The Outlook for Biofuels

Transcription

1 PRX BlueSky Outlook, Page 1 The Fertilizer Institute Fertilizer Outlook and Technology Conference The Outlook for Biofuels November 6, 2007 Ross Korves Economic Policy Analyst The ProExporter Network ross.korves@proexporter.com

2 PRX BlueSky Outlook, Page 2 BS-2 Corn Ethanol Expansion US FUEL ETHANOL PRODUCTION IN BLUE SKY MODEL, Million gallons PRX_B_US_States, GTB-07-10, Oct Potential capacity could be much greater. Actual production depends on ethanol price and corn price which in the PRX Model will rise (due to corn production limits) to constrain actual ethanol production as shown Dry mill model production Wet mill model production Total fuel ethanol capacity survey

3 PRX BlueSky Outlook, Page 3 PRX_EthanolPrdn, GTB-07-09, Oct US MOTOR GASOLINE with and without ETHANOL, Jul-07, Monthly Total of Million Gallons Reformulated gasoline (RFG) total, 97.2 percent with ethanol Outside the RFG areas and the Midwest, lacking rail delivery, lacking ready retail sites, and with many state-level regulatory issues Conventional gasoline without ethanol Conventional gasoline with ethanol (mainly E-10) Mainly the northeastern US and California (mandated to replace MTBE), delivered by rail unit trains and truck Mainly in the Midwest, delivered truck and rail.

4 PRX BlueSky Outlook, Page 4

5 PRX BlueSky Outlook, Page 5 BS-1 Energy Outlook CRUDE OIL PRICE OUTLOOK, EIA & PRX Energy Information Admnistration (EIA), US DOE, Annual Energy Outlook (AEO) Dollars per barrel, inflation-adjusted to earliest year shown PRX SPECULATIVE EIA 2007,World crude oil (2005 dollars/bbl; "world"= US imported low sulfur) EIA 2006,World crude oil (2004 dollars/bbl; "world"= US imported low sulfur) HIGH CASE PRX EIA 2007 Outlook EIA 2006 Outlook HIGH CASE PRX sees strength near term, then greater volatility with higher production costs, natural and geopolitical interruptions. (Actual timing of "ups & downs" cannot be forecasted.) PRX_EIAlongtermrv3.xls, GTB-07-10, Oct-17-07

6 PRX BlueSky Outlook, Page 6 Cents per gallon US MOTOR GASOLINE WHOLESALE PRICE vs. ETHANOL WHOLESALE PRICE, with PRX SPECULATIVE FORECAST PRX SPECULATIVE Assumes PRX crude oil forecast, plus (perhaps optimistically) a new RFS of 15 bil gals, and continuation of 51 cent ethanol tax credit in some form. Wholesale gasoline price Ethanol wholesale price PRX ethanol price spec forecast PRX differential between ethanol and wholesale gasoline PRX wholesale gasoline spec forecast Ethanol wholesale price differential to wholesale gasoline PRX_EIAlongtermrv3.xls, GTB-07-10, Oct-17-07

7 PRX BlueSky Outlook, Page 7 s Thousand acres US MAJOR CROPS PLANTED AREA PRX_US_APanal, GTB-07-10, Oct CRP_actual Other feedgrains_actua l Wheat_actual Other Oilseeds_actual Soybeans_actual Corn_actual Corn + Soybeans "Max" Blue Sky Model constrains the sum of corn and soybean planted area to a maximum of about 161 million acres (with only 1-2 million acres leaving CRP in near-term)

8 PRX BlueSky Outlook, Page 8 UNITED STATES CORN YIELD Bushels per harvested acre PRX_B_US_BA_BS, GTB-07-10, Oct Actual Trend Trend 125 USDA Ag Projections (Feb-07) Trend with accelaration after 2007 is used in model and is above Trend. Major seed companies confirm the potential of this higher trend, departing from the 30-year slope

9 PRX BlueSky Outlook, Page 9 US GRAIN CONSUMING ANIMAL UNITS, Thou GCAUs PRX_B_US_BA_BS, GTB-07-10, Oct GCAU_Other GCAU_Poultry GCAU_Hogs GCAU_Beef cattle GCAU_Dairy PRX Blue Sky Model suggests higher corn prices, but assumption is made that US consumer will pay for continuing growth of animal products

10 PRX BlueSky Outlook, Page 10 UNITED STATES CORN SUPPLY-DEMAND PRX_B_US_BA_BS, GTB-07-10, Oct Item Unit Crop year (Sep-Aug) Carry-in mil bu Area planted thou ac Area harvested thou ac Yield bu/ac Production mil bu Supply mil bu Carry-out mil bu pct use 17.5% 11.6% 17.3% 12.8% 8.6% 7.2% 4.5% 3.9% 3.9% 3.2% 3.4% Disappearance (Use) mil bu Feed/Residual Use mil bu Processing Use mil bu of which, Fuel ethanol mil bu mil gal Domestic Use mil bu Foreign Exports mil bu (Minus = exports from US) With sum of corn & soy area held to max of about 160 mil ac, ethanol and export use constrained by high corn price. US Farm Price, hist-model cts/bu US Farm Price, spec* cts/bu *Corn price required at PRX forecast ethanol prices to reduce ethanol ROI model to near zero, idling some capacity. Idled vs. Jan-07 Survey mil gal (pct) 0 (0 %) 2700 (25 %) 2790 (21 %) 1970 (13 %) 2130 (14 %) See following pages for the difference between the historical model of corn price and the Spec estimate (14 %) 2420 (15 %) 2410 (14 %) 2490 (14 %) 2420 (14 %)

11 PRX BlueSky Outlook, Page 11 UNITED STATES CORN SUPPLY-DEMAND DETAIL PRX_B_US_BA_BS, GTB-07-10, Oct Item Unit Crop year (Sep-Aug) Carry-in mil bu Production mil bu Supply mil bu Carry-out mil bu Disappearance (Use) mil bu Residual use mil bu Feed use in state mil bu of which, Dairy mil bu Beef cattle mil bu Hogs mil bu Poultry mil bu Other mil bu Processing in US mil bu of which, Dry mill fuel ethanol mil bu mil gals DDG production thou mt Corn displcd by DDG mil bu Wet mill fuel ethanol mil bu mil gals Total fuel ethanol mil bu mil gals Total domestic use mil bu Foreign Exports of Corn mil bu Foreign Exports of DDG thou mt DDG Export Corn Displ mil bu Corn & DDG exports mil bu

12 PRX BlueSky Outlook, Page 12 ETHANOL DRY MILL ROI in BLUE SKY MODEL PRX_ROI_Revised, GTB-07-10, Oct Price History & Assumptions Calculations Note Crop Year Corn ($/bu) Natural Gas ($/mcf) Ethanol ($/gal) DDGS ($/ton) Corn ($/gal) Natural Gas ($/gal) Ethanol ($/gal) DDGS ($/gal) Other Costs ($/gal) Return to Var ($/gal) Int & Depr ($/gal) Return ($/gal) Ratio DDG to Corn Model assumes natural gas and ethanol prices (explained elsewhere), and then selects a corn price to bring ROI slightly above zero. DDG price calculated as shown. Incr Incr

13 PRX BlueSky Outlook, Page 13 CORN ETHANOL DRY MILL ROI, PRX Model across Cornbelt (without state incentives, but including est. debt service) Cents per gallon of ethanol 200 PRX_BS_Regions, GTB-07-10, Oct Model, actual Model, forecast ONE with corn price from historical model Model, forecast TWO with Speculative Corn Price to reduce ROI slightly above zero The cornbelt model ROI declines in near-term, but recovers to a sustainable (but not "sensational" level All scenarios use: Ethanol, cts/gal Scenario ONE uses: Corn, cts/bu Scenario TWO uses: Corn, cts/bu

14 PRX BlueSky Outlook, Page 14 US DDG DOMESTIC USE & EXPORTS to FOREIGN 000mt PRX_B_US_BA_BS, GTB-07-10, Oct DDG domestic use, projected DDG domestic use, actual DDG exports, projected PRX Blue Sky Forecast shows a large increase in DDG production most of which is fed in place of whole corn DOMESTICALLY, with limited exports to foreign. DDG exports, actual

15 PRX BlueSky Outlook, Page 15 DDG NET EXPORTS (+)/NET IMPORTS (-) BY STATE, Based on All Animals, PRX Formulas (Not surveyed by USDA), 000MT

16 PRX BlueSky Outlook, Page 16 UNITED STATES CORN FED with DDG DISPLACEMENT, Mil Bu DDG "Potential Consumption" Assumptions Animal Share Corn Type ration Replcmt ratio Dairy 40% 1.20 Beef cattle 40% 1.25 Hogs 20% 1.00 Poultry 10% 1.00 Other 10% 1.00 PRX_B_US_BA_BS, GTB-07-10, Oct Corn displaced by DDG fed Other Poultry 4000 Hogs Beef 3000 Dairy Current Blue Sky model assumes that some 3/4ths of DDG production will displace corn in livestock feeding, rising to nearly 30 % of total fed

17 PRX BlueSky Outlook, Page 17 ASSUMPTIONS IN BLUE SKY MODEL RUNS PRX_ROI_Revised, GTB-07-10, Oct Variable Units Jan-Sep Oct-07 Runs Run RFS from 7.5 to 15 bil gals in 2015 YES NO << Excise tax credit 51 cts in 2015 YES YES Acreage of corn + beans +CRP maximum mil ac Trend yield of corn in 2015 bu/ac << Corn area planted mil ac Crude oil price $/bbl << Ethanol price $/gal << Ethanol demand (domestic and exports), mil gal Ethanol demand (domestic and exports), 2015 mil gal Corn exports in 2015 mil bu << DDG exports in mt << Domestic animal numbers trend (1% up) trend (1% up) DDG displacement ratio to corn, cattle ratio << Corn carryout to use, percent 5 to 9 6 to 9 Corn farm price, $/bu 3.15 to to 3.75 << Ethanol industry ROI, cts/gal -12 to 6 0 to 20 << With record prices in crude oil pushing up but with "blend wall" pushing down on ethanol price, and with record prices in wheat and soybeans, the nearterm outlook is volatile corn farm price between $3.25 and $3.50. How long will "blend wall" last, what will Congress do? In latest run with NO new RFS, but with higher cride oil and ethanol price, corn farm price is 50 cents/bu less but ethanol return is 15 cents/gal higher leading to low but positive ethanol ROIs.

18 PRX BlueSky Outlook, Page 18 BIODIESEL PRODUCTION FROM SOYBEAN CRUSH, with MEAL "BY-PRODUCT" PRXfile:USnrbySD_1i_SoyOil. PRXrev. 12-Oct-07. Crop Area Area Yield Soy- Soy- Oil Oil Oil Bio- Meal Meal Meal Year Planted Hvstd bean bean yield yield Prdn diesel yield yield Prdn Prdn 7.3 lbs/gal mil ac mil ac bu/ac mil bu mil bu lbs/bu pct bil lbs mil gals lbs/bu pct mil st Illustrative Portions of US Soybean Crop, Converted to Biodiesel % % Actual US Soybean Crop % % 42.9 Actual Portion of Current Crop to Biodiesel % Problem with biodiesel from soybeans is that only about 19% of bean is oil and thus each 100 mil gals of biodiesel from soybeans generates about 1.5 mil st of soymeal. Soymeal exports in were 8.4 mil st. Second problem is that additional soybean acres must come in competition with corn, which means higher whole soybean price, which in turn pushes down on crush margin.

19 PRX BlueSky Outlook, Page 19 SOYBEAN CRUSH MARGIN AT GIVEN WHOLE SOYBEAN PRICE PER BUSHEL Whole soybean price per bu PRX_C_US_BA, GTB-07-10, Oct Meal pounds per bushel of whole soybeans Oil lbs/bu Oil price, cts/lb Oil contrb 43.8 Meal price per short ton, $ Meal price contribution to crush, $/bu (0.59) (0.16) (0.37) (0.15) Reference Corn Price per bu, at ratio of

20 PRX BlueSky Outlook, Page 20 SOYBEAN CRUSH MARGIN AT GIVEN WHOLE SOYBEAN PRICE PER BUSHEL Whole soybean price per bu PRX_C_US_BA, GTB-07-10, Oct Meal pounds per bushel of whole soybeans Oil lbs/bu Oil price, cts/lb Oil contrb 43.8 Meal price per short ton, $ Meal price contribution to crush, $/bu (2.09) (1.66) (1.22) (0.78) (0.34) (1.87) (1.43) (0.99) (0.56) (0.12) (1.65) (1.21) (0.77) (0.33) (1.42) (0.98) (0.55) (0.11) (1.20) (0.76) (0.32) (0.97) (0.54) (0.10) (0.75) (0.31) (0.53) (0.09) (0.30) Reference Corn Price per bu, at ratio of

21 PRX BlueSky Outlook, Page 21 SOYBEAN CRUSH MARGIN AT GIVEN WHOLE SOYBEAN PRICE PER BUSHEL Whole soybean price per bu PRX_C_US_BA, GTB-07-10, Oct Meal pounds per bushel of whole soybeans Oil lbs/bu Oil price, cts/lb Oil contrb 43.8 Meal price per short ton, $ Meal price contribution to crush, $/bu (3.59) (3.16) (2.72) (2.28) (1.84) (1.40) (0.97) (3.37) (2.93) (2.49) (2.06) (1.62) (1.18) (0.74) (3.15) (2.71) (2.27) (1.83) (1.39) (0.96) (0.52) (2.92) (2.48) (2.05) (1.61) (1.17) (0.73) (0.29) (2.70) (2.26) (1.82) (1.38) (0.95) (0.51) (0.07) (2.47) (2.04) (1.60) (1.16) (0.72) (0.28) (2.25) (1.81) (1.37) (0.94) (0.50) (0.06) (2.03) (1.59) (1.15) (0.71) (0.27) (1.80) (1.36) (0.93) (0.49) (0.05) Reference Corn Price per bu, at ratio of

22 PRX BlueSky Outlook, Page 22 UNITED STATES SOYBEAN SUPPLY-DEMAND PRX_C_US_BA, GTB-07-10, Oct Item Unit Crop year (Sep-Aug) Carry-in mil bu Area planted thou ac Area harvested thou ac Yield bu/ac Production mil bu Supply mil bu Carry-out mil bu Disappearance (Use) mil bu Seed/Residual Use mil bu Crush mil bu Domestic Use mil bu Foreign Exports mil bu (Minus indicates exports from US) Soy acreage fights corn, price of whole beans rises, foreign exports held below 1000 mil bu, biodiesel constrained, so that meal not "over-produced." Farm Price, Sales weighted annual average US Farm Price Model cts/bu Speculative model for soybeans to hold acreage vs. corn

23 PRX BlueSky Outlook, Page 23 UNITED STATES SOYBEAN OIL SUPPLY-DEMAND PRX_C_US_BA, GTB-07-10, Oct Item Unit Crop year (Sep-Aug) Soybean crush mil bu Yield lbs/bu Soyoil production mil lbs Soyoil supply mil lbs Soyoil domestic use mil lbs Soyoil net exports mil lbs Soyoil total use mil lbs Soyoil carry-out mil lbs US population mil Domestic SBO per cap lbs Avg price, Decatur, actl cents/lb Avg price, Decatur, model cents/lb Estimated domestic: Soyoil food use mil lbs Soyoil industrial use mil lbs Estimated crush margin: mil gals Soyoil price cents/bu Soyoil yield per bu lbs/bu Soyoil value per bu cents/bu Soymeal price $/st Soymeal yield per bu lbs/bu Soymeal value per bu cents/bu Soybean price, Decatur cents/bu Oil & meal value per bu cents/bu Crush margin cents/bu DDG corn oil Industrial mil gals Speculative possibility at about 22 gals/mt DDG, with "surplus" DDG not fed.

24 PRX BlueSky Outlook, Page 24 Biodiesel Costs per Gallon 7.3 pounds of soybean $0.40 per pound = $2.92 All other costs = $ Total costs = $ Minus blender credit of $1.00 per gallon Net costs at the biodiesel production plant = $