Crop and Biofuel Outlook and Issues

1. Crop and Biofuel Outlook and Issues Agricultural Credit School Ames, Iowa June 7, 2010 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. U.S. Corn Supply and Use Source: USDA

3. U.S. Soybean Supply and Use Source: USDA

4. U.S. Corn Emergence Source: USDA, Crop Progress

5. U.S. Soybean Planting Source: USDA, Crop Progress

6. World Corn Production Source: USDA

7. Corn – Argentina & Brazil Source: USDA

8. World Soybean Production Source: USDA

9. Soybeans – Argentina & Brazil Source: USDA

10. Population Source: U.S. Bureau of the Census, International Data Base

11. World Consumption Growth In 2020, we will use 26 billion bushels of wheat, 36 billion bushels of corn, and 11 billion bushels of soybeans. In 2000, we used 21.5 billion bushels of wheat, 24 billion bushels of corn, and 6 billion bushels of soybeans. Sources: USDA, FAPRI

12. Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS

13. Corn Export Sales Source: USDA, FAS

14. 2009 U.S. Corn Exports Source: USDA, FAS

15. Soybean Export Sales Source: USDA, FAS

16. 2009 U.S. Soybean Exports Source: USDA, FAS

17. Renewable Fuels Standard (RFS)

18. Changing Basis Patterns

19. Basis Two Years Ago

20. Basis This Year

21. Corn

22. Soy

23. Input Costs Source: USDA, Agricultural Prices, May 28, 2010

24. Iowa Corn Prices vs. Costs Right now, about a nickel under breakeven with USDA about 9 cents under breakeven with futures

25. Iowa Soybean Prices vs. Costs Right now, 7 cents over breakeven with USDA at breakeven with futures

26. Thoughts for 2010 and Beyond • General economic conditions • Continued economic recovery is a major key for crop prices • Concerns about Euro driving investment to “safe havens” like the dollar • Long-term oil price remain in the $90 range • Supply/demand concerns • South America: Record soybean crop and large corn crop • Will demand be able to keep pace with supply? • 2009/10: USDA: Corn $3.60, Soy $9.50 Futures: Corn $3.47, Soy $9.42 • 2010/11: USDA: Corn $3.50, Soy $8.75 Futures: Corn $3.47, Soy $8.68

27. Population Source: U.S. Bureau of the Census, International Data Base

28. Liquid Fuel Usage Source: Energy Information Administration

29. Crude Oil Prices Source: Energy Information Administration

30. Price Movements Since 2007

31. Price Movements in 2010

32. Ethanol Margins Source: ISU, CARD

33. Ethanol Blending Advantage

34. Renewable Fuels Standard (RFS)

35. Renewable Fuels Standard (RFS)

36. CARB Fuel Carbon Values Source: CA Air Resources Board, April 2009

37. Countries Pursuing Biofuels • US • Brazil • Argentina • Colombia • Paraguay • Canada • Uruguay • Mexico • Thailand • New Zealand • South Africa • South Korea • Philippines • Indonesia • Pakistan • China • India • Malaysia • Australia • Japan • EU • Russia • Not a complete list

38. Government Policies for Biofuels Ethanol • Ad valorem tariff of 2.5% • Import duty of $0.54 per gallon • Volumetric Ethanol Excise Tax Credit (VEETC) • $0.45 per gallon starting in 2009 Biodiesel • Biodiesel Mixture Excise Tax Credit • Expired, may be revived • $1.00/0.50 per gallon Cellulosic • Cellulosic Biofuel Producer Tax Credit • $1.01 per gallon

39. Cellulosic Biofuel Waiver Provisions • EPA (in consultation with DOE and USDA) can reduce the cellulosic biofuel mandated volume • Waiver trigger based on EIA projections • EPA will also sell cellulosic biofuel credits • Price set at Max($0.25 per gallon, $3.00 – Average wholesale gasoline price per gallon)

40. Components of 2007 Energy Act • Up to $500 million per year in grants for the production of advanced biofuels (with at least an 80% reduction in GHG emissions relative to current fuels) • Up to $25 million per year in grants for R&D for biofuel production in states with low rates of biofuel production

41. Energy in the Farm Bill • Grants for the development and construction of advanced biofuel biorefineries, up to 30% of the cost of the project • Loans for the same, up to $250 million or 80% of the cost per project

42. Biomass Crop Assistance Program • To support production of crops for bioenergy and assist with collection, harvest, storage, and transportation of biomass to conversion facilities • Excluded materials • Farm program crops, animal byproducts, food waste, yard waste, algae

43. Biomass Crop Assistance Program • Requires producers and conversion facilities to submit proposal establishing a project area • Establishes contracts between USDA, producers, and facilities to promote project • Sets up establishment payments for perennial crops and annual payment to biomass producers

44. Biomass Crop Assistance Program • Payments are also authorized for biomass collection, harvest, storage, and transportation • Matching payments • $1 for each $1 per ton paid by conversion facility, up to $45 per ton, for 2 years

45. Currently Available Biomass Source: NREL, 2005

46. Spectrum of Biofuels • Grain/Sugar Ethanol • Biodiesel • Green Gasoline/Diesel • Cellulosic Ethanol • Butanol • Pyrolysis Liquids • Syngas Liquids Most Mature Least Mature Source: NREL, 2006

47. Biofuel Challenges • Production costs • Conversion, ag. production, etc. • Infrastructure barriers • Developing supply chain for biomass • Continued development of biofuel distribution system • Growth in biofuel-compatible vehicles

48. Biofuel Challenges • Investment risks • Higher capital costs, emerging technology • Biomass production shifts • Inducing farmers to produce new crops • Consumer understanding • About the fuels • About the tradeoffs

49. Thank you for your time!Any questions?My web site:http://www.econ.iastate.edu/faculty/hart/Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/Ag Decision Maker:http://www.extension.iastate.edu/agdm/