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Biofuels to keep global grain prices high – says Toepfer

Rising biofuels production will keep grain and oilseed prices high in the coming year, German grain trading house Toepfer International, a unit of US agribusiness Archer Daniels Midland Co., said on Monday.

“As simultaneously demand for food and animal feed continues to rise, above all in rapidly developing countries including China and India, all market participants, especially processing companies, must prepare themselves for a long phase of relatively high prices for agricultural commodities,” Toepfer said in a statement on its annual results. Higher prices were needed to stimulate farmers to raise global grain and oilseeds production and to start cultivation on unused land, it said.

“A relatively quick end to the current high prices can only be achieved through record harvests in 2008,” it said. “Along with continued strong demand for human and animal foods, ever more grain and vegetable oils are flowing into production of bioethanol and biodiesel,” it said. “In the 2005/06 grain season, about 72 million tons of grain were used worldwide for ethanol production, a year previously this was only 56 million tons and in 2000/01 only around 30 million tons.”

“In 2006, around 5.5 million tons of vegetable oil was used for production of biodiesel in comparison to 3 million tons a year previously and only 700,000 tons in 2000. Until now biofuels were previously largely produced in the US and Brazil – bioethanol from corn or sugar beet – and in the European Union – biodiesel from rapeseed – now ever more countries are following their example and are investing in production of biofuels. Sales of biofuels are being promoted in a targeted way using tax incentives or compulsory blending. In turn, the growth in demand for agricultural commodities for biofuel production will continue in coming years. According to our estimates, in 2007 for the first time more than 100 million tons of grain will be processed into ethanol. Processing of vegetable oils into biodiesel could rise to 8 million tons.”

Rising biofuel production would also lead to medium-term changes in global trading patterns, it said. “This is largely because the traditional exporting countries for agricultural products will increasingly produce biofuels which will reduce their export surpluses,” it said. “This will open new marketing opportunities for countries such as Ukraine, Kazakhstan, Russia and also Bulgaria and Romania to export their increasing surpluses.”

Toepfer said it expected to profit from its previous decision to expand in these countries. Toepfer said it raised turnover in its 2005/06 financial year by 1% on the year to €5.8 billion. The company traditionally does not release earnings figures. Higher sales of animal feed, oilseeds and vegetable oils were largely behind a 3% increase in traded volumes on the year to 39.7 million tons. (