Baize: Diversity Needed in Energy Supply, Types

While there’s plenty reason for excitement about the booming biofuels market, there are also good reasons not to throw caution to the wind, says John Baize, an international oilseeds market consultant.

He points out there was a lot of buzz too about the emerging ‘dotcom’ industry at the start of the decade, with investors clamoring for a piece of action, before it crashed to earth.  “Many argue that the dotcom boom and bust was a case of too much too fast,” notes Investopedia.com.

Baize cautioned corn growers and ethanol investors against a gold rush mentality– what if Congress eliminates ethanol subsidies? What will happen to the economics of ethanol production if corn prices continue to trend higher, and petroleum prices fall lower?

He is concerned about the effect on the livestock sector.  Rising corn prices are driving up livestock production costs, and make the livestock side less competitive in export markets. Poultry and swine are large users of corn, but cannot substitute much dry distillers grain (DDGS) in feeds. The poultry sector centered largely in the corn-deficit southeastern U.S. will especially be hard hit. “It’s hard to get environmental permits. Once you lose it (livestock operations), it isn’t coming back,” he says.

Baize says Asian nations are worried about their future corn supplies; Japan, Korea, and Taiwan depend on the U.S. for about 25 million metric ton of corn annually.

Asian buyers are looking at investing in corn production in Argentina, the Black Sea region, and elsewhere as a hedge against a lack of supplies from the U.S., he says.

On the biodiesel side, there is a rapidly rising capacity of production plants being built in the U.S. and abroad (including China, planning 3 mmt of biodiesel capacity, even though it is the world’s largest vegoil importer). Argentina and Brazil (which plans to mandate 5% biodiesel blending) are building large biodiesel sectors as well. 

Still, all of the vegoil of all types consumed in the U.S. would make only enough biodiesel to supply about 5.2% of U.S. diesel consumption – less than agriculture uses, according to Baize – and all of the world’s vegoils would only make enough biodiesel to supply 54% of U.S. diesel consumption.

Baize believes far too much biodiesel capacity is being built worldwide. With refined soyoil trading at around 33 cents/lb, it is a losing proposition to make biodiesel in the U.S., even with a $1/gal biodiesel blenders credit. The European biodiesel still going strong with mandates in the use of biodiesel (mostly rapeseed/canola) but profitability is sharply lower. Some biodiesel plants in the works in the U.S. and in Brazil have been postponed or cancelled.

There are bigger, macroeconomic issues as well with burgeoning biofuels – over 2 billion people live on less than $2/day in the world, and are more concerned about food than fuel.  Baize says rising food prices as a result of biofuels could worsen global hunger and possibly go so far as to result in situations of social and civil unrest.

Even the affect of monoculture farming – continuous corn – needs to be considered in the grand picture. “I just want diversity in supply and types of energy,” says Baize. “Mother Nature can be as unpredictable as the Middle East.  We can’t go too much in one direction, we need to look at other energy sources too.”

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U.S. Needs to Continue Emphasis on Soybean Quality
The mighty Brazilian soybean sector has lost steam, says international oilseeds expert John Baize. A combination of higher energy prices, a strong Brazilian currency, and Asian soybean rust have made it unprofitable to grow soybeans in much of Brazil.

Plantings this year are expected to be down by 5 – 8%. With farmers expected to apply less inputs into the crop they do plant, production should also slip.

Improving protein and oil content will make U.S. soybeans more competitive. In the U.S., soybeans still contain less oil and protein than Brazilian soybeans.  It’s important that farmers select high yielding varieties that also have highest protein and oil content, says Baize, and this is particularly important in Minnesota and North Dakota, where protein contents typically have been lowest.