Meat + Poultry - January 2009 - 49

ENERGY OUTLOOK

Chart courtesy of US Dept. of Energy's Energy Information Administration

Petroleum-based liquids consumption is
projected to be flat as biofuels use grows
million barrels per day

History

Projections
Biofuels

15
Transportation

5
Industrial

Electric Power

0 Residential and Commercial
1970
1980
1990

2000

2010

2020

2030

EIA Annual Energy Outlook 2009 Reference Case Presentation -- December 17, 2008

for oil once again grows more rapidly
than oil supply in non-OPEC countries.
The Energy Information Administration
is predicting that the average price of
crude oil will return to $130 a barrel or
even higher.
Total consumption of renewable fuels,
including ethanol for gasoline blending
and biomass-based diesel fuel, is predicted to grow by 3.3 percent per year,
according to Conti at the Energy Information Administration. This rapid growth
reflects the renewable-fuel standard enacted into federal law a little more than
a year ago, which requires transportation
fuels to contain a minimum amount of
renewable fuels. For example, last year,
the law required 9 billion gallons of renewable fuels be blended into gasoline
and other transportation fuels.
The U.S. Department of Energy's
short-term outlook for the rest of 2009
indicates the global economic slowdown
is projected to be longer and more severe than first thought, leading to further reductions of global energy demand
and additional declines in crude oil and
other energy prices. The U.S. economic
recession is also contributing to lower
natural gas wellhead prices. For example, the Henry Hub natural gas spot
price is projected to decline from an
average of $9.17 for 1,000 cubic feet of
50

MEAT&POULTRY

January 2009

natural gas last year to $6.25 per thousand cubic feet this year.
And the U.S. Department of Agriculture just cut its corn-price outlook based
on weaker ethanol demand. USDA's latest World Agricultural Supply and Demand Estimates indicate slower corn
demand would result in increasing corn
carryover. Corn-price expectations were
reduced, and 2009 prices are expected
to range from $3.65 to $4.35 a bushel,
down from $4.00 to $4.80 forecast two
months ago, and contrasting with $4.20
a year ago. USDA has cut back its prediction of corn use for ethanol by 300
million bushels, about 7.5 percent from
two months ago. U.S. soybean ending
stocks expectations are unchanged.
Forecast 2009 soybean prices were lowered 85 cents and are now expected to
range from $8.25 to $9.75.
But Dr. Thomas Elam, an agricultural
economist, analyst and owner of FarmEcon, a consulting firm based near Indianapolis, is not so sure that the price
of oil and other fuels for energy will
necessarily remain flat during the coming year. And he also says the current
American biofuels policy is a severe
cost and drag to the American economy,
especially the farm, meat and poultry
industries. Elam says ethanol production, spurred on by federal subsidies,

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is increasing corn demand and causing
sharply-higher feeder costs for producers of meat and poultry products.
Elam says despite the largest corn
plantings on record and near-record
yields, corn prices remain well over their
3-year average. "If oil had remained at
$100 per barrel, plus the government ethanol subsidies, ethanol producers could
afford huge corn prices. But with the
large drop over the past few months, that
advantage to ethanol producers has disappeared. Of course, it's hard to predict
what will happen to oil and fuel prices
during the rest of 2009, but my feeling is
they will increase," Dr. Elam predicts.
The analyst notes that due to the
costs of energy projected during the
rest of 2009, meat and poultry producers
could be looking at extreme volatility in
those prices, as well as the price of feed
for their animals. If there is an increase
in the coming year, he says everyone
from turkey and chicken breeders to
growers who raise poultry to companies like Tyson, feed yards and everyone up and down the supply chain will
be affected.
"And the problem is, when the
price of corn for
producers goes up
100 percent thanks
to ethanol, poultry
processors, for example, just can't
Elam
raise the prices of
their chicken by 20 percent," Dr. Elam
says. Where there is a competitive market, he notes, the producers who raise
the animals are the only ones who have
any margins to work with at all.
High and volatile energy and feed
costs for the poultry and meat industry
for the rest of this year make conditions
extremely uncertain for the balance of
2009, Dr. Elam projects.
Bernard Shire is M&P's Washington correspondent
based in Lancaster, Pa. With a background in editing and writing for daily news publications, he also
works as a food safety consultant and writer for Shire
& Associates.
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e-mail at: meatpoultry@sosland.com.

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Meat + Poultry - January 2009

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