agricultural Development Forum.

Over the next 10 to 15 years, demand for ethanol and biodiesel will prop up commodity prices, especially for corn and soybeans, said Dr. Gerald Bange, head of USDA’s World Agricultural Outlook Board. These crops will compete for acres with each other and with other crops such as small grains and cotton, he said.

Bange spoke to about 200 farmers, agricultural leaders and agribusiness professionals at the forum, hosted by Agriculture Commissioner Steve Troxler Jan. 31 at the State Fairgrounds.

The 2007 Energy Act says U.S. gasoline consumption must include 9 billion gallons of renewable fuel this year and 15 billion gallons by 2015. “That 15 billion gallons will account for about 10 percent of gasoline used in the U.S.,” Bange said.

The amount of U.S. corn used for ethanol is projected to increase 1.1 billion bushels, or 51 percent, in 2007-2008. Other uses of corn have remained stable, but “there certainly is the possibility of using a bigger share of the corn crop as ethanol production approaches 15 billion gallons,” the economist said.

Increased production of biofuels – particularly in Europe and the United States – is dramatically affecting global vegetable oil markets, pushing soybean cash prices as high as $12.50 in early 2008, Bange said. China’s demand for soybeans also is helping prices. The Asian country is expected to import a record 34 million tons this year.

Because competition from corn will limit U.S. soybean acreage, South American countries such as Brazil and Argentina are likely to help meet China’s needs. “Brazil has a lot of land down there,” Bange said. “They do have the capacity if prices are satisfactory.”

Bange also said that global demand for wheat, coupled with a tight supply, has led to near-record prices for the crop. The average market price is forecast at $6.45 to $6.85 per bushel. Some areas of the country are seeing cash prices of $10 to $13 per bushel.

Analysts expect further decreases in cotton plantings this year, as rising prices for soybean and wheat entice farmers to plant them instead, Bange said.

The USDA spring plantings report will be released March 31.

Bange’s presentation, titled “Situation and Outlook for Agricultural Commodities,” is available online at www.usda.gov/oce/speeches/index.htm.

 

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