Trends in the International Biofuel Markets
During the last decade, the United States became the world’s largest ethanol biofuel producer. Today, between a third and half of the US corn crops are destined for ethanol biofuel production. Furthermore, the US has become one of the world’s leading ethanol biofuel exporters. This article will analyze the domestic and international trends in regards to supply and demand of ethanol biofuel.
International Biofuel Markets
Ethanol as a source of energy for motor engines is becoming increasingly popular for several reasons. Firstly, it 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. This means that ethanol 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.
The allocation of agricultural goods towards the production of biofuels is criticized by certain sectors within society. These 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 input costs 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 example, 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. These policies result in higher food prices and are driving cattle ranchers to enlarge their grass-fed operations.
United States as a Major Ethanol Exporter
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Since 2009, the US has had record years in terms of ethanol biofuel exports. In 2011, the US had its best year selling more than 1.2 billion gallons or 28.500 barrels of ethanol biofuel to the international market. Canada has traditionally been the largest importer of US ethanol 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 US has also expanded to new markets in Latin America and Europe.
Before the substantial drop in oil prices, more countries were looking 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. Investors and agricultural managers should keep the biofuels sector in mind when developing their strategic plans. Furthermore, they should pay close attention to biofuel legislation, given that these regulations can have a profound impact on agricultural market prices.