Biofuels Investor Update – March 2007

deep end

Biofuel investors find themselves jumping in the deep end.

*** Biofuel companies want subsidies because grain prices are rising ***

High grain prices are threatening the nascent biofuels industry,
raising input costs and making the fuel less economic compared with oil.

Agricultural commodity prices have reached long-term highs in recent days, based on forecasts of hot and dry weather conditions this year in the US which could result in lower grain yields. This comes after oil prices have fallen by a quarter from their record peaks last year.

Corn prices reached another 10-year high yesterday for the second successive day when they touched $4.31 a bushel, up five cents. But the doubling of the price of corn, a main feedstock for US ethanol producers, over the past year at a time when oil prices are at the same level they were 12 months ago has raised questions over the viability of the biofuels industry without heavy government support.

High grain prices create problems for biofuels companies which
produce ethanol from wheat and barley. Other biofuels companies make biodiesel from oil-bearing crops such as soya, peanuts, palm oil and rapeseed. The prices for most of these commodities have also risen sharply, reflecting strong demand for these crops as food and additional demand from the biofuels industry.

More>>>: FT

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3 Responses to Biofuels Investor Update – March 2007

  1. Pete Smith says:

    I have no sympathy for investors who get their fingers burned by buying into companies that produce biodiesel from corn or any other foodstuff. There are so many potential non-food resources that can be used, there’s no excuse for the kind of lazy thinking that persists with using corn etc as a source.

    But it’s all just basic supply and demand economics. Forget the subsidies and let the short-sighted companies go under. Or increase the price of fuel at the pumps so that biodiesel can remain competitive.

  2. Dave On Fire says:

    Absolutely! Making biofuel artificially profitable does the environment no favours. As has recently been pointed out on this very blog, this puts an artificially high value on agricultural land and thus promotes deforestation etc.

  3. matt says:

    It always stuns me just how schizophrenic business people are regards their attitude to competition vs subsidies. As and when it suits them seems to be the order of the day!

    I’ve read with great interest of the entrepreneurial frenzy which has swept through the US regards ethanol plant investment (distiller compounds etc). Right from Bill Gates down to the poor semi-retired midwest farmer; they’ve all been piling into the next buzz. Doesn’t help that Bush has talked it all up.

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