Crude Oil, Biofuels,, and Implications for Corn and Soybean Markets

Transcription

1 Crude Oil, Biofuels,, and Implications for Corn and Soybean Markets By Dr. Robert Wisner, Emeritus University Professor and Biofuels Economist AgMarketing Resource Center Iowa State University

2 Grain Prices: Driven by Crude Oil & General Economy Expect modest strength in corn & beans this winter Beans will be sensitive to S. American crops Don t Expect recovery to May-June 08 highs -- U.S. & world economy slowing substantially -- Crude oil prices 63% below last July -- Oil still high by historical standards -- History says slow recovery in oil price likely -- 2 nd largest ethanol producer in bankruptcy -- 4 or 5 others also in bankruptcy -- Several new plants delaying start-up -- Government biofuels mandates to have impact

3 Key Developments to Watch for -- Crude oil prices & Dow Jones Average -- USDA January 9 final crop estimates & grain stocks -- World crop estimates Jan How quickly bankrupt ethanol plants will be transferred to new owners -- Weekly export sales, especially corn -- Soybean crushing margins -- Private crop planting intentions reports

4 Lower grain prices will bring reduced global production First impacts: wheat in spring 2009 Also, South American soybean crop U.S. corn acreage for 2009? Ethanol mandates & industry expansion point to need for more corn in 2009 & next few years Global Economic Problems: impact on demand?

5 Monthly Corn Futures Price

6 Monthly SB Futures Price

7

8 U.S Energy Bill U.S old RFS: renewable fuels 2007 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 (900 mil. Gallons for 2015) Green House Gas Emissions -20%

9

10 (Growth = 147% of U.S. soybean oil exports) (Food demand for vegetable oil highly inelastic) EU Use of Rapeseed Oil 10 Million Metric Tons Year Crop Harvested Food Other Biofuel Source: FAPRI estimates Pulls land away from food uses

11 World Feed Grain Production, Use & Months of Reserve Supply Beyond Pipeline Needs Mil. Metric tons 1/11/08 1,200 1, Prod'n Use Revised 9/12/05 Old Reserve Revised Reserve Revised Reserve Revised reserve 12/10/2004 1/11/08 reserve Months Reserve World Stocks are Near-Record Low -- USDA

12 1/11/08 World Soybean Utilization Mil. Bu. Anual Growth Mil. Bu. 10,000 9,000 Annual Growth 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Utilization ,

13 Key: how will world economy affect feed & exports??

14 If we are approaching maximum available acres for corn

15 Historical & Needed U.S. Corn Yield Deviation Needed From Trend Other Considerations: Sharp increase in marginal Corn acres Very tight fertilizer supplies Corn-on-corn yield drag Low C-on-C yields in bad weather

16 If extra acres are available

17 Mil. Bu. U.S. Soy Production, Use, & Exports to 2012 With 5.5 bil. Bu. Corn for ethanol 3,500 3,000 2,500 2,000 1,500 1,000 Crush Exports Production Other domestic use 350 Mil. Gal Bio Diesel From virgin SBO Assumes trend yields. Increased DGS Prod'n in replaces soybean meal from about 440 mil. bu. of soybeans

18 41 Countries Encourage Biofuels Ethanol, demand growth & food inflation shifting China from to corn exporter to importer?

19 Corn Yield to Affect China Export Availability

20

21 One-third as large as U.S. exports, but increasing

22 Potential area to be cleared for crops West Central Argentina, 2007

23

24 Lyon Sioux Plymouth Osceola O Brien Cherokee Dickenson Clay BuenaVista Kosuth Planned + current in Iowa 11 Just across the borders Woodbury Ida Sac Webster Hamilton BlackHawk Buchana Delawa Dubuque Calhoun Hardin Grundy n re Tama Linn Story Benton n Jones Jackson Monona Crawford r Carroll Greene Boone Marshal l Clinton n Audubon Poweshiek Cedar Harrison Shelby Guthrie Dalla Polk Jasper Iowa Johnson Scott s Mucatine Pottawattamie Adair Madis Warren Washington Cass Marion Mahask Keokuk on a Louisa Figure 1. Mills Fremont Montgomery Page Emmet Palo Alto Pocahontas Winnebago Worth Mitchell HowardWinnesh iek Allamakee Hancoc Floyd CerroGordo k Wright Franklin Appanoose Chickasaw Bremer Fayette Iowa Iowa Corn corn Corn Processing processing Processing & Ethanol & ethanol Plants, plants, Current Locations, current & Actual Planned, & planned, & Planned. 7/25/07, 10/26/06 11/20/06 9/26/06 Butler Adams Union Clarke Lucas Monroe Taylor Figure 2. Humbol dt Ringgold Decatur Wayne Wapello Davis Capacity: 129% of 2006 crop Capacity: 159% of 2006 Crop 72 Potential Iowa Plants 11 Just across IA Borders Jefferson Henry VanBuren Clayton Lee Basis Impacts? Des Moines

25 U.S. Annual Average Corn Price, $ Per Bushel years Avg $ years Avg $ years Avg $ Data Source: USDA/NASS

26 $ per Barrel Figure 1. Cushing, Oklahoma Monthly Average Crude Oil Prices Source: U.S. Energy Information Administration 1986-Jan 1991-Jan 1996-Jan 2001-Jan 2006-Jan

27

28 High Prices: the best cure for high prices Supply Responses Rapid expansion of ethanol Tar Sands in Canada Large oil discovery off E. coast of Brazil Cuba & China tapping oil off Cuban coast Large oil discovery in western Gulf of Mexico New oil coming on line in FSU, Nigeria Some older oil fields show declining production U.S. offshore drilling approved (but likely to be banned again)

29 Demand Developments U.S. gasoline consumption declines for 1 st time in 17 years Developing countries reduce gasoline subsidies in early summer 2008 Developing country gasoline & crude oil use decline Deteriorating world economy reduces demand

30 U.S. Gasoline Consumption Since Bil. Gallons Per Year

31 Inflation-adjusted Prices

32 Market reaction after previous oil shocks Late 1970s: gasoline use declined for 4 straight years 16 years were required before previous high regained Late1980s: gasoline use declined for 3 years 5 years were required to recover to previous high

33 Figure 3. U.S. Monthly Total Gasoline & Ethanol Deliveries Bil. Barrels Annual Rate Eth l Gasoline Ethanol Bil. Gal. Ethanol Ann. Rate January March May July Sept. Nov. 0.00

34 Figure 4. Annual U.S. Ethanol Production, Use & Stocks 8000 Mil. Gallons Production, Mil. Gal. Net Ethanol Imports Ethanol Stocks Ethanol Consumption

35 Figure 5. End-of-month U.S. Ethanol Stocks & Monthly Imports in Weeks' Use Ethanol Stocks, Weeks' Supply Imports, Weeks' Supply Weeks' Use 1992 December 1993 December 1994 December 1995 December 1996 December 1997 December 1998 December 1999 December 2000 December 2001 December 2002 December 2003 December 2004 December 2005 December 2006 December 2007 December

36 Corn Balance Sheet

37 Key Assumptions Crude oil price $75-$85 per barrel Ethanol & biodiesel mandates unchanged & enforced Slow growth of world economy CRP early out not permitted

38

39 Soy Bal. Sheet

40 Emerging Biofuels Technology Biodiesel fuel from algae 5 to 7 years out due to cost issues Can be produced in salt water Favorable prospects in SW U.S. Cellulose: processes are available, but cost issues remain + harvesting, storage, transport, & soil issues U. of Wisc. spin-off company has catylist process for creating gasoline + petro chemicals from grain, biomass Energy efficiency much better than for ethanol Avoids ethanol infrastructure issues Useable at all blend levels with non-flex fuel vehicles

41 Emerging Biofuels Technology II U.S. moving rapidly toward GHG emissions cap & trade policies California policies About 15 Midwest states following, incl. Iowa President asks Congress to deal with GHG issues Ethanol GHG issues will be looked at more carefully (S. America land clearing issues) Increased focus on wind energy, use of urban wastes for electric power generation, methane capture from livestock (some with ethanol plants) Carbon market expected to become more significant More research needed on impacts from cultivation of fallow lands, land clearing in S. America, etc.

42 What Could Change Prospects of Long- TermTightening Global Grain Supply? Accelerated corn yield increases Further crude oil price collapse Early break-through in economical cellulose conversion Declining global livestock feeding U.S. $0.47 blending credit reduced Eliminate $0.54 import tax

43 U.S. Cellulose Ethanol Mandates become aggressive after 2010 At least 3-4 pilot plants being developed Government emphasis on alternative feedstocks Potential Feedstocks: DDGS fiber Corn stover Prairie grasses Sugar, sweet sorghum Forest wastes Municipal & livestock wastes Research for major handling & storage challenges

44 Marketing Take Home Points Modest upward potential in corn & bean prices into Mid-February Demand slowing especially corn exports & soy crush Uncertain how much added corn acres needed: watch ethanol & export sales Spring & summer market still to be quite sensitive to weather Biofuels mandates are important Be aware of risk in contracting with ethanol plants

45 Questions & Comments? gmrc_renewable_energy_newsletter.cfm