Biofuel forecast may prop up prices

International Energy Agency says global production will increase to 130 billion litres by 2024 from 110 billion this year

One of the main pillars propping up the grain and oilseed sector won’t be crumbling any time soon, according to an intergovernmental organization.

Biofuel production is expected to increase 25 percent over the next five years, based on an outlook prepared by the International Energy Agency.

If the forecast proves true, it will help underpin prices for crops like corn and soybeans for years to come.

“It would have a modest but significant impact on prices,” said Dermot Hayes, Pioneer chair in agribusiness at Iowa State University.

The 30-country member IEA forecast calls for a 20 percent increase in global ethanol output to 130 billion litres from 110 billion litres between 2019 and 2024.

Biodiesel and hydrogenated vegetable oil (HVO) production is expected to soar 33 percent to 57 billion litres from 43 billion litres over the same time frame.

Hayes said it is hard to believe the IEA forecast while living in Iowa, the heart of biofuel country. The trade war with China has decimated the state’s ethanol prices, which have fallen below the cost of production.

“We’re closing facilities here. At this moment it’s hard to imagine an expansion in production given that we’re shutting down facilities,” he said.

However, his colleague, Chad Hart, associate professor of agriculture economics at Iowa State University, said the IEA outlook “makes a lot of sense” because of what’s happening elsewhere around the world.

The IEA calls for a tripling of ethanol production in China to 11 billion litres as the country attempts to meet its 10 percent ethanol blend mandate.

“Domestic ethanol output is anticipated to reach only just over half the level required to meet 10 percent of nationwide demand during the forecast period,” stated the report.

That would suggest China would need to import ethanol from exporters such as Brazil and the United States, but it is “unclear” whether imported ethanol would be eligible to make up the anticipated shortfall in China’s production.

“That’s a big question mark. What are they going to allow to count?” said Hart.

India is another growth market. Ethanol production in that country is expected to more than double to 3.9 billion litres by 2024 as the country prepares to meet an E20 blending requirement by 2030.

Brazil’s production is forecast to grow 20 percent to 38 billion litres in 2024 as the country attempts to increase the biofuel share of the energy mix to 18 percent by 2030.

The biodiesel and HVO charge will be led by the U.S., where output is expected to reach 12.5 billion litres by 2024, a 64 percent increase.

Those two fuels will be the main sources used to meet higher demand in the country’s renewable fuel standard in 2020.

Biodiesel production in Indonesia is forecast to expand 90 percent to 7.5 billion litres over the next five years as the country’s B20 mandate is expanded to include rail, power generation and certain industrial sectors.

Output in Brazil is expected to grow 30 percent to 6.5 billion litres due to a staged mandate increase to 15 percent by 2023.

Hart said the IEA’s forecast for rising biofuel demand is “definitely supportive” of world grain and oilseed prices, but the impact will be muted somewhat by the continued growth in crop production.

“It is supportive of prices, but it doesn’t necessarily mean prices will dramatically improve,” he said.

What concerns him is the outlook for biofuel for the next five-year horizon. He believes electric vehicles will substantially eat into biofuel demand.

The IEA is forecasting that the biofuel share of renewable energy will drop slightly to 90 percent from 93 percent between 2019 and 2024 because of the growth in renewable electricity demand.

Hart worries that trend will be exacerbated in the next IEA five-year forecast. He has been shocked by the rapid adoption of electric vehicles.

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