Biofuels Industry and Impacts on Agriculture

Transcription

1 Biofuels Industry and Impacts on Agriculture Dwight Aakre Farm Management Specialist January 2007 Web Page:

2 Some Energy Statistics In 2005, the U.S. consumed billion gallons of gasoline produced 3.9 billion gallons of ethanol consumed 43.2 billion gallons of diesel produced 75 million gallons of biodiesel imported 65 percent of all petroleum

3 Sources of Imported Oil (2004) Source % of U.S. Consumption Canada 10.4 Mexico 10.3 Middle East 14.6 Saudi Arabia 9.3 Iraq 4.1 Kuwait 1.2 Venezuela 8.7 Nigeria 7.1 Other 9.9

4 Oil Imports The Risk 30 percent of our oil comes from the Middle East, Venezuela and Nigeria (politically volatile areas) corn ethanol can provide about 10 percent without increasing food and feed prices reducing the risk requires moving to cellulosic ethanol

5 Ethanol Industry Expansion As of June, 102 plants operating with 4.75 b gallons of capacity 32 new plants under construction with 3.03 b gallons of capacity another 127 plants announced with 8.21 b gallons of capacity Total capacity if all plants are built is b gallons

6 Ethanol Plant Ownership Current Plants 47 percent of plants are farmer owned 39 percent of production from farmer owned Plants under Construction 12 percent of plants are farmer owned 11 percent of production farmer owned

7 Corn used for Ethanol U.S percent of corn production used for ethanol percent of corn production used for ethanol by 2008 N.D. plants will use 90 percent of 2006 production

8 Some Biofuels Statistics 1 bushel of corn = 2.7 gallons of ethanol 7.5 lbs of soybean oil = 1 gallon B100 ethanol has to 1 energy ratio B100 has a 3.2 to 1 energy ratio

9 What has driven ethanol expansion? MTBE replacement has been the biggest driver new energy bill RFS mandates total RF usage at 7.5 bn gals. by 2012 renewable fuel is ethanol and biodiesel cellulosic/waste ethanol counts 2.5x state level RFS policy incentives for using renewable energy

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12 Projected Growth in Ethanol Supply supply likely to be 9-10 bn gallons by 2012 by 2015 or earlier, ethanol from biomass will become commercially viable currently, an acre of Iowa corn produces about 450 gallons of ethanol (N.D. 315 gallons) utilizing 25 percent of the stover could produce another 150 gallons of ethanol (N.D. 105 gallons)

13 Possible Expansion Ethanol Plants Agri-Ethanol announced financing for 20 facilities East Coast 100 m gals and at 380,000 tons each Illinois governor proposed building 20 (corn) ethanol plants, 5 biodiesel plants and 4 waste ethanol plants West Coast 14 large plants proposed in California and Oregon Iowa 50 m gallon waste to ethanol plant (waste coal, used tires, wood waste, biomass, cornstalks) Saskatchewan Husky Energy just opened a 50m gallon plant using wheat

14 Impacts of Expanded Ethanol Industry significant number of rural-based, good-paying jobs localized improvement in basis leads to higher price to farmers, higher feedstock prices and less plant profitability impact traditional markets, livestock, exports, alternative crops some regions may overbuild

15 Ethanol Risks lower oil prices surplus of DDGS slowing of RFS momentum shortage of feed stock relatively long lag on construction

16 Ethanol Price Why is ethanol high priced when corn is cheap? Ethanol is a substitute for gasoline

17 In reserve Fuel cost 2 2 Oil price at which energy Source is economically viable $80 Biodiesel* $60 US corn-based ethanol* $50 Shale oil $40 Tar sands; Brazilian cane-based ethanol; Gas-to-liquids ; Coal-to-liquids $20 Conventional oil *Excludes the impact of tax credits GTL economist at $40 if gas feedstock price is $2.50 or less per m BTUs CTL economic at $40 if feedstock price is $15 per tonne or less Sources: Cambridge Energy Research Associates; The Economist

18 Market Breakers or Makers Demand picture could change if crude oil and gasoline prices decline clean air regulations relaxed Supply picture could change if corn prices increase ethanol incentives and tax subsidies reduced emission regulations on plants relaxed tariff on Brazilian imports eliminated

19 Biodiesel Statistics plants can be relatively small cost about $1/gallon of capacity full economies of scale at around 10 m gallons currently about 395 m gallons of capacity 700 m gallons of new capacity under construction

20 Biodiesel Outlook much better energy balance than ethanol smaller, more dispersed plants higher feedstock costs as percent of input less fuel specifications certainty and research than ethanol 1 to 3 years behind ethanol in consumer acceptance

21 Possible Expansion Biodiesel Plants Dakota Skies Biodiesel Minot 30 m gals ADM Velva 85 m gals Advanced Biodiesel Group plans two plants in the U.S., one in Canada Sunflower Electric Power Co. looking at biodiesel and ethanol plants Renewable Energy Group - Ralston, Iowa announced plans to build 12 biodiesel plants. Capacity 640 m gals (8 x 2005 usage) Green Star Products Idaho plans super clean biodiesel plant. Would run on its own biodiesel rather than natural gas. Rabobank estimates there are about 50 biodiesel plants under construction in the U.S. today

22 Biggest Boost for Biodiesel is the Federal Tax Credit A per gallon write-off for biodiesel blenders $0.50 per gallon for fuel from recycled grease $1.00 per gallon for fuel from fresh vegetable oil Recycled grease is the preferred feedstock because it is cheaper

23 U.S. Acreage of Annual Crops 2006 Corn 78,561,000 Soybeans 75,565,000 Wheat 57,344,000 Other 44,539,000 All 256,009,000

24 Corn Acres Needed In order to maintain existing markets: by 2011, we will need 14 million additional corn acres at trend-line yields Expected ethanol production of 10 to 11 billion gallons

25 Soybean Acres Needed If the majority of expansion uses soybean oil: By 2011 we will need 4.5 million additional acres of soybeans at trend-line yields SBO has competition from corn oil, white or yellow grease, other

26 Impact on Soybeans (FAPRI) planted acreage decreases 3.3 million acres from 06/07 to 10/11 crop years oil used for biodiesel doubles from 107 million gallons to 216 million gallons Soybean oil price increases 27 percent Soybean meal price decreases 8 percent farm price of beans increases 4 percent

27 Potential Crop Acreage Shift Corn Belt soybeans and winter wheat to corn CRP will come back into production Great Plains increase in corn and sorghum decrease in small grains increase in minor oilseeds little change in soybeans CRP will be reduced

28 Ethanol and Biodiesel Represent New Demand increased demand leads to a higher price higher price leads to increased supply higher price leads to less quantity demanded and a search for a substitute cellulose feedstock for ethanol

29 Biomass Potential from Crop Residue Corn Belt 98.9 m tons (corn stover) Great Plains 35.5 m tons (corn and soybean stover, wheat, barley and oat straw) West Coast 2.4 m tons (corn stover, wheat, barley and oat straw) Delta 4.6 m tons (rice straw) Southeast 3.6 m tons (sugarcane bi-product)

30 Difficulties with Biomass bulky high transportation cost inconsistent quality characteristics contamination, impurities

31 Livestock Impacts DDGS is a partial replacement for soybean meal and corn SBM is higher in amino acids and is more digestible U of M dietary recommendations: grow finish hogs 10 to 20 percent of ration lactating sows 20 percent gestating sows 30 to 40 percent broilers, layers, turkeys 10 to 15 percent lactating dairy cows 20 percent beef cattle 30 to 40 percent

32 Livestock and Poultry Impacts (FAPRI) production of all livestock species increase net returns to all species are down turkeys, broilers and hogs experience the biggest reduction in net returns

33 Transportation is a Big Challenge for DDGS costs $50 per ton to ship to California dairies costs $6 per ton to ship to Midwest swine and poultry outlets increased costs of containers hurts exports

34 Will the livestock industry move back to the Midwest? or Will new ethanol plants locate nearer livestock or energy source?

35 Risk Who will blink when the next short corn crop arrives? 1. Will exports drop off? 2. Will livestock feeders buy less? 1. Find substitutes 2. Liquidate herds 3. Will ethanol plants shut down? 4. Will food processors back away from corn?

36 Will ND/MN farmers change cropping plans for 2007? market prices rotations risk equipment rents

37 Cash Price for Breakeven Return over Variable Costs - North RRV, N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean Wheat Barley Drybeans Oil Snflr Conf Snflr Canola Flax Yield Price $3.00 $6.94 $5.90 $3.98 $18.07 $17.21 $20.58 $19.17 $9.30 Income $ $ $ $ $ $ $ $ $ Variable costs: seed $38.36 $32.59 $13.80 $11.00 $31.00 $16.32 $23.60 $18.15 $6.40 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $75.71 $ $87.11 $ $96.27 $ $ $74.41 Return over $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

38 Cash Price for Breakeven Return over Variable Costs - North East N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean Wheat Barley Drybeans Oil Snflr Conf Sunf Canola Flax Yield Price $3.00 $7.74 $6.06 $3.74 $17.79 $16.49 $20.14 $16.64 $8.77 Income $ $ $ $ $ $ $ $ $ Variable costs: seed $36.99 $32.01 $12.08 $11.00 $31.00 $14.96 $22.42 $18.15 $6.40 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $87.00 $96.39 $83.89 $ $95.77 $ $ $71.07 Return over $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

39 Cash Price for Breakeven Return over Variable Costs - North Central N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean S. Wht Durum Barley Drybeans Oil Snflr Field Pea Canola Flax W. Wht Yield Price $3.00 $7.42 $5.97 $6.23 $3.30 $16.33 $14.40 $5.61 $15.71 $8.21 $4.53 Income $ $ $ $ $ $ $ $ $ $ $ Variable costs: seed $30.14 $32.59 $10.35 $14.00 $8.25 $31.00 $14.28 $19.20 $18.15 $5.60 $6.00 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $79.05 $78.47 $80.42 $75.02 $ $89.35 $78.78 $ $65.89 $83.61 Return over $ $ $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk. - Crop insurance for corn is only available by written agreement in some counties.

40 Cash Price for Breakeven Return over Variable Costs - North West N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn S. Wht Durum Barley Oats Oil Snflr Field Pea Canola Flax W. Wht Lentils Yield Price $3.00 $5.27 $5.19 $3.09 $2.43 $14.00 $4.76 $13.86 $7.44 $4.40 $10.93 Income $ $ $ $ $ $ $ $ $ $ $ Variable costs: seed $26.03 $8.63 $10.50 $6.25 $7.50 $15.98 $19.20 $18.15 $4.80 $6.00 $13.30 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $78.19 $81.18 $75.65 $71.60 $99.90 $78.06 $ $71.98 $71.38 $78.12 Return over $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 $69.44 variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk. - Crop insurance for corn is only available by written agreement. An estimate is used.

41 Cash Price for Breakeven Return over Variable Costs - South RRV, N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean S. Wht Barley Drybeans Oil Snflr Conf Snflr Yield Price $3.00 $7.69 $6.40 $4.37 $20.43 $18.73 $22.15 Income $ $ $ $ $ $ $ Variable costs: seed $44.22 $32.59 $13.80 $11.00 $31.00 $16.32 $23.60 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $87.03 $ $92.27 $ $98.84 $ Return over $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

42 Cash Price for Breakeven Return over Variable Costs - South East N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean S. Wht Barley Drybeans Oil Snflr Conf Snflr Canola Flax W. Wht Yield Price $3.00 $7.41 $6.24 $4.09 $18.27 $18.04 $20.94 $22.58 $11.85 $5.34 Income $ $ $ $ $ $ $ $ $ $ Variable costs: seed $43.48 $32.59 $12.08 $11.00 $31.00 $14.96 $22.42 $18.15 $6.40 $7.20 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $91.46 $95.25 $84.88 $ $95.52 $ $ $64.45 $90.37 Return over $ $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

43 Cash Price for Breakeven Return over Variable Costs - East Central N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean S. Wht Barley Drybeans Oil Snflr Conf Sunf Canola Flax W Wht Yield Price $3.00 $6.95 $6.08 $3.61 $16.81 $16.08 $19.79 $18.02 $9.59 $4.99 Income $ $ $ $ $ $ $ $ $ $ Variable costs: seed $36.99 $32.59 $10.35 $8.25 $31.00 $14.96 $22.42 $18.15 $5.60 $6.00 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $84.15 $88.36 $81.41 $ $94.40 $ $ $67.52 $85.27 Return over $ $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

44 Cash Price for Breakeven Return over Variable Costs - South Central N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn Soybean S. Wht Barley Drybeans Oil Snflr Conf Snflr Canola Flax W. Wht Yield Price $3.00 $7.39 $5.88 $3.26 $17.31 $14.75 $17.04 $16.39 $9.06 $4.11 Income $ $ $ $ $ $ $ $ $ $ Variable costs: seed $31.51 $32.59 $10.35 $8.25 $31.00 $14.96 $21.24 $18.15 $5.60 $6.00 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $80.13 $71.78 $74.44 $ $91.46 $ $ $58.36 $84.51 Return over $ $ $ $ $ $ $ $ $ $ variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk.

45 Cash Price for Breakeven Return over Variable Costs - South West N.D. Base Crop is Corn Enter the futures price for Corn $3.60 Enter your expected local basis $0.60 Expected local cash price for Corn $3.00 Base crop = Corn S. Wht Durum Barley Oats Oil Snflr Field Pea Canola Flax W. Wht Yield Price $3.00 $5.57 $5.35 $3.20 $2.71 $14.49 $5.38 $15.89 $8.17 $4.47 Income $ $ $ $ $ $ $ $ $ $ Variable costs seed $26.03 $8.63 $10.50 $6.25 $7.50 $15.98 $19.20 $18.15 $4.80 $6.00 herbicide fungicide insecticide fertilizer crop insurance fuel & lube repairs drying misc operating int Total var.costs $ $70.68 $75.18 $68.39 $61.00 $92.84 $70.62 $ $61.66 $66.68 Return over $85.35 $85.35 $85.35 $85.35 $85.35 $85.35 $85.35 $85.35 $85.35 $85.35 variable costs Note: - Only variable costs are considered in this comparison. You can include an amount under "misc." to account for any differences between crops in fixed costs, labor, management and risk. - Crop insurance for corn is only available by written agreement. An estimate is used.