Dr. Robert Wisner: Grain Outlook Dr. Robert Wisner: Grain Outlook 3/15/063/15/06

Iowa State University AgMarketing Resource CenterAgMarketing Resource Center

Biofuels & Global Agriculture3/25/08

Dr. Robert Wisner, University Professor & BioFuels Economist

Recent Positive Developments in Recent Positive Developments in Biofuels DemandBiofuels Demand

• 2007 Energy Bill & mandates & a mechanism for implementation

• New Union Pacific rapid ethanol train receiving & unloading facility in Dallas

• North Iowa ethanol shipping facility• Opening of substantial ethanol market in

Florida and movement toward opening other southeast markets

• California state government commitment to reduce green-house gas emissions

• Higher gasoline prices?

Bio-Fuels: A Global Development

Driving Forces: –High crude petroleum prices–Concern over green-house gas Emissions

–Government policies–Energy security

Corn-ethanol only partial solution to energy challenges

Other feedstocks needed•Municipal wastes•Animal agriculture wastes•Forest product wastes•New crops

New automotive technology•Hybrid gas/electric vehicles•New engine & vehicle designs•Hydrogen fuels & fuel cells

Diversification of energy sourcesIncentives for increased mass transportation Wind power use increasing

Key Determinants of Grain-Based Biofuels Industry Size

•Crude Petroleum Price

•Grain & Oil Crop Prices Needed for Grain & Oil Crop Prices Needed for Increased Area & ProductionIncreased Area & Production

•Crop Inputs Availability & Cost

•Government Mandates

West Texas Intermediate Crude Oil

0

10

20

30

40

50

60

70

80

90

100

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

dol

lars

/bar

rel (monthly average price)

U.S. 2007 Energy Bill

• U.S. 2007 renewable fuels production: 4.7 bil. gallons

• For 2008: Requires U.S. renewable fuels production at 9 bil. gallons

• For 2009: 11.1 bil. gallons

• For 2015: 15 bil. gallons corn-based ethanol (57 bil. liters)

• For 2009: 500 mil. gallons of biodiesel (1 bil. For 2009: 500 mil. gallons of biodiesel (1 bil. gallons for 2015)gallons for 2015)

Source: Dr. Terry Francel, American Farm Bureau Federation & U.S. Energy Dept.

Cautions in 2008-09 Grain Markets

1.1. Fund TradersFund Traders

2. Bio-diesel economics not good, no mandate until 2009.

2.2. Domestic user returns tighten Domestic user returns tighten with higher corn prices – livestock with higher corn prices – livestock & fuel& fuel

Ethanol, demand growth & food inflation shifting China from to corn exporter to importer?

41 Countries Encourage Biofuels

U.S. expansion Continuing

Changes in U.S. Ethanol Plants, 7/27/07 to 3/14/08 (From DTN)

7/27/07 11/6/07 1/8/081/8/08 3/14/083/14/08

• U.S. Opr. Plants 134 139 163 171

• Under Const. 89 91 81 74

• 35 under construction a year or more

• Planned plants 329 343 336 341

• Total 552 572 580 586

Recent Start-ups & Soon to be on Line Recent Start-ups & Soon to be on Line U.S. Ethanol PlantsU.S. Ethanol Plants

Location Mil. Gal. Cap. Date• Pikely, CA 40 AprilPikely, CA 40 April • Lima, Ohio 54 MarchLima, Ohio 54 March• Greenville, OH 110 March Greenville, OH 110 March • Hennepin, IL 100 April Hennepin, IL 100 April • Cambria, WI 40 AprilCambria, WI 40 April• Coshocton, OH 60 MarchCoshocton, OH 60 March• St. Ansgar, IA 100 MarchSt. Ansgar, IA 100 March• Monona, IA 100 April Monona, IA 100 April • Alexanderia, IN 65 Mid-AprilAlexanderia, IN 65 Mid-April• Volney, NY Volney, NY 41 41 May-Jn May-Jn

Total 710 Total 710

2007-08 U.S. corn supplies 2007-08 U.S. corn supplies adequate to meet demandadequate to meet demand

• Crop up 24% -- 20% increase in corn hectares• But at expense of:

– 16% decline in soybean planted area16% decline in soybean planted area– 29% decline in cotton area29% decline in cotton area– 8% decline in non-durum spring wheat8% decline in non-durum spring wheat– Declines in minor cropsDeclines in minor crops

• Soybean supplies tighten substantially, increased Soybean supplies tighten substantially, increased plantings needed in 2008plantings needed in 2008

• More U.S. corn will be needed in 2009,More U.S. corn will be needed in 2009,

2010, 20112010, 2011

Corn Used in Ethanol Production, and Co-products Produced

0

20

40

60

80

100

120

140

160

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Mil.

To

ns

Corn Processed

Net Bu. After Co-Product Credits

Historical & Needed U.S. Corn Yield Deviation Historical & Needed U.S. Corn Yield Deviation Needed Needed From TrendFrom Trend

0.7

0.0

-10.2

0.0

16.2

1.8

0.9

0.9

3.3

3.8

7.5

11.8

13.4

14.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Other Considerations:

Sharp increase in marginal

Corn acres

Very tight fertilizer supplies

Corn-on-corn yield drag

Low C-o-C yields in bad weather

U.S. Planted Acreage of Major Grains, Oilseeds, and Cotton

0

40

80

120

160

200

240

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Mil

. A

cre

s

AllBarleyoatsCottonSorghumwheatSBcorn

255.6 239.9 244.6

International Impacts

• U.S. ethanol plants under construction to use 2.0 bil. bu. of corn (almost doubling use)– Over 3 times the volume of Japan imports

of U.S. corn– 105% of 2007 EU corn crop– 54% of global corn exports

• Higher food costs ahead, U.S. & globally• Major risk-management challenges in Ag. & bioenergy

Total 11,693 mil. Bu.

Figure 3.

Iowa corn processing & ethanol plants, current & planned, 10/26/06

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Linn

Lee

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Clay Kosuth

Jasper

Lyon

Page

StoryrJones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Audubon

Washington

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BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Clay Kosuth

Jasper

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Adair

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Osceola

Jefferson

Audubon

Washington

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Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

,

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BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

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66 Planned + current in Iowa

11 Just across the borders

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Figure 1.

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Iowa corn processing & ethanol plants, current & planned, 11/20/06

63

Capacity: 129% of 2006 cropCapacity: 159% of 2006 Crop

Iowa Corn Processing Plants, Current & Planned, 7/25/07

72 Potential Iowa Plants 11 Just across IA Borders

Figure 2.

Take-Home Points: IITake-Home Points: II

• Global grain-food-livestock adjustments ahead

• Ethanol prod’n will expand until it meets mandates or is unprofitable

• Grain markets will be explosive with U.S. & foreign weather problems

• ISU Climatologist Elwynn Taylor sees 70% probability of below trend ‘08 U.S. corn yield

• Corn & SB basis likely stronger, May-August

• Options Mkts. more important than in the past

• Options look expensive, but out-of-money strike prices can provide upward price flexibility

http://www.econ.iastate.edu/faculty/wisner/

Thanks! Questions?