affecting those prices included growing population overseas, crop failures in other countries, high oil prices, decline in the value of the U.S. dollar, and speculative activity in the marketplace.
To date, the agricultural commodities most affected by U.S. biofuel production are corn and soybean. The increased competition for these commodities created by an expanding biofuel market has contributed to upward pressure on their prices, but the increase has had a small effect on consumers’ food retail prices, except livestock products, because corn and soybean typically undergo some processing before reaching consumers’ food basket. The difference between the price of an unprocessed commodity and the retail price of processed food is typically large. The committee estimated that an increase of 20-40 percent in agricultural commodity prices would result in an increase in the retail price of most processed grocery food products (for example, breakfast cereal and bread) containing those commodities of only 1 to 2 percent.
Corn and soybean are used as animal feed, so the livestock market has experienced increased competition from the biofuels market. Some of this competition is alleviated by the ability of livestock producers to feed their animals dried distillers grain with solubles (DDGS), a coproduct of dry-milling corn grain into ethanol. However, there are limits to the amount of DDGS that can be used without impairing efficient production and the quality of the product. Moreover, increased commodity prices raise the production costs of livestock, and the animal producer’s ability to pass increased production costs quickly on to consumers is limited because high prices decrease demand. The reproductive pipeline involved in livestock production makes it difficult for producers to adjust herd numbers quickly in response to increased feed costs.
Price of Woody Biomass
Wood is the most widely available cellulosic bioenergy feedstock in the United States at present, and it will be an important source of supply for cellulosic biofuel refineries if they become economically viable. If a commercial woody biomass refinery is built, it would require a large supply of dry biomass to operate efficiently (1,000-2,000 dry tons per day). Residues from forest harvesting operations could provide only a modest supply of cellulosic feedstock for such an operation due to the high marginal cost of harvesting these additional materials, the limited legal definition for accessing residues, and the uncertain nature of future federal subsidies. Although there are currently large supplies of milling residues in the wood processing industry, most of these residues are already committed to electricity production (in recent years, up to 132 million dry tons of roundwood equivalent5), and thus would be costly for cellulosic biofuel producers to purchase. Pulpwood is the closest marketable commodity that could enter woody biomass markets, but it is a higher value product (and thus more costly as a feedstock) than either forest harvest residues or milling residues. As a result, RFS2 is likely to have large effects on wood product prices. Some factors could mitigate these effects, including technological breakthroughs that reduce the cost of extracting forest residues, changes in the legal definition for accessing residues, and the size of subsidies for forest residues.
5 This includes industrial roundwood used directly to produce energy as well as residues, black liquor from the pulping process, and fuelwood harvested from the forest.