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Dr. Robert Wisner: Grain Outlook 3/15/06

Iowa State University. AgMarketing Resource Center. Grain Outlook for 2008-2010 3/21/08. Dr. Robert Wisner: Grain Outlook 3/15/06. Dr. Robert Wisner, University Professor & BioFuels Economist. Global agriculture shifting from food & fiber to food, fiber & energy output.

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Dr. Robert Wisner: Grain Outlook 3/15/06

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  1. Iowa State University AgMarketing Resource Center Grain Outlook for 2008-2010 3/21/08 Dr. Robert Wisner: Grain Outlook 3/15/06 Dr. Robert Wisner, University Professor & BioFuels Economist

  2. Global agriculture shifting from food & fiber to food, fiber & energy output • Grain-based ethanol – first phase • Shift requires sharp increase in grain, oil crop supply • Adjustments in livestock production • Oil price shock increases food costs • Tightening supplies + weather variability add food-feed price volatility

  3. Corn-ethanol only partial solution to energy challenges • Other feedstocks needed • Municipal wastes • Animal agriculture wastes • Forest product wastes • New crops • New automotive technology • Hybrid gas/electric vehicles • New engine & vehicle designs • Hydrogen fuels & fuel cells • Diversification of energy sources • Incentives for increased mass transportation • Wind power use increasing

  4. Key Determinants of Grain-Based Biofuels Industry Size • Crude Petroleum Price • Grain & Oil Crop Prices Needed for Increased Area & Production • Crop Inputs Availability & Cost • Government Mandates

  5. Recent Start-ups & Soon to be on Line U.S. Ethanol Plants LocationMil. Gal. Cap.Date • Pikely, CA 40 April • Lima, Ohio 54 March • Greenville, OH 110 March • Hennepin, IL 100 April • Cambria, WI 40 April • Coshocton, OH 60 March • St. Ansgar, IA 100 March • Monona, IA 100 April • Volney, NY 41 May-Jn Total 645

  6. Recent Positive Developments in Biofuels Demand • 2007 Energy Bill & mandates & a mechanism for implementation • New Union Pacific rapid ethanol train receiving & unloading facility in Dallas • North Iowa ethanol shipping facility • Opening of substantial ethanol market in Florida and movement toward opening other southeast markets • California state government commitment to reduce green-house gas emissions • Higher gasoline prices?

  7. Grain Market Outlook 2008-’10 • Driven by global biofuels & U.S.-foreign wheat/weather problems • Multi-yr. global battle for crop acreage: corn, soybeans, wheat, cotton, others • Soy Prices: need for extra 7- 9 mil. U.S. acres in ’08 • Other crop prices supported by SB, corn • Record-high ‘08 guarantee prices for revenue insurance • Bio-fuels future: support from crude oil prices & energy bill

  8. 2007-08 U.S. corn supplies adequate to meet demand • Crop up 24% -- 20% increase in corn acres • But at expense of: • 16% decline in soybean planted area • 29% decline in cotton area • 8% decline in non-durum spring wheat • Declines in minor crops • Soybean supplies tighten substantially, increased plantings needed in 2008 • More U.S. corn will be needed in 2009, 2010, 2011

  9. Enough Bean Acres Bought?

  10. 100 West Texas Intermediate Crude Oil 90 (monthly average price) 80 70 dollars/barrel 60 50 40 30 20 10 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

  11. U.S. 2007 Energy Bill • U.S. 2007 renewable fuels 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 (1bil. Gallons for 2015)

  12. Source: Dr. Terry Francel, American Farm Bureau Federation & U.S. Energy Dept.

  13. Keys to 07-09 Grain Markets • Ethanol profitability • --Infrastructure & transportation • -- Negative margins ahead -- how long & how bad? • Govt. biofuels mandates to support corn • Strong Export sales—better foreign weather? • World Economy? • EU opening up 10% set-aside in 2008 • Battle for acreage: S. Am., EU, U.S. wheat, SB, Cotton, & Corn

  14. Cautions in 2008-09 Grain Markets • Fund Traders • Bio-diesel economics not good, • no mandate until 2009. • Domestic user returns tighten • with higher corn prices – livestock • & fuel

  15. Risks: 2009 & 2010 Crop Sales • Production Costs • Some of new-generation contracts not tested in extreme mkt. conditions • Weather (Strongly consider harvest-price revenue insurance)

  16. 41 Countries Encourage Biofuels Ethanol, demand growth & food inflation shifting China from to corn exporter to importer?

  17. U.S. expansion ContinuingChanges in U.S. Ethanol Plants, 7/27/07 to 1/08/08 (From DTN) 7/27/0711/6/071/8/083/14/08 • U.S. Opr. Plants 134 139 163 171 • Under Const. 89 91 81 74 • Planned plants 329 343 336 341 • Total 552 572 580 586

  18. World Stocks are Near-Record Low -- USDA

  19. Soybeans: Stocks/Use Ratio 35% 30% 25% US 20% 15% World 10% 5% 0% 1996 1997 1998 1999 2000 2001 2002 2003 2007 1990 1991 1992 1993 1994 1995 2005 2006 2004 Declining but not yet record low

  20. World Supply Tightening U.S. R-O-W

  21. Total Utilization

  22. 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-o-C yields in bad weather

  23. Conservation Reserve Land Lower productivity land

  24. (Growth 2007-12 = 147% of U.S. soybean oil exports) (Food demand for vegetable oil highly inelastic) Pulls land away from food uses Source: FAPRI estimates

  25. International Impacts • U.S. ethanol plants under construction to use 2.0 bil. bu. of corn (almost doubling use) • Over 3 times the volume of Japan imports of U.S. corn • 105% of 2007 EU corn crop • 54% of global corn exports • Higher food costs ahead • Major risk-management challenges in Ag. & bioenergy

  26. U.S. Cellulose Ethanol • 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

  27. Daily ethanol futures to 3/17/08

  28. Monthly CRB Index Incentive for Index Fund Traders to buy Commodities for inflation hedge

  29. Week U.S. Dollar Index: Reduces grain prices in world markets

  30. Weak U.S. Dollar Index: Reduces grain prices in world markets

  31. Double Top Dec. ’08 Corn Futures 3/17/08 Possible Objectives: $5.41, $5.25, $5.15?

  32. Nov. 08 SB Futures Prices, 3/17/08 Objectives: $11.70-$12.10?

  33. Figure 3. Total 11,693 mil. Bu.

  34. U.S. Grain Export Sales to 3/06/08 • Corn +29% vs. year ago • HRW Wheat +118% • SRW +54% • HRS +33% • All Wheat +52% • Soybeans 00% • Barley +89% • Sorghum +138%

  35. Figure 2. 72 Potential Iowa Plants 11 Just across IA Borders Capacity: 159% of 2006 Crop Iowa Corn Processing Plants, Current & Planned, 7/25/07

  36. Garner Kebler Milling Hobartan Global Lakota (ethanol) Algona Emmetsburg - Ethanol Range Harv. DelivryJuly Delvry 3.18 (-.55) 3.66 (-.42) 3.41 (-.32) 3.86 (-.22) 3.29 (-.44) 3.80 (-.28) 3.28 (-.45) 3.73 (-.35) 3.20 (-.53) 3.66 (-.42) 3.33 (-.40) 3.78 (-.30) .23 .20 N.C. Iowa Basis Examples, Corn 9/28/07

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