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

Iowa State University
AgMarketing Resource Center
Grain Outlook for 2008-2010
3/21/08
Dr. Robert
Wisner:
Grain
Outlook
Dr. Robert Wisner, University Professor
3/15/06
& BioFuels
Economist
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
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
Key Determinants of GrainBased Biofuels Industry Size
•Crude Petroleum Price
•Grain & Oil Crop Prices Needed for
Increased Area & Production
•Crop Inputs Availability & Cost
•Government Mandates
Recent Start-ups & Soon to be on Line
U.S. Ethanol Plants
Location
• Pikely, CA
Mil. Gal. Cap.
40
Date
April
• Lima, Ohio
• Greenville, OH
54
110
March
March
• Hennepin, IL
100
April
•
•
•
•
•
40
60
100
100
41
645
April
March
March
April
May-Jn
Cambria, WI
Coshocton, OH
St. Ansgar, IA
Monona, IA
Volney, NY
Total
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?
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
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
Enough Bean Acres Bought?
100
dollars/barrel
90
80
West Texas Intermediate Crude Oil
(monthly average price)
70
60
50
40
30
20
10
0
1960 1965 1970 1975 1980 1985 1990 1995
2000
2005
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)
Source: Dr. Terry Francel, American Farm Bureau Federation
& U.S. Energy Dept.
Keys to 07-09 Grain Markets
1. Ethanol profitability
--Infrastructure & transportation
-- Negative margins ahead -- how long &
how bad?
2. Govt. biofuels mandates to support corn
3. Strong Export sales—better foreign weather?
4. World Economy?
5. EU opening up 10% set-aside in 2008
6. Battle for acreage: S. Am., EU, U.S.
wheat, SB, Cotton, & Corn
Cautions in 2008-09 Grain
Markets
1. Fund Traders
2. Bio-diesel economics not good,
no mandate until 2009.
2. Domestic user returns tighten
with higher corn prices – livestock
& fuel
Risks: 2009 & 2010 Crop Sales
• Production Costs
• Some of new-generation contracts not
tested in extreme mkt. conditions
• Weather (Strongly consider harvestprice revenue insurance)
41 Countries Encourage Biofuels
Ethanol, demand growth & food inflation shifting
China from to corn exporter to importer?
U.S. expansion Continuing
Changes in U.S. Ethanol Plants,
7/27/07 to 1/08/08 (From DTN)
• U.S. Opr. Plants
• Under Const.
• Planned plants
•
Total
7/27/07
11/6/07
1/8/08
134
89
329
552
139
91
343
572
163
81
336
580
3/14/08
171
74
341
586
World Feed Grain Production, Use & Months of
Reserve Supply Beyond Pipeline Needs
1/11/08
1,000
800
5.0
4.0
600
3.0
400
2.0
200
1.0
0
0.0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
World Stocks are Near-Record Low -- USDA
Months Reserve
Mil. Metric tons
1,200
Prod'n
Use
Revised 9/12/05
Old Reserve
Revised Reserve
Revised Reserve 7 12 04
Revised reserve 12/10/2004
1/11/08 reserve
Soybeans: Stocks/Use Ratio
Declining but not yet record low
35%
30%
25%
20%
US
15%
World
10%
5%
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0%
1/11/08
S. America, U.S. & Rest of World Soybean Supplies
12,000
10,000
World Supply
Tightening
Mil. Bu.
8,000
World
6,000
4,000
S. America.
2,000
U.S.
R-O-W
0
1/11/08
World Soybean Utilization
Mil. Bu.
Mil. Bu. Anual Growth
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1,000
Annual Growth
800
600
400
200
0
-200
Total Utilization
1964 1969 1974 1979 1984 1989 1994 1999 2004
-400
Corn Used in Ethanol Production, and
Co-products Produced
Mil. Tons
160
140
Corn Processed
120
Net Bu. After Co-Product Credits
100
80
60
40
20
0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
U.S. Soy Production, Use, & Exports to 2012 With 5.5
bil. Bu. Corn for ethanol
3,500
350 Mil. Gal Bio Diesel From virgin SBO
3,000
Mil. Bu.
2,500
Crush
Exports
Production
Other domestic use
2,000
1,500
1,000
500
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Assumes trend yields. Increased DGS Prod'n in 2012-13 replaces
soybean meal from about 440 mil. bu. of soybeans
Historical & Needed U.S. Corn Yield Deviation
Needed From Trend
2000
0.7
2001
0.0
2002
-10.2
2003
0.0
2004
16.2
2005
1.8
2006
0.9
2007
0.9
2008
3.3
Very tight fertilizer supplies
2009
3.8
Corn-on-corn yield drag
2010
7.5
2011
11.8
2012
13.4
2013
14.0
Other Considerations:
Sharp increase in marginal
Corn acres
Low C-o-C yields in bad
weather
U.S. Planted Acreage of Major Grains,
Oilseeds, and Cotton
255.6
239.9
244.6
240
160
120
80
40
0
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Mil. Acres
200
All
Barley
oats
Cotton
Sorghum
wheat
SB
corn
Conservation Reserve Land
Lower productivity land
(Growth 2007-12 = 147% of U.S. soybean oil exports)
(Food demand for vegetable oil highly inelastic)
EU Use of Rapeseed Oil
Million Metric Tons
10
8
6
4
2
0
2002
2004
2006
2008
2010
2012
Year Crop Harvested
Food
Source: FAPRI estimates
Other
Biofuel
Pulls land away from food uses
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
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
Daily ethanol futures to
3/17/08
Monthly CRB Index
Incentive for Index Fund Traders to buy
Commodities for inflation hedge
Week U.S. Dollar Index:
Reduces grain prices in
world markets
Weak U.S. Dollar Index:
Reduces grain prices in
world markets
Dec. ’08 Corn Futures
Double Top
3/17/08
Possible Objectives:
$5.41, $5.25, $5.15?
Nov. 08 SB Futures Prices,
3/17/08
Objectives: $11.70-$12.10?
Figure 3.
Total 11,693 mil. Bu.
U.S. Grain Export Sales to 3/06/08
•
•
•
•
•
•
•
•
Corn
HRW Wheat
SRW
HRS
All Wheat
Soybeans
Barley
Sorghum
+29% vs. year ago
+118%
+54%
+33%
+52%
00%
+89%
+138%
Figure 2.
72
Plants
66Potential
Planned +Iowa
current
in Iowa
63
11Just
Just across
across the
borders
11
IA Borders
*
*
*
*
*
* HowardWinnesh
Osceola
* DickensonEmmet
* Mitchell
* WinnebagoWorth
Allamakee
iek
*
O’Brien Clay Palo
* Kosuth Hancoc * Floyd
Sioux*
* * *Chickasaw Fayette
C
erroG
ordo
Alto
*
k
Clayton
Humbol
Cherokee
* BuenaV*ista Pocahontas dt* *Wright Franklin Butler Bremer
Plymouth
*
*
*
Delawa
*
BlackHawk Buchana
*a Sac Calhoun Webster
* Hamilton
Woodbury Id
*
re
*
Hardin
Grundy
n
*
*
*
*
Lyon
Tama
*
Monona Crawford Carroll Greene
*
*
*
Shelby Audubon Guthrie
*Pottawattamie
Mills
*
Fremont
Figure 1.
*
*
Montgomery
*Page
Adair
Cass
*
Adams
Boone
*
*
Harrison
*
Story
r
*
Union
Marshal
l
*
Dalla Polk
s
Madis
on
Jasper
Linn
Jackson
Jones
* ** **
*
Poweshiek
Johnson
Cedar
Iowa
*
Mucatine
Warren
Clarke
Benton
n
Dubuque
*
Marion Mahask Keokuk
a
Lucas Monroe
Taylor Ringgold Decatur Wayne
Appanoose
*Wapello
Davis
*
Scott *
Clinton
n
Washington
Jefferson
Louisa
Henry
*
DesMoines
VanBuren Lee
Capacity: 159%
129% of
Capacity:
of 2006
2006crop
Crop
*
corn
processing
&
plants,
current
&&planned,
06
Iowa
processing
& ethanol
ethanol
plants,
current
planned,
10/26/06
Iowa
Corn
Processing
Plants,
Current
& Actual
Planned,
7/25/07
Iowa
Corn
Processing
& Ethanol
Plant
Locations,
Locations,
Actual
&
& Planned
Planned.
, 11/20/
. 9/26/06
August 07 High Points in Iowa Corn Basis
Feed Mills & Ethanol Plants
Winnebago
+6 to
+7
Kossuth
Hancock
Humboldt
Wright
Worth
Howard
Mitchell
Winneshiek
-18
Cerro Gordo
to
-20
Franklin
Floyd
Allamakee
Chickasaw
Fayette
Clayton
Bremer
Butler
3
Webster
-10
to
-12
Shelby
Hamilton
Boone
Dallas
Grundy
Hardin
Black Hawk Buchanan
-18
Tama
Story
Marshall
to
5 Central
-20Jasper Poweshiek
Polk
Benton
Dubuque
Delaware
Linn
Jones
-10
6 E. Central
to
Iowa
Johnson
-20 Cedar
Muscatine
Madison
Union
t
Ringgold
Warren
Marion
+6 to
Clarke
Lucas
+7
8
Decatur
Wayne
Mahaska
Keokuk
Washington
Louisa
Monroe
Wapello
Jefferson
Henry
Des Moines
9
Appanoose
Davis
Van Buren
Lee
Jackson
Clinton
Scott
N.C. Iowa
Basis Examples, Corn 9/28/07
Garner
Kebler Milling
Hobartan
Global Lakota (ethanol)
Algona
Emmetsburg - Ethanol
Range
Harv. Delivry
3.18 (-.55)
3.41 (-.32)
3.29 (-.44)
3.28 (-.45)
3.20 (-.53)
3.33 (-.40)
.23
July Delvry
3.66 (-.42)
3.86 (-.22)
3.80 (-.28)
3.73 (-.35)
3.66 (-.42)
3.78 (-.30)
.20
W.C. & Sw. Iowa
Basis Examples, Corn 9/28/07
Coon Rapids ethanol
Denison ethanol
Creston Elevator
Corning ethanol plant
Bunge, Council Bluffs
Onawa
Lamoni
Shenandoah eth. plant
Range
Harv. Delivry July Delvry
3.27 (-.46)
3.74 (-.34)
3.51 (-.22)
3.84 (-.24)
3.30 (-.41)
3.78 (-.28)
3.32 (-.41)
3.85 (-.23)
3.29 (-.44) est. 3.75 (-.33)
3.43 (-.35)
N.A.
3.18 (-.53)
N.A.
3.49 (-.24)
3.95 (-.13)
.33
.21
MINIMUM SOYOIL PRICE FOR BIODIESEL BREAKEVEN
at GIVEN WORLD CRUDE OIL PRICE
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
Add biodiesel
Profitability of Biodiesel at given crude oil and soyoil prices, % $/lb
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 Sk y Sce nario, PRX adopts a crude oil price of $50/bbl and thus a m inim um 24 ce nt/lb s oyoil price , to e valuate im pact of s ubs idize d biodie s e l
Now $0.65
Take-Home Points
• Grain Markets: driven by energy prices
• Current corn supplies adequate
• Major concern about tight ‘08-12 corn
supply
• World Soybean & wheat supplies very tight
• More soybeans, wheat (cotton?) likely to
reduce corn acres in 2008
• Acreage battle likely to intensify in 2009 &
2010
• Higher govt. biofuels mandate supports
ethanol infrastructure capacity & Profits
Take-Home Points: II
• All grain markets extremely sensitive to U.S. &
foreign weather
• ISU Climatologist Elwynn Taylor sees 70%
probability of below trend ‘08 U.S. corn yield
• Corn & SB basis likely stronger, May-August
• Strong basis creates high risk for livestock
feeders
• Options Mkts. more important than in the past
• Options look expensive, but out-of-money strike
prices can provide upward price flexibility
Thanks! Questions?
http://www.econ.iastate.edu/faculty/wisner/
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