Ethanol & The Corn & Feed Grain Ethanol & The Corn & Feed Grain Market Outlook for 2007-09Market Outlook for 2007-09

8/15/07

By Dr. Robert Wisner, University Professor of Economics and Coles Professor of

International Agriculture

Iowa State University Ames, Iowa, U.S.A.

For presentation at the Midwest-Great Plains Outlook Conference 8/15/07

41 countries encourage biofuels41 countries encourage biofuelsMajor 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

'07-08 Ethanol Proj.Other Constr'n

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

63

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

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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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

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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.

How Much More U.S. Construction to Reach 5.5 Bil. Bu. Corn for

Ethanol?• Operating plants: -- 2.15 Bil. Bu. • Plants under construction: -- 2.0 Bil. Bu. • Plants soon to build: -- 0.2 Bil. Bu. Total: 4.35 Bil. Bu. Capacity needed: 1.15 Bil. Bu. (About 32 plants @ 100 mil. gal./yr.)

A.

Ethanol Blending Wall?(Are we there yet?)

• Considerable 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

Averages provided by:          

                                          www.axxispetro.com

                       www.ethanol.org

                       

            

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?

2012

Brazil Corn Production & Use

0200400600800

1,0001,2001,4001,6001,8002,000

1985 1990 1995 2000 2005

Mil.

Bus

hels

ExportsProductionFSl UseCorn feedingImportsSeries5Linear (Production)

2012

Potential area to be cleared for crops

160.4 bu/A

149.1148

142.2

Figure 2. Corn Planting Date and YieldField Tests at DeKalb and Monmouth, Illinois, 2005 and 2006

218

225227

224

214

199

180

170

180

190

200

210

220

230

3/31 4/10 4/20 4/30 5/10 5/20 5/30

Bu./ac. 30,000 population

Source: February 2007 Newsletter Volume 26:2, Department of Crop Sciences, College of Agricultural, Consumer, and Environmental Sciences, University of Illinois, Urbana-Champaign, Illinois, www.cropsci.uiuc.edu/research/rdc/monmouth/newsletters/2007/Feb_2007.cfm.

Percent planted 4/30 Crop Progress Report:

1997-2006 avg. = 44 %

2007 = 23 %

At 10-yr. avg. pace 19 mil. additional acres would have been planted by the

end of April

August 2007 Crop Production

Crop Unit Aug ‘07

% Chgfrom PrevForecast

% Chgfrom Prev

Season

Corn: Planted Mil

Ac92.9 NC + 18.6

Harvested Mil Ac

85.4 NC + 20.9

Yield Bu/Ac 152.8 -- + 2.5 Production Bil Bu 13.1 -- + 23.9

Corn Objective Yield RegionDerived Grain Weight vs Ears per Acre

Aug 0706

04

020301

00

94

9998

9697

95

93

9205

0.24

0.26

0.28

0.30

0.32

0.34

0.36

0.38

Ears Per Acre

Lbs/Ear

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

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2007

2007

Model Forecast:Model Forecast: $3.11/bu$3.11/bu. U.S.. U.S. ’ ’07-08 & 07-08 & $3.20$3.20 for ’08-09for ’08-09

Proj. Proj.

Ethanol Economics – new plants Ethanol Economics – new plants U. of Minn. 2005 costsU. of Minn. 2005 costs

• $0.10/gal. increase in ethanol price raises break-even Corn price $0.28/bu.

• $1.00/bu. rise in corn price increases cost/gal. $0.36/gal.

Ethanol Economics – new plantsEthanol Economics – new plants

• Ethanol prod’n cost $1.30/gal. (Univ. of Minnesota- @$2/bu. corn -- 2005)

• July 24,’07 Iowa ethanol price: $2.17/gal.• Recent margin: $0.62/gal. (40%) Drops to 20%@

corn price of about $3.55/bu. in IA -- up 32% from July 24 price

• Note: “Drop-out” corn price for existing plants is much higher

• Other variables: DDGS price, Natural Gas • Note: Plant construction costs have risen sharply since 2005

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.

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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