February 11, 2016

11/02/2016: The effect of crude oil price on animal feed prices

by Andrew Wilkinson, Staff Writer, Milling and Grain Magazine

First published in Milling and Grain, November 2015

In his address to the 2015 Agriculture and Horticulture Development Board (AHDB) Conference, Julian McGill from LMC International discussed the importance of biofuels policy as being integral to understanding the high prices in agricultural commodity markets of the past decade. Prior to 2002, the harvested area under cereal grains had been steadily declining.

With per capita consumption of maize and wheat remaining relatively flat, yield growth was more than sufficient to meet the increase in demand. This freed up the area that was taken by oil crops, for which per capita demand was growing at a faster rate as vegetable oil and meat consumption increased with higher incomes. In aggregate, the world did not have to increase harvested area. However, since 2002, both the area under oilseeds and grains has increased, placing additional strain upon the global harvested area, and ushering in the commodity cycle from which we are just emerging.


Effects of US ethanol policy since 2002
Mr McGill argued that the crucial change came with the introduction of US biofuels policy. From 2002 the share of maize used as ethanol increased consistently, and by 2010, 15 percent of global maize was used as a bio-fuel. At that point around 40 percent of US maize was being transformed into ethanol and blended with petrol. This large increase in non-food use of maize created huge volumes of additional demand for cereal crops. With yield growth no longer sufficient to meet demand growth, the area under cereal crops had to increase. The reversal in the area under cereals, in turn, put new pressure on the global agricultural system.

“Farmers across the globe were now under pressure to meet growth both in food demand and non-food demand.”

The implications of increased biofuel demand on the vegetable oil markets was then discussed. While the US focused on maize based ethanol, in the EU, mandates were created based primarily on encouraging the use of vegetable oil based biodiesel. As a result, from about 2005 the share of vegetable oil used as biofuels increased very quickly, reaching 15 percent by 2014. With the EU predominantly using rapeseed oil as a feedstock, by 2010 over a third of all rapeseed oil in the world was being used as biofuels.

As a result, this has had a “profound impact on prices and demand”.

Read the full article in Milling and Grain HERE.    

The Global Miller
This blog is maintained by The Global Miller staff and is supported by the magazine GFMT
which is published by Perendale Publishers Limited.

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