Future of Biofuels Expected to Remain Bright

Less than 5 percent of world cereal production will go to biofuels this season, according to the Food and Agriculture Organization of the United Nations. But that share is expected to rise steadily, at least until technology to process alternative raw materials is deployed on a global scale, a distant prospect.

Rising biofuel use, together with surging human and animal consumption, will continue to put pressure on global food supplies, mostly because cereal production is not keeping up with demand. “There is not enough money being devoted to agriculture. Long-term trends are pretty dire,” said Francisco Blanch, head commodity analyst for Bank of America-Merrill Lynch, in London. “We are setting ourselves up for another big rally.
“Prices are set by marginal changes in supply; biofuels are still biting into overall agricultural production, and there is a risk of another price spike in as little as a year. All we need is a bad crop.”

The ratio of world grain stocks to consumption — a measure of spare food capacity — is likely to remain historically low through 2010 and beyond, at around half its level at the start of the century, according to data from the U.S. Department of Agriculture and the United Nations.

New York Times