The crash in oil prices will be felt at the farm gate as demand and prices moderate for biofuel crops corn and soybean, says a new report from the Organization for Economic Co-operation and Development and the Food and Agriculture Organization of the United Nations.

The rise in production and demand for biofuels was an important driver of prices for corn, soybean and other grains in the past 10 years. The amount of corn being sent to biofuel plants tripled, as adding ethanol to gasoline became a popular and cheap way for policy-makers to combat high oil prices while propping up agriculture.

Growers saw Chicago prices for corn and soybeans rise by more than 200 per cent between 2003 and 2012. But since then, the main biofuel crops have fallen in price by more than 40 per cent, amid a 50-per-cent plunge in crude oil prices since last summer and two years of large global harvests.
In their annual outlook on agriculture, the two groups say use of ethanol and biodiesel will grow at a slower pace over the next decade amid low oil prices and uncertainty over government policies. “The level of [biofuel] production is projected to be dependent on policies in major producing countries. At lower oil prices, trade of biofuels should remain small when expressed as a share of global production,” the report said.

Amid slowing demand and rising supplies, the price of crude fell to less than $50 (U.S.) a barrel in the winter from $100. A barrel now sells for about $60. The OECD said prices should rise by 3.7 per cent a year to $88 by 2024.

Source: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/biofuel-crops-will-feel-effects-of-slumping-oil-prices-research-shows/article25208490/

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