department of economics trends & issues in agriculture 2009 nationwide agribusiness annual...

Department of Economics

Trends & Issues in Agriculture

2009 Nationwide Agribusiness Annual CommercialPolicyholder Conference

Des Moines, IowaAugust 20, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


Increased Volatility Will Remain in Agriculture


Outside Influences (Jan. 2007 = 1)

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Dow Oil Corn Soybeans


Input Costs

Source: USDA, Agricultural Prices, July 31, 2009


Ammonia Prices

Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf


Outside Influences (Jan. 2009 = 1)

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Dow Oil Corn Soybeans


Agriculture’s Market Reach Is Expanding


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Bill

ion G

allo

ns

Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)

60% GHG Emission Reduction

50% GHG Emission Reduction

20% GHG Emission ReductionIf construction started after Dec. 2007


BiomassWind

Solar

Alternative Sources


Bio-based Market Opportunities

Source: Informa Economics, Biobased Multi-Client Study, March 2006


Biobased Pathways

Source: USDA, 2008, U.S. Biobased Products: Market Potential and Projections Through 2025


Dept. of Energy Projections

Source: Energy Information Administration,Annual Energy Outlook 2009


The U.S. Is Taking A More “Global” Approach To Issues


Draft Lifecycle GHG Reductions

Source: EPA, May 2009


CARB Fuel Carbon Values

Source: CA Air Resources Board, Summer 2009


Climate Change Legislation

Source: Congressional Research Service

American Clean Energy and Security Act of 2009 (H.R. 2454)• Requires utilities to supply an increasing percentage of their demand

from a combination of energy efficiency savings and renewable energy (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in 2021-2039).

• Provides for issuing, trading, banking, retiring, and verifying renewable electricity credits.

• Establishes targets to cap and reduce greenhouse gas (GHG) emissions, annually, so that GHG emissions from capped sources are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050; and establish a federal GHG registry.

• Provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances.



Source: Craig Raysor, Gillon & Associates, PLLC

Agriculture provisions in the bill• Provides some exemptions from the GHG emission reduction

requirements for agriculture and forestry

• Provides incentive-based approach to GHG emission reduction/capture

• Allows USDA to help establish eligible GHG offset practices and review of those practices

• Shifts question on indirect-land-use to an independent panel for study with EPA and USDA to review in the future (with a rule to be in place 6 years after passage)

• Allows for a specific exemption for livestock (enteric fermentation from ruminant animals) from uncapped emissions guidelines



Source: USDA, Office of Chief Economist“A Preliminary Analysis of the Effects of HR2454 on U.S. Agriculture”



Source: Ben Lieberman, Heritage Foundation, July 21, 2009

“Since farming is energy intensive, it will be hit hard by Waxman-Markey's energy price hikes. In addition to higher diesel fuel and electricity costs, prices for natural gas-derived fertilizers and other chemicals will also rise. Everything else affecting agriculture, from the cost of constructing farm buildings to the price of tractors and other farm equipment, will also go up. Consequently, farm profits are expected to decline by 28 percent in 2012 and will be an average 57 percent lower from 2012-2035.”



Source: Rep. Collin Peterson (D-MN), Hutchinson (MN) Leader, July 23, 2009

“Ultimately, greenhouse gas emissions are probably going to be regulated, whether Congress acts or not. In 2007, the Supreme Court ruled that the Environmental Protection Agency has the authority under the Clean Air Act to regulate greenhouse gas emissions if they are found to endanger public health or welfare. The Supreme Court required EPA to determine if they are a public health hazard or not, and earlier this year, the EPA put out a proposed finding that says greenhouse gas emissions are a danger to public health and welfare.”


But The World Keeps On Growing


Population2008 2020 2050

(billion) (billion) (billion)World 6.678 World 7.601 World 9.393

China 1.330

China 1.431

India 1.808

India 1.148

India 1.362

China 1.424

U.S. 0.304 U.S. 0.336 U.S. 0.420Indonesia 0.238

Indonesia 0.268

Nigeria 0.357

Brazil 0.192

Brazil 0.212

Indonesia 0.313

Pakistan 0.168

Pakistan 0.204

Bangladesh 0.280

Bangladesh 0.154

Bangladesh 0.190

Pakistan 0.278

Russia 0.141

Nigeria 0.184

Brazil 0.228

Nigeria 0.138

Russia 0.132 Congo 0.189

Japan 0.127

Mexico 0.125

Mexico 0.148

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


Liquid Fuel Usage2006 2010 2015 2020 2025 2030

(Million Barrels Oil Equivalent per

Day) (Percent of 2006 Value)

United States 20.7 95% 98% 98% 100% 105%

Canada 2.3 100% 100% 100% 104% 109%

Mexico 2.1 71% 81% 90% 95% 100%

Europe 15.7 92% 92% 95% 96% 96%

Japan 5.2 88% 92% 96% 92% 90%

China 7.2 118% 139% 168% 192% 213%

India 2.7 89% 115% 144% 159% 174%

Africa 3.0 117% 120% 123% 127% 130%

Central and South America 5.7 116% 116% 119% 125% 133%

World 85.0 102% 107% 113% 119% 125%

Source: Energy Information Administration


Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico

ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina

IndiaMalaysiaAustraliaJapanEURussia

Not a complete list


Spectrum of Biofuels

Source: NREL, 2006

Grain/Sugar EthanolBiodieselGreen Gasoline/DieselCellulosic EthanolButanolPyrolysis LiquidsSyngas Liquids

Most Mature

Least Mature


Biofuel ChallengesProduction costs

Conversion, ag. production, etc.Infrastructure barriers

Developing supply chain for biomassContinued development of biofuel

distribution systemGrowth in biofuel-compatible vehicles


Biofuel ChallengesInvestment risks

Higher capital costs, emerging technology

Biomass production shiftsInducing farmers to produce new crops

Consumer understandingAbout the fuelsAbout the tradeoffs


A Long-Term Outlook on Agriculture


Average Annual GDP Growth, 2008-2018

Source: FAPRI 2009 Outlook


Average Annual Exchange Rate Change, 2008-2018



U.S. Crop Planted Area, 1998-2018



U.S. Crop Prices, 1998-2018



U.S. Crop Inputs, 1998-2018



U.S. Livestock Production, 1998-2018



U.S. Livestock Prices, 1998-2018



U.S. Farm Income, 1998-2018



World Wheat Trade, 2000-2018



World Corn Trade, 2000-2018



World Soybean Trade, 2000-2018



World Meat, 2000-2018



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/

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