ethanol & grain market outlook for 2007-09 · 2007. 9. 7. · ethanol & grain market...
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Ethanol & Grain Market Outlook Ethanol & Grain Market Outlook for 2007for 2007--0909
9/04/07
By Dr. Robert Wisner, University Professor of Economics and Coles
Professor of International Agriculture
Iowa State UniversityAmes, Iowa, U.S.A.
Grain Marketing Considerations for 2007Grain Marketing Considerations for 2007--0909
1. Tight storage & transportation ahead2. Weakening corn basis likely @ harvest3. Markets offering excellent storage returns
(if you have bin space) – for both corn & beans – to summer ‘08
4. Consider leaving basis open for summer ’08 delivery
5. Expect strong basis around ethanol plants6. Expect blow-off top in wheat to impact
corn, bean markets -- when it happens7. Be conservative on 2008 & ’09 marketings
Grain Marketing for 2007Grain Marketing for 2007--09, II09, II
1. Expect stronger cash corn mkt. into winter2. Wheat, SB pulling acres out of corn 3. Bean mkt. danger: big jump in Brazil Acres4. Biofuels is global development5. World grain & livestock mkts.: big
adjustments ahead6. Ethanol growth increases mkt. sensitivity
to weather
Risk Factors: Corn & Bean MarketsRisk Factors: Corn & Bean Markets
1. Severe grain transport stress – Miss. River (Tenn.-Ky. River prices corn $2.58/bu. 9/05/07)
2. Limited ethanol blending capacity & transportation
3. Big jump in South American acres
4. Collapse in world oil markets (doubtful)
5. Deteriorating global economy (doubtful)
Key Chart FormationsKey Chart Formations
1. December corn – Gaps @ $3.58 & $3.95
2. 55% retrenchment, Dec. 07 corn: $3.16
3. Nov. ’07 SB – Gap @$9.31/bu.
4. Dec. Chicago wheat – many down-side gaps
Dec. ’07 wheat reaches record highs
Weekly Corn Futures
$3.10/bu.
October ’07 Ethanol Futures
October ’07 Unleaded Gasoline
Nov. ’07 SB
Gap
41 countries encourage 41 countries encourage biofuelsbiofuelsMajor Countries with Ethanol Fuels
• U.S. • Brazil• Canada • China• EU-27• ThailandCountries considering ethanol fuels
• South Africa• Ukraine• Japan
Major Countries with Ethanol Fuels• U.S. – likely production of 14-15 bil. gal.
from corn in 3.5-5 years• Brazil –89 new ethanol plants to be built,
2007-2011– 2% biodiesel mandate by 2008 & 5% by 2013
• China – 3 corn-based plants, emphasis shifting to other feedstocks
• EU-27 – 5.75% of motor fuel to be renewable by 2010, 10% in 2020
• Canada – 5% ethanol mandate by 2010, 2% biodiesel by 2012
• Thailand – ethanol from sugar, mantiac
Biodiesel– Competition for crop land
International Impacts• U.S. ethanol plants under construction to
use 58 mil. tons of corn (doubling use)– 3.5 times the volume of Japan imports of
U.S. corn– 130% of 2006 EU corn crop– 70% of global corn exports
• Other countries are expanding ethanol & biodiesel
• Strong negative impacts on animal ag.• Higher food costs ahead• Major risk-management challenges in Ag.
& bioenergy
USDA 07-08
Expanding U.S. Ethanol Industry vs. 2005-06 Corn Feeding
2005-06 U.S.Corn FeedingPotential Cornfor EthanolOther underconstruction07-08 Ethanol
Current Corn forEthanol
2005-06 U.S.Corn Feeding
Proj. Corn ethanol2011-12
'06-07 Corn for Ethanol
'07-08Ethanol
Proj.Other Constr'n
New York Crude Oil
Futures Prices
Iowa corn processing & ethanol plants, current & planned, 10/26/06
63
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Linn
Lee
Ida
Tama
Clay Kosuth
Jasper
Lyon
Page
Storyr Jones
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
Hamilton GrundyBuchanan
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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Sac
Linn
Lee
Ida
Tama
Clay Kosuth
Jasper
Lyon
Page
Storyr Jones
Fayette
Adair
Bentonn
Wapello
Pocahontas
Osceola
Jefferson
Audubon
Washington
BuenaVista
BlackHawk
Appanoose
CerroGordo
VanBuren
Mucatine
Dickenson
DesMoines
Winnebago
Montgomery
,
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
Hamilton GrundyBuchanan
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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Linn
Lee
Ida
Tama
Clay Kosuth
Jasper
Lyon
Page
Storyr Jones
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
Hamilton GrundyBuchanan
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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Linn
Lee
Ida
Tama
Clay Kosuth
Jasper
Lyon
Page
Storyr Jones
Fayette
Adair
Bentonn
Wapello
Pocahontas
Osceola
Jefferson
Audubon
Washington
BuenaVista
BlackHawk
Appanoose
CerroGordo
VanBuren
Mucatine
Dickenson
DesMoines
Winnebago
Montgomery
,
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
Hamilton GrundyBuchanan
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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66 Planned + current in Iowa11 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
Needed Yld. @ 2007 Acres
?
334 bu./A. @ ethanol plant rated cap.
New trend?
June 2007
Total 11,693 mil. Bu.
A.
Ethanol Blending Wall?(Are we there yet?)
• Market incentive to increase blending capacity
• What happens when avg. Midwest blend is 10%?
• More shipments to coasts – at higher cost
$ per Gal.
State Avg. Ethanol Rack Prices
www.ethanol.org
Averages provided by:
www.axxispetro.com
Date: Wednesday, Aug. 08, 2007
Iowa: 2.13
Ill.: 2.21
Ks.: 2.34
Minn.: 2.15
Mo.: 2.34
N. Dk.: 2.23
Nebr.: 2.35
S. Dk.: 2.27
Wisc.: 2.21
5.9 Bil. Bu. Corn for ethanol by 2012
Will increased South American exports more than offset U.S. decline?
Potential area to be cleared for crops
August 2007 Crop Production
+ 18.6NC92.9Mil Ac
PlantedCorn:
+ 20.9NC85.4Mil Ac
Harvested+ 2.5--152.8Bu/AcYield
+ 23.9--13.1Bil BuProduction
Unit
% Chgfrom Prev
Season
% Chgfrom PrevForecastAug
‘07Crop
Corn for Grain Yields 2007Bushels and Change From Previous Year
65-7
153#7
1707
150-6
80-65
1153
17815
157NC
18014
13217 120
-26
150#10
90-52
111-36
156-5
12515
137-1
168#16
112-17
185#NC
123-6
94-38
12514
143-16
13530
110-12
100-10
U.S. 152.83.7
# Record HighNC = No Change
11720
95-30
142#21
80-40
210#NC
1452
*
Percent Change in Iowa Grain Production by Crop Reporting District, 2007 vs. 2006
-30%
-20%
-10%
0%
10%
20%
30%
40%
NW NC NE WC C EC SW SC SE State
CornSoybeansCorn +SB
Iowa 2007 August Corn & Soybean Production Chgs. Vs. '06 by District
-40
-20
0
20
40
60
80
100
NW NC NE WC C EC SW SC SE
Mil.
Bu.
Chg
. vs.
200
6 SoybeansCorncorn + SB
State Combined Total +378 Mil. Bu., +15%
2007
Model Forecast:Model Forecast:$3.11/bu$3.11/bu. U.S.. U.S.’07’07--08 & 08 & $3.20$3.20for ’08for ’08--0909
Proj. Proj.
U.S. Soybean Production
2.74 2.76
2.45
2.652.692.76
2.89
3.12 3.063.19
2.63
2.00
2.20
2.40
2.60
2.80
3.00
3.20
3.40
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Billion Bushels
U.S. Soybean Yield
41.5
20
25
30
35
40
45
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Bushels/Acre
Soybean Yields 2007Bushels and Change From Previous Year
266
383
24-7
305
47-1
47-3
50-0.5
342 38
-6
37#2
25-9
33-12
40-4
39#13
37-1
50NC
27-8
37-9
27-5
343
44-3
247
39-1
26-3
U.S. 41.5-1.2
# Record HighNC = No Change
351
33-6
328
25-6
43-1
China Soybean Supply & Use
0
10
20
30
40
50
60
96/97 98/99 00/01 02/03 04/05 06/07
Mill
ion
Met
ric T
ons
Production Net Imports Domestic UseSource: FAPRI, Univ. of Missouri
Soybean Trade
0
5
10
15
20
25
30
35
96/97 98/99 00/01 02/03 04/05 06/07
Mill
ion
Met
ric T
ons
US Net Export Brazil Net Export China Net Import
Source: FAPRI, Univ. of Missouri
EU Use of Rapeseed Oil
0
2
4
6
8
10
2002 2004 2006 2008 2010 2012
Year Crop Harvested
Mill
ion
Met
ric T
ons
Food Other Biofuel
Source: FAPRI, Univ. of Missouri
Potential Future Co-Product Changes
• Removing Corn Oil from DDGS• Converting Fiber to Ethanol• Pelleting DDGS• Grades & Standards• Converting biodiesel glycerine to
ethanol• Reduced feed energy supplies
Add biodiesel
Source: Dr. Terry Francel, American Farm Bureau Federation
MINIMUM SOYOIL PRICE FOR BIODIESEL BREAKEVENat GIVEN WORLD CRUDE OIL PRICE
PRX_C_US_BA, GTB-06-03, Mar-14-06
Crude Oil Price, $/bbl
$30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 $65.00 $70.00
Soybean $0.19 ($0.10) $0.02 $0.14 $0.25 $0.37 $0.49 $0.61 $0.73 $0.85
Oil Price $0.20 ($0.18) ($0.06) $0.06 $0.18 $0.30 $0.42 $0.54 $0.66 $0.78
$/lb $0.21 ($0.25) ($0.13) ($0.01) $0.11 $0.23 $0.35 $0.47 $0.58 $0.70
$0.22 ($0.32) ($0.20) ($0.08) $0.04 $0.15 $0.27 $0.39 $0.51 $0.63$0.23 ($0.39) ($0.28) ($0.16) ($0.04) $0.08 $0.20 $0.32 $0.44 $0.56
$0.24 ($0.47) ($0.35) ($0.23) ($0.11) $0.01 $0.13 $0.25 $0.37 $0.48
$0.25 ($0.54) ($0.42) ($0.30) ($0.18) ($0.06) $0.05 $0.17 $0.29 $0.41
$0.26 ($0.61) ($0.49) ($0.38) ($0.26) ($0.14) ($0.02) $0.10 $0.22 $0.34
$0.27 ($0.69) ($0.57) ($0.45) ($0.33) ($0.21) ($0.09) $0.03 $0.15 $0.27
$0.28 ($0.76) ($0.64) ($0.52) ($0.40) ($0.28) ($0.16) ($0.05) $0.07 $0.19
$0.29 ($0.83) ($0.71) ($0.59) ($0.48) ($0.36) ($0.24) ($0.12) $0.00 $0.12
$0.30 ($0.91) ($0.79) ($0.67) ($0.55) ($0.43) ($0.31) ($0.19) ($0.07) $0.05
$0.31 ($0.98) ($0.86) ($0.74) ($0.62) ($0.50) ($0.38) ($0.26) ($0.15) ($0.03)For Blue Sky Scenario, PRX adopts a crude oil price of $50/bbl and thus a minimum 24 cent/lb soyoil price, to evaluate impact of subsidized biodiesel market.
Source of data: USDA, NASS
Illinois Corn Yields Drought Tolerant?
2004 2005• NW 184 140• NE 174 129 • WEST 192 141• E.SE. 175 139 • SW 158 133• SE 158 130
% chg.
-24
-26
-27
-21
-16
-18
Implications for U.S. and World Livestock, Poultry & Food Costs
• U.S. supplies 2/3 of world corn exports, 20-25% of wheat & 35-40% of cotton exports
• Cost of livestock & poultry feed will increase• Large increase in variability of feed & food
costs• Food aid impacts?• Accelerated ag expansion into areas with
fragile eco systems • Shift livestock industries from U.S. to South
America? • Rural employment implications in U.S.
Infrastructure Needs of bioenergy Market(Time Frame: 3 to 5 years)
Sharp Increases in:• Inputs for corn production• Corn receiving, drying, storage, farm
transporting infrastructure• Efficient rail shipping of ethanol & DDGS• More tank cars for ethanol movement• Electric power generation• Water supply systems• Research on pipelines for ethanol• Retail facilities for E-85, E-20 & E-30 stations
U.S. Cellulose Ethanol
• At least 2 pilot plants being developed• Expect strong U.S. government emphasisPotential Feedstocks:• DDGS• Corn stover• Prairie grasses• Forest wastes• Municipal wastesResearch for major handling & storage challenges
Environmental Issuesfor Research: ethanol
• Impact on groundwater supplies• Long-term effects, mono-culture ag.• Allowable maximum removal of
corn stover & grasseso Soil erosion impactso Soil organic matter impactso Diminished wildlife habitatso Water quality impacts from
more fertilizer
Key Issues for Agriculture• Alternative feedstocks: which ones, how
soon? Biomass, sweet sorghum, sugar beets, high-oil crops, cane sugar, others
• Differential impacts on livestock & poultry species
• Environmental: continuous corn, off-take of biomass, erosion-prone land
• Efficient use of distillers grain, including new uses
• Risk Management: livestock, crops, ethanol
Key Issues for Agriculture, II• Future transition of corn-ethanol plants to
other feedstocks• Policy issues: import tax, blending credit, LDPs,
CCPs, E-85 vs. E-10, pipeline possibilities, vehicle redesigning, Hydrogen sources
• Global developments: EU biodiesel, Brazil export potential, Asia, S. Africa bioenergy & global grain supply, demand & prices
• Infrastructure needs: grain handling & storage, transportation, ethanol & ddgs transport
• High Prices encourage oil exploration & conservation
What Could Change Prospects of Tightening Global Grain Supply?
• Accelerated corn yield increases• Crude oil price collapse• Early break-through in economical
cellulose conversion• U.S.Ethanol import tax removed – longer
term impacts• U.S. $0.51 blending credit reduced or
made variable• Declining global livestock feeding
Need for Both Ethanol and Animal Agriculture
• 100 million gallon ethanol plant– 37 million bushels of corn– 80 workers directly employed
• 37 million bu corn Direct jobsFarrow-finish 800Or Wean-finish 242Or Beef feedlot 278
Source: Dr. John Lawrence, Head of ISU Beef CenterSource: Dr. John Lawrence, Head of ISU Beef Center
http://www.econ.iastate.edu/faculty/wisner/
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Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Jack M. Payne, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa.