FOOD AND FUEL by rlj20071

VIEWS: 5 PAGES: 16

									Office of the Chief Economist
Office of Energy Policy and New Uses




         Food and Fuel

     Harry S. Baumes, Ph. D.
              Associate Director
    Office of Energy Policy and New Uses




Southeast Bioenergy Conference 2008
     University of Georgia – Tifton Campus
                August 12, 2008
   Office of the Chief Economist
   Office of Energy Policy and New Uses


“When it makes the comics, it might be
             important”
     Office of the Chief Economist
     Office of Energy Policy and New Uses



              OVERVIEW
• BIOFRENZY
• High Energy – High Food Prices
• CURE for High Prices is ???
        Office of the Chief Economist
        Office of Energy Policy and New Uses



    Factors influencing Commodity
             & Food Prices
•   Global Economic Growth
•   Weather
•   Export Restrictions
•   Food Production and Marketing Costs
•   Value of the US Dollar
•   Biofuels Production
                        Office of the Chief Economist
                        Office of Energy Policy and New Uses




                       Global Economic Growth & Prices

                       Real Global Economic Growth                                         Change in Global Prices May '07 to May '08

          4.5                                                         100
                4.2
                                      4                                                                           89
           4                                                           90



          3.5                                                          80


                                                                       70
           3                                         2.9

                                                                       60             57
          2.5
Percent




                                                            Percent
                                                                       50
                                                                                                                                              44
           2
                                                                       40

          1.5
                                                                       30

           1
                                                                       20

          0.5
                                                                       10


           0                                                            0
                2006                 2007            2008                   All Primary Commodities               Oil                   Food Commodities
           Office of the Chief Economist
           Office of Energy Policy and New Uses



Weather and Export Restrictions
•   Multi- year drought in Australia – reduced wheat and milk production

•   Drought & dry weather in Canada, Ukraine, European Union, and
    U.S. in recent years reducing grain production

•   ‘08 Flooding in the midwest – push corn and soybean prices

•   Exporting countries place taxes or restrictions on exports of grains,
    rice, oilseeds and other products
                       Office of the Chief Economist
                       Office of Energy Policy and New Uses


              Food Production and Marketing Costs
                                                                Profits, 4.0%
                            Depreciation and
                              Repairs, 5.0%
                 Rent and Interest,
                       6.5%


                 T axes and Other
                    Costs, 7.0%
                                                                                Labor, 38.5%

                                             Energy and
                                          T ransportation ,
                                                8.0%

                                              Advertising and
                                             Packaging, 12.0%
                                                            Farm value, 19.0%



Source: Economic Research Service
Ephraim Liebtag, Calculations using 2006 Data, August 7, 2008
                                                        Office of the Chief Economist
                                                        Office of Energy Policy and New Uses



                                                                   Biofuels Production
                                   U.S. Ethanol Production, 1980-2007                                                                                     U.S. Biodiesel Production, 1999-2007
                  7000                                                                                                                       500


                                                                                                                                             450
                  6000
                                                                                                                                             400


                  5000                                                                                                                       350


                                                                                                                                             300




                                                                                                                           Million gallons
Million gallons




                  4000

                                                                                                                                             250

                  3000
                                                                                                                                             200



                  2000                                                                                                                       150


                                                                                                                                             100
                  1000
                                                                                                                                             50


                     0                                                                                                                        0
                         1980   1982   1984   1986   1988   1990   1992   1994   1996   1998   2000   2002   2004   2006                           1999     2000   2001   2002   2003   2004   2005   2006   2007




                          2007/08 marketing year, corn use in ethanol accounted for 22% of crop,
                          soybean oil use for biodiesel accounted for 13% of soyoil production and
                          8% of soybean production
                            $/bbl




         0
             20
                  40
                       60
                             80
                                    100
                                          120
                                                140
                                                      160
Jan-00
Apr-00
Jul-00
Oct-00
Jan-01
Apr-01
Jul-01
Oct-01
Jan-02
Apr-02
Jul-02
Oct-02
Jan-03
Apr-03
Jul-03
Oct-03
Jan-04
Apr-04
Jul-04
                                                                                      Office of the Chief Economist




Oct-04
Jan-05
Apr-05
                                                            West Texas Intermediate




Jul-05
Oct-05
                                                                                      Office of Energy Policy and New Uses




Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
                  Office of the Chief Economist
                  Office of Energy Policy and New Uses



                                                  Ethanol and Corn Prices


                                                  Corn Chicago $/bu         U.S. Avg Ethanol $/gal

          8.00
          7.00
          6.00
Dollars




          5.00
          4.00
          3.00
          2.00
          1.00
          0.00
                 1/7/1999


                            1/7/2000


                                       1/7/2001


                                                      1/7/2002


                                                                 1/7/2003


                                                                            1/7/2004


                                                                                       1/7/2005


                                                                                                  1/7/2006


                                                                                                             1/7/2007


                                                                                                                        1/7/2008
                          Office of the Chief Economist
                          Office of Energy Policy and New Uses


        EISA – EPACT Renewable Fuels Standard
                  40.0

                  35.0

                  30.0
Billion gallons




                  25.0

                  20.0
                                                              RFS2
                  15.0

                  10.0
                                                              RFS1
                   5.0

                   0.0
                    06

                          07

                                08

                                      09

                                            10

                                                  11

                                                        12

                                                              13

                                                                     14

                                                                           15

                                                                                 16

                                                                                       17

                                                                                             18

                                                                                                   19

                                                                                                         20

                                                                                                               21

                                                                                                                     22
                  20

                         20

                               20

                                     20

                                           20

                                                 20

                                                       20

                                                             20

                                                                   20

                                                                          20

                                                                                20

                                                                                      20

                                                                                            20

                                                                                                  20

                                                                                                        20

                                                                                                              20

                                                                                                                    20
        Office of the Chief Economist
        Office of Energy Policy and New Uses



    Factors influencing Commodity
             & Food Prices
• Global Economic Growth – slowing
• Weather – improving crop conditions
• Export Restrictions – easing with new crop production
• Food Production and Marketing Cost – farm value
  relatively low
• Value of the US Dollar – strengthen recently
• Biofuels Production – continues to expand rfs – higher
  corn & soybean prices projected 2008/09
           Office of the Chief Economist
           Office of Energy Policy and New Uses



    Increased Biofuels Production
•   Growing demand source for corn and soybean oil
•   Has been a contributing factor to rise in corn and soybean prices.
    Over the past 2 years
     – 30% increase for corn
     – 40% increase for soybeans
•   In 2007, food CPI increased by 4%
     – increase in biofuels production added estimated 0.10 – 0.15 percentage
       point
•    After market adjustments, increase in biofuels production could add
    0.6 to 0.7 percentage point to the food CPI


Source: Office of the Chief Economist
Office of the Chief Economist
Office of Energy Policy and New Uses




   Friday, July 4, 2008 by
   The Guardian / UK
           Office of the Chief Economist
           Office of Energy Policy and New Uses



 On the United States Department of Agriculture’s website there is an area
with information of food, feed, and fuel which you might find useful. The url
                                 address is:
http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB?contentidonly=tru
                       e&contentid=foodfeedfuel.xml


 On July 2008, the Farm Foundation released new report “What is Driving
    Food Prices”? You may down load a copy of this report from Farm
                            Foundation Web site at
http://www.farmfoundation.org/news/templates/template.aspx?articleid=404
                                 &zoneid=26
The report identified three broad sets of forces driving food price increases:

    •Global changes in production and consumption of key commodities
    •The depreciation of the dollar
    •The growth in the production of biofuels.
     Office of the Chief Economist
     Office of Energy Policy and New Uses




               THANK
                YOU!
Contact Information: Harry S. Baumes
hbaumes@oce.usda.gov
202-401-0497

								
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