Wednesday, January 09, 2008

Hot ethanol demand sends prices soaring

Producers look abroad for feed

Hot ethanol demand sends prices soaring


Rising prices for fuel and raw materials used in the feed industry have driven food producers to adjust business strategies and to source lower-cost grains overseas.

Thai companies are being encouraged to invest more in producing grains for the animal-feed industry in neighbouring countries where they can benefit from a regional co-operation programme.

Burma, Cambodia and Laos offer opportunities to grow maize and soybeans at lower cost under the Ayeyawady-Chao Phraya-Mekong Economic Co-operation Strategy (Acmecs).

Agricultural businesses increasingly are competing for grain supplies with industrial businesses that want to produce ethanol, which is in heavy demand as the use of gasohol expands.

Maize prices averaged 8.18 baht a kilogramme in the last quarter of 2007, up 51% up from an average of 5.41 baht in the first quarter. Soybean meal increased 40% during the same period to more than 16 baht a kilogramme from about 11 baht.

Vichai Poonpiriyasup, a senior vice-president for the maize integration business of the CP Group, said a number of Thai companies including CP were taking advantage of the Acmecs programme, but there was still much room for expansion as only one million rai have been used in Burma for growing maize.

Pornsil Patchrintanakul, president of the Thai Feedmeal Association, has frequently urged the government to speed up plans to expand plantations in neighbouring countries by 500,000 to one million rai, or allow planting of genetically modified maize in Thailand to ease a possible shortage of the grain.

''Although yields are still low at about 800 kilogrammes (per rai) per year, the good climate, clean soil and less fertiliser use makes maize [in Burma, Laos and Cambodia] very competitive,'' Mr Vichai said.

Thai maize plantations yield anywhere from one to 1.8 tonnes per rai, but potential exists to improve yields in Laos, Burma and Cambodia through improved know-how and better seeds including hybrids, he said.

''Farmers have been able to sell their maize at competitive prices under a tariff-free arrangement backed by Acmecs and this has created a win-win situation for both farmers and investors,'' he said.

Each year, Thailand imports about 100,000 tonnes of maize under the Acmecs contract farming scheme, mainly from Laos and Cambodia.

CP Group has invested in feed and livestock businesses in many countries to ensure more sources of raw materials as competition increases between agricultural and industrial users.

Farmers under the contract-farming programme get good prices, averaging 7.00 to 7.50 baht a kilogramme last year.

Mr Pornsil said that more costly raw material would increase costs for livestock raisers by 20% this year, and meat producers would need to improve management and technologies to cope with higher costs.

He said that freight charges for shipping grains were also on an upward trend, placing more pressure on food prices. Shippers paid US$110 per tonne of soybean meal shipped from Latin American countries last year, up from about $35 in 2006.

The volatile costs have forced leading food exporter, Charoen Pokphand Foods Plc to avoid lengthy forward sales of up to six months to prevent losses.

Pisit Ohmpornnuwat, president of CP Merchandising Co, a CPF subsidiary, said advance trade now was booked only two months in advance.

He said the situation might lead CPF to increase its export prices again. It marked up chicken prices by 30% last year to stay at about $4,000 per tonne for cooked meat, up from $2,800 a year earlier.

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