The Big Squeeze: New Fundamentals for Food and Fuel Markets.
Cambridge, MA (PRWEB) June 5, 2008
Bio Economic Research Associates, or bio-era™ (http://www.bio-era.net), a leading independent research and advisory firm providing analysis on the future of the global bio economy, today released a major new report, entitled "The Big Squeeze: New Fundamentals for Food and Fuel Markets." The report analyzes the growing linkages between food and fuel markets that are emerging because of booming growth in global transportation fuel demand and rapidly expanding capacity to convert biologically derived sugars and oils into transportation fuels. Access to the full report "The Big Squeeze: New Fundamentals for Food and Fuel Markets" is available through the bio-era website (http://www.bio-era.net).
Key bio-era findings:
- Despite seven years of rising real prices for crude oil and a doubling of prices over the past year, global crude oil production has been nearly flat since 2005.
- The production of biofuels--in the form of ethanol fermented from sugars and starches, and biodiesel derived from vegetable oils and animal fats - has increased significantly and is now an important source of supply satisfying year over year increases in global liquid transportation fuel consumption.
- There are two principal connections between the crude oil and petroleum product markets and many of the so-called "soft" agricultural commodities such as grains, sugar, and vegetable oils:
-an input-cost effect on agricultural commodity prices because oil and energy-intensive fertilizers account for a significant share of total production costs for most major crops;
- an output-price effect prices of petroleum products such as gasoline or diesel oil set a floor price for agricultural commodities that can be converted into fuel substitutes.
- The first of these connections--the input-cost effect--is "one-way." The cost of petroleum will influence agricultural commodity prices over time, but the reverse is not true--the cost of agricultural commodities will have little or no effect on the costs of producing, transporting, and refining petroleum.
- The second of these connections--the output-price effect--is increasingly "two-way." As volumes of agriculturally-derived fuels grow, expanding or withholding these volumes from the petroleum product markets directly influences both the price of petroleum products and the price of agricultural commodities.
- The result is competition between food and fuel end-use markets to price at a level sufficient to attract (and/or preserve access to) marginal supplies. Attempting to hold down food prices by restricting or redirecting feedstocks used to produce fuel, may cause fuel prices to rise. Similarly, attempting to hold down or lower fuel prices by increasing conventional biofuels production may increase food prices.
In the absence of a supply response from conventional crude oil, looking ahead, this dynamic is expected to continue until either global economic growth slows substantially, or additional supplies of non-conventional fuel substitutes - such as gas-to-liquids, coal-to-liquids, or biomass-to-liquids -- become available at meaningful scale. The necessary lead time on the latter option is at least 3-5 years.
The fundamental dynamic governing the economics of food and fuel markets described in the bio-era report will have major direct economic significance across the global economy in the years ahead.
Copies of the report are available for purchase on the bio-era website.
To purchase the report, or for more information, please visit http://www.bio-era.net or contact Stephen C. Aldrich 617-876-2400.