Dr. Robert Wisner: Grain Outlook Dr. Robert Wisner: Grain Outlook 3/15/063/15/06

Iowa State University Extension

Future Size of the Iowa Ethanol Industry 2/07/07

Dr. Robert Wisner, University Professor & Extension Economist

The Corn Market Setting for 2006-07• Second-highest U.S. yield/A. on record• Corn crop 1.3-1.4 billion bushels below

expected demand (2nd year of short-fall vs. demand)

• Corn processing for ethanol to be up 34% from 2005-06

• Plants under construction have 2.13 Bil. Bu. capacity – all should be on line in 16-20 months

• Corn processing increases next 2 years likely 32-40 percent per year (55% of ’06 Crop by 2010)

• Iowa top ethanol producing state• World grain stocks low

Ethanol Economics• $0.10 increase in ethanol price raises break-even Corn price $0.28/bu.• $1.00 rise in corn price increases cost/gal. $0.36• Ethanol prod’n cost $1.30/gal. (Minnesota- @$2 corn)

• Cost increases about $0.36/gal. for each $1 increase in corn

• 1/29/07 ethanol price: $1.91/gal.• December 06 margins: $0.64/gal. (incl.$.51credit)• 1/29/07: Drops to zero @ corn price of about $3.70

corn in IA ($4.10 with USDA costs)• Other variables: DDGS price, Natural Gas

Late Dec. ‘06

1/29/07

Iowa Corn Processing Plants Annual Capacity Operating Plants 970 mil. bu. Expanding Plants 282 New, Under Construction 198 Planned 1,246 Potential total rated capacity 2,761 mil. bu. Equals 137% of 2006 Iowa Corn Crop

1/29/07

Iowa corn processing & ethanol plants, current & planned, 10/26/06

63

Sac

Linn

Lee

Ida

Tama

Clay Kosuth

Jasper

Lyon

Page

Storyr Jones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

Hamilton GrundyBuchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Sac

Linn

Lee

Ida

Tama

Clay Kosuth

Jasper

Lyon

Page

Storyr Jones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

Hamilton GrundyBuchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Sac

Linn

Lee

Ida

Tama

Clay Kosuth

Jasper

Lyon

Page

Storyr Jones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

Hamilton GrundyBuchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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Sac

Linn

Lee

Ida

Tama

Clay Kosuth

Jasper

Lyon

Page

Storyr Jones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

Hamilton GrundyBuchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

Iowa*

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66 Planned + current in Iowa11 Just across the borders

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Figure 1.

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Iowa corn processing & ethanol plants, current & planned, 11/20/06

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Capacity: 129% of 2006 cropCapacity: 137% of 2006 Crop

Iowa Corn Processing Plants, Current & Planned, 2/02/07

69 Potential Iowa Plants 11 Just across IA Borders

http://www.card.iastate.edu/ag_risk_tools/basis_maps

*Needed corn Acres @ 188 bu./A. state avg. in 2010

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Existing & Planned U.S. Corn Processing Plants

Blue = OperatingRed = constructionGreen = plannedPink = Expansion of Existing plants

Figure 2.

8/30/06

U.S. Corn Acres Needed, 2007?• Production deficit: 2006 = 1,300 mil. Bu.• New ethanol demand (45-50% of current

construction): 950-1,060 mil. Bu.• Export + feed shrinkage: 350-400 mil. Bu.?• Total short-fall: 1,850 to 1,960 mil. Bu.• Potential carryover decrease, ’07-08: 0.0

• Needed extra harv. acres: 11.6-12.3 Mil. A. @ 160 Bu./A. on all acres (U.S. +13% to +14%)

• Still Leaves Potential Very Tight Supply

With Excellent Weather

Needed Yld. @ current Acres

How Much More Construction to Reach 5.5 Bil. Bu. Corn for Ethanol?

• Estimated 2006-07 corn for ethanol: -- 2.15 Bil. Bu.• Processing capacity under construction: -- 2.13 Bil. Bu.• Plants breaking ground & soon to build: -- 0.3 Bil. Bu. Total: 4.58 Bil. Bu.Capacity yet to break ground to reach 5.5 Bil. Bu.: 0.92 Bil. Bu.Total U.S. Planned & Proposed Plants not Included Above: Approx. 5.9 Bil. Bu.

Potential U.S. DGS demand by 20Potential U.S. DGS demand by 2012

COF @ 20% of ration 7.1 mil. T. Dairy @ 20% of ration 6.13 mil. T. Hogs @15% of ration 6.72 mil. T.Total 19.95 mil.T.

Potential productionPotential production 46.8 Mil. T.

5.5 Bil. Bu for ethanol

With 6.5 bil. Bu.: 51.8 Mil. T

Illinois Corn Yields Drought Tolerant?

2004 2005• NW 184 140• NE 174 129 • WEST 192 141• E.SE. 175 139 • SW 158 133• SE 158 130

% chg.

-24

-26

-27

-21

-16

-18

U.S. Annual Average Corn Price, 1908-2005

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

$ Per Bushel

Data Source: USDA/NASS

1908-1942

35 years

Avg $0.78

1942-1972

30 years

Avg $1.26

1973-2005

33 years

Avg $2.37

* Included in Food, Ind. & Seed

Implications of Emerging Energy Market• A lot more corn acres will be needed• Corn prices: increasingly volatile &

weather-sensitive• Basis opportunities will be greater• More storage, handling capacity needed • Winter & spring 2006-07: look for periods of

higher corn, SB prices, strong basis• Cautions about selling 2008 and later crops• Corn, biodiesel to pull bean prices up• Options may be useful in managing risks• Rent & Land Value Implications

Key Issues for Agriculture• Alternative feedstocks: which ones, how

soon? Biomass, sweet sorghum, sugar beets, high-oil crops, cane sugar, others

• Differential impacts on livestock & poultry species

• Environmental: continuous corn, off-take of biomass, erosion-prone land

• Efficient use of distillers grain, including new uses

• Risk Management: livestock, crops, ethanol

Key Issues for Agriculture, II• Future transition of corn-ethanol plants to

other feedstocks• Policy issues: import tax, blending credit, LDPs,

CCPs, E-85 vs. E-10, pipeline possibilities, vehicle redesigning, Hydrogen sources

• Global developments: EU biodiesel, Brazil export potential, Asia, S. Africa bioenergy & global grain supply, demand & prices

• Infrastructure needs: grain handling & storage, transportation, ethanol & ddgs transport

• High Prices encourage oil exploration & conservation

Should you shift bean acres to corn?

• Market says yes• How much yield drag?• Impacts of shorter planting & harvest

seasons?• Ability to move, handle, & store more corn?• Soil types?• Availability of top corn seed varieties?

What Could Change These Prospects?

• Accelerated corn yield increases• Crude oil price collapse• Break-through in economical biomass

conversion• Ethanol import tax removed – longer term

impacts• $0.51 blending credit reduced• Declining livestock feeding

Iowa Needs Both Ethanol and Animal Agriculture

• 100 million gallon ethanol plant– 37 million bushels of corn– 80 Iowans directly employed

• 37 million bu corn Direct jobsFarrow-finish 800Or Wean-finish 242Or Beef feedlot 278

Source: Dr. John Lawrence, ISU Extension Economist & Director, Iowa Beef Center