Ethanol & Grain Market Outlook for 2007-09 09 9/04/07 By Dr. Robert Wisner, University Professor of Economics and Coles Professor of International Agriculture Iowa State University Ames, Iowa, U.S.A.
Grain Marketing Considerations for 2007-09 09 1. Tight storage & transportation ahead 2. Weakening corn basis likely @ harvest 3. 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 plants 6. Expect blow-off top in wheat to impact corn, bean markets -- when it happens 7. Be conservative on 2008 & 09 marketings
Grain Marketing for 2007-09, 09, II 1. Expect stronger cash corn mkt. into winter 2. Wheat, SB pulling acres out of corn 3. Bean mkt. danger: big jump in Brazil Acres 4. Biofuels is global development 5. World grain & livestock mkts.: big adjustments ahead 6. Ethanol growth increases mkt. sensitivity to weather
Risk 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 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 downside 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 biofuels Major Countries with Ethanol Fuels U.S. Brazil Canada China EU-27 Thailand Countries 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 '06-07 Corn for Ethanol '07-08 Ethanol Proj. Other Constr'n Proj. Corn ethanol 2011-12 2005-06 U.S. Corn Feeding 2005-06 U.S. Corn Feeding Potential Corn for Ethanol Other under construction 07-08 Ethanol Current Corn for Ethanol
New York Crude Oil Futures Prices
Lyon Sioux Plymouth Osceola O Brien Cherokee Dickenson Clay BuenaVista Kosuth 72 63 66 Potential Planned + Iowa current Plants in Iowa 11 Just across the IA borders 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 Humbol dt Ringgold Decatur Wayne Wapello Davis Capacity: 129% of 2006 crop Capacity: 159% of 2006 Crop Jefferson Henry VanBuren Clayton Lee Des Moines
June 2007 Needed Yld. @ 2007 Acres 334 bu./a. @ ethanol plant rated cap. New trend??
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 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 Averages provided by: S. Dk.: 2.27 Wisc.: 2.21 www.axxispetro.com www.ethanol.or g
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 Crop Corn: Planted Harvested Yield Production Unit Mil Ac Mil Ac Bu/Ac Bil Bu Aug 07 92.9 85.4 152.8 13.1 % Chg from Prev Forecast NC NC -- -- % Chg from Prev Season + 18.6 + 20.9 + 2.5 + 23.9
Corn for Grain Yields 2007 Bushels and Change From Previous Year 210# NC 170 7 150-6 185# NC 125 14 117 20 168# 16 156-5 180 14 178 15 157 NC 132 137 17-1 120 142# 21 135 30 153# 7 150# 10 145 2 125 15 111-36 95-30 65-7 -26 143-16 115 3 110-12 80-40 94-38 100-10 123-6 112-17 80-65 90-52 U.S. 152.8 3.7 # Record High NC = No Change
Percent Change in Iowa Grain Production by Crop Reporting District, 2007 vs. 2006 40% 30% 20% Corn Soybeans Corn +SB 10% 0% -10% -20% -30% NW NC NE WC C EC SW SC SE State
Iowa 2007 August Corn & Soybean Production Chgs. Vs. '06 by District Mil. Bu. Chg. vs. 2006 100 80 60 40 20 0-20 State Combined Total +378 Mil. Bu., +15% Soybeans Corn corn + SB -40 NW NC NE WC C EC SW SC SE
2007
Model Forecast: $3.11/bu.. U.S. 07-08 08 & $3.20 for 08-09 09
Proj. Proj.
Billion Bushels U.S. Soybean Production 3.40 3.20 3.12 3.06 3.19 3.00 2.80 2.60 2.69 2.89 2.74 2.76 2.76 2.65 2.45 2.63 2.40 2.20 2.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
45 40 35 30 25 20 U.S. Soybean Yield 41.5 2007 2003 2005 2001 1985 1987 1989 1991 1993 1995 1997 1999 1983 Bushels/Acre 1977 1979 1981
Soybean Yields 2007 Bushels and Change From Previous Year 34 3 35 1 50 NC 32 8 40-4 50-0.5 38 3 47 47-1 -3 34 37 2-1 38-6 24 7 37# 2 43-1 39# 13 33-12 33-6 26 6 44-3 30 5 39-1 25-6 37-9 27-8 24-7 25-9 27-5 26-3 U.S. 41.5-1.2 # Record High NC = No Change
China Soybean Supply & Use 60 Million Metric Tons 50 40 30 20 10 0 96/97 98/99 00/01 02/03 04/05 06/07 Production Net Imports Domestic Use Source: FAPRI, Univ. of Missouri
Soybean Trade Million Metric Tons 35 30 25 20 15 10 5 0 96/97 98/99 00/01 02/03 04/05 06/07 US Net Export Brazil Net Export China Net Import Source: FAPRI, Univ. of Missouri
EU Use of Rapeseed Oil Million Metric Tons 10 8 6 4 2 0 2002 2004 2006 2008 2010 2012 Year Crop Harvested 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
MINIMUM SOYOIL PRICE FOR BIODIESEL BREAKEVEN at GIVEN WORLD CRUDE OIL PRICE Add biodiesel 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: Dr. Terry Francel, American Farm Bureau Federation
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 emphasis Potential Feedstocks: DDGS Corn stover Prairie grasses Forest wastes Municipal wastes Research for major handling & storage challenges
Environmental Issues for Research: ethanol Impact on groundwater supplies Long-term effects, mono-culture ag. Allowable maximum removal of corn stover & grasses o Soil erosion impacts o Soil organic matter impacts o Diminished wildlife habitats o 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 jobs Farrow-finish 800 Or Wean-finish 242 Or Beef feedlot 278 Source: Dr. John Lawrence, Head of ISU Beef Center
http://www.econ.iastate.edu/faculty/wisner/
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