Transcript The New World of Biofuels: Implications for Agriculture and Energy Keith Collins, Chief Economist, USDA EIA Energy Outlook, Modeling, and Data Conference March 28, 2007

The New World of Biofuels:
Implications for Agriculture
and Energy
Keith Collins, Chief Economist, USDA
EIA Energy Outlook, Modeling, and Data
Conference
March 28, 2007
Overview
 Ag 101
 Status of Biofuels & Market Implications
 Public Policy and Biofuels
 Role of Research
 USDA Energy Policy & 2007 Farm Bill
Ag at a Glance
Farm Program Payments . . .
corn accounts for a large share
30
20
15
Other crops
Corn
10
5
0
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
F
Billion $
25
Fiscal Year
Corn Ethanol Production . . .
expect to use 27% of ’07 corn crop for nearly 9 bil. gal.
10
30
25
8
7
20
6
5
15
4
10
3
2
5
1
Ethanol
/0
8F
/0
5
20
07
20
04
/0
2
20
01
/9
9
19
98
/9
6
19
95
/9
3
19
92
/9
0
19
89
/0
7
19
86
19
83
19
80
/0
4
0
/0
1
0
Share of Corn Production
Percent
Billion gallons
9
Biodiesel Production . . .
8
100
4
0
0
Share
20
07
20
06
20
05
20
04
20
02
20
01
20
03
Biodiesel
Percent
200
/0
8F
12
/0
7
300
/0
6
16
/0
5
400
/0
4
20
/0
3
500
/0
2
24
/0
1
600
20
00
Million gallons
expect to use 17% of ’07 soyoil crop for 500 mil. gal.
Global Coarse Grain Stocks . . .
getting uncomfortably tight
% of total use
40
35
30
19% & Record
corn prices
25
20
15
10
5
2006/07F: 12%
0
1977/78 1981/82 1985/86 1989/90 1993/94 1997/98 2001/02 2005/06
Crop Year
Expected Net Returns . . .
favor corn
$ per acre
400
2006
350
2007
300
250
200
150
100
50
0
Corn
Soybeans
Wheat
Upland
Cotton
Corn Acres Planted . . .
highest Since 1945 expected
Million acres
100
90
80
70
20
08
F
20
01
19
94
19
87
19
80
19
73
19
66
19
59
19
52
19
45
60
Projected Corn Ethanol Production…
expect 12 bil. gal. in 2016/17– 30% of corn crop
Billion gallons
14
12
10
8
6
4
2
/1
7
20
16
/1
3
20
12
/0
9
20
08
/0
5
20
04
/0
1
20
00
/9
7
19
96
/9
3
19
92
/0
9
19
88
/0
5
84
19
19
80
/0
1
0
Ethanol Imports Augment Demand…
imports soaring, led by Brazil
800
600
500
400
300
200
100
CBI
Other
Source: Census and Customs CBI TRQ data
Brazil
'0
6
'0
4
'0
2
'0
0
98
96
94
92
0
90
Million gallons
700
Projected Soy Biodiesel Production…
expect 700 mil. gal. in 2016/17 – 23% of soyoil production
800
Million gallons
700
600
500
400
300
200
100
0
2000/01
2003/04
2006/07
2009/10
2012/13
2015/16
Ethanol-Corn Price Spread . . .
weekly data (2.75xPeth-Pcrn)
9.00
8.00
$ per bushel
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1999
2000
2001
2002
2003
2004
2005
2006 2007
Ethanol-Corn Price Spread . . .
annual data with alternative Peth scenarios
5.00
4.50
$ per bushel
4.00
Ethanol priced =
historical premium
3.50
3.00
2.50
Priced = gasoline
2.00
1.50
1.00
0.50
Priced = 70% gasoline
0.00
1999
2001
2003
2005
2007
2009
2011
2013
2015
Challenges Facing Ethanol









Corn trend acreage & yields
Global weather
Demand growth for blends/E85
Ethanol distribution system
Tax credit, tariff, RFS/AFS issues
Livestock feed costs & adjustments
DDG quality
Meat and consumer food prices
Environmental issues: nitrogen, water
quantity & quality, CRP
∆ Total Gas/Distillate Use
% Share Met by E&B
80
70
3.5
E/B share of
∆ total fuel use
60
4
3
50
2.5
40
2
∆ E/B use
30
1.5
20
1
10
0.5
0
0
2006
2008
2010
2012
Source: 2007 EIA Annual Energy Outlook
2014
2016
Change in Use (quad BTUs)
Change in Fuel Use Since 2005 Met by
Ethanol/Biodiesel
Options to Maintain Biofuel Growth
 Do nothing
 Minimum prices (price controls)
 Maintain or amend subsidies/tax
preferences
 Increase renewable fuel standards
Projected Corn Ethanol Production. . .
w/o tax credit and import tariff (USDA analysis)
14
Billion gallons
12
10
8
6
4
2
0
2007/08
2009/10
2011/12
With credit/tariff
2013/14
2015/16
W/O credit/tariff
Projected Corn Prices…
w/o tax credit and import tariff (USDA analysis)
3.80
$ per bushel
3.70
3.60
3.50
3.40
3.30
3.20
3.10
3.00
2007/08
2009/10
2011/12
With credit/tariff
2013/14
2015/16
W/O credit/tariff
Projected Soy Biodiesel Production. . .
w/o tax credit (USDA analysis)
800
Million gallons
700
600
500
400
300
200
100
0
2007/08
2009/10
2011/12
With credit
2013/14
W/O credit
2015/16
President’s “20 in 10” Proposal
 Reduce U.S. gasoline use by 20% in the
next 10 years
 Path:
– Modify CAFÉ
– Require 35 billion gallons of renewable and
alternative fuels by 2017
 Easy to achieve?
 Role of Ethanol and Biodiesel ?
USDA Baseline Biofuel Production
40
Billion gallons
35
“20 in 10”
30
25
22 billion
20
15
10
5
0
2007/08
2009/10
2011/12
Ethanol
2013/14
Biodiesel
2015/16
Biomass Potential by 2017
(excluding corn based ethanol)
(310 million tons of biomass = 28 billion gallons of ethanol)
10
5
1
2
1 3
17
19
33
1
5
9
19
6
12
22
80
4
7
Forest Residues (130)
Crop Residues (152)
7
2
8
14
1
17
2
Perennial Crops (26)
Source: “Billion-Ton” Study
Cost Competitiveness of
Cellulosic Ethanol
** (includes preprocessing, fermentation, labor)
Role for Research
 Reduce Production Costs
- Land Costs
-- Cropland
-- Grassland/Pasture
- Establishment and Reseeding
- Bailing and Staging
 Transportation Costs
Cropland Rents . . .
hard for dedicated crops to compete for land
Cropland rents over $100/acre
need over 3 dt/acre just to
cover land costs
Production Costs . . .
(actual economic data are limited)
 University of Nebraska/ARS
--Switchgrass, 173 acres, 5 years, 10 farmers
--Average yield = 3.4 tons/acre
--Land cost = $17/ton
--Production cost = $27/ton
Total cost = $44/ton
 Iowa State University
--Switchgrass from Pasture
--Average yield = 4 tons/acre
--Land cost = $13/ton
--Establishment + reseeding cost = $7/ton
--Production cost = $40/ton
Total cost = $60/ton
2007 Farm Bill Proposal
 $500 million-- Ag Bioenergy and Biobased
Products Research Initiative
 $150 million--Biomass Research and
Development Act
 $100 million--Cellulosic Bioenergy
Program
 $150 million--Forest Wood-to-Energy
Program
 Biomass Reserve Program (BRP)
Conclusions
 Tight agricultural markets raising risks
 Corn ethanol:
--Approaching limits
--Making minor inroads in crude oil market
--Can do a little more with better yields
 Cellulosic technology:
--Great prospects
--Large potential biomass feedstock base (technical)
--Must focus on economic potential
--Need to improve yields to reduce feedstock costs
--Public policy goal to get over initial adjustment costs