Agriculture, Global Energy & Biofuel Markets

In recent years, the United States has become one of the world’s leading producer of ethanol biofuel. Today, between a third and half of US corn crops are destined for ethanol biofuel production. Furthermore, the United States has become one of the world’s leading ethanol biofuel exporters. Ethanol, which is a source of energy for motor engines made out of agricultural commodities, is becoming increasingly popular for several reasons. Firstly, ethanol is considered a renewable energy source because it is produced from agricultural goods such as sugarcane or corn. Secondly, ethanol is a fungible liquid fuel, which means that this biofuel can be directly mixed with petroleum-produced gasoline and used in motor vehicles. In fact, several countries and jurisdictions, such as Brazil, Canada, and the European Union, have increased their ethanol blend mandate over the last few years. In the United States, the blend mandate requires a minimum of 10% to 15% ethanol in all commercial gasoline. However, the ethanol biofuel market is not without competition or controversy.

Agriculture, Global Energy & Biofuel Markets

The allocation of agricultural goods towards the production of biofuels is criticized by certain sectors within society. Such groups point out that ethanol production raises the costs of the agricultural commodities that are used in its production. Certainly, this represents a worldwide economic dynamic. The increased demand for ethanol-producing commodities raises the prices of biofuel-producing commodities for grocery stores and cattle farmers. In fact, when the free market operates, commodities farmers can choose to whom they want to sell their crop yields. For instance, during the 2010-2011 drought in Brazil, sugar prices went up substantially, this led sugarcane plantations to sell more of their crop to sugar refineries than to ethanol producers. Nevertheless, governmental agencies worldwide are mandating quotas that increase the percentages of agricultural commodities that must be destined for ethanol biofuel production, as part of international green energy campaigns. In turn, these policies result in higher food prices and are driving cattle ranchers to enlarge their grass-fed operations, given the higher prices for animal feed.

Since 2009, the United States has registered record years in terms of ethanol biofuel exports. In 2017, the United States exported little over 32.8 million barrels of fuel ethanol towards international markets such as Canada, which has traditionally been the largest importer of US biofuels. However, as new markets have opened up in Asia Pacific because of increased energetic demand in the region over the last years, Canada’s share of US exports has decreased. Furthermore, the United States has also expanded its biofuel exports to new markets in Latin America and Europe. Likewise, during times of high oil prices, more countries and governments look to ethanol blends as a cost-saving alternative. Certainly, the biofuel industry worldwide has seen a slowdown because of the lower oil prices, but the ethanol market is bound to continue growing, particularly as oil prices start to pick up once again. Investors and agricultural managers should keep the biofuels sector in mind when developing their strategic plans. Lastly, they should also pay close attention to biofuel legislation, given that these regulations can have a profound impact on agricultural market prices.

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