ethanol
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What’s Driving Global Commodity Prices? Chris Hurt & Corinne Alexander [email protected] [email protected] Purdue University March 31, 2011. Rapid World Economic Growth. Weak Dollar. Ethanol. What Can Ethanol Plants Pay for Corn?. Corn Price ($/ bushel). Crude Oil Price ($/barrel). - PowerPoint PPT PresentationTRANSCRIPT
Department of Agricultural EconomicsPurdue University
What’s Driving Global Commodity
Prices?
Chris Hurt & Corinne Alexander
[email protected] [email protected]
Purdue UniversityMarch 31, 2011
Ethanol
Rapid World Economic
Growth
Weak Dollar
Department of Agricultural EconomicsPurdue University
Department of Agricultural EconomicsPurdue University
2000 01 02 03 04 05 06 07 08 09 20100
5
10
15
20
5.04.1
7.4
9.0
10.3
8.3
9.9
12.1
17.3
18.8
20.1
3.1 3.5
5.2 5.6 5.6
7.4
9.6
13.6
16.2
18.8
21.8
U.S. Soybean Acres Destined for China and U.S. Corn Acres to Ethanol (DDG adjusted)
Bean Acres to China
Corn Acres to Ethanol (DDG Ad-justed)
U.S. Harvest Year
Mill
ion
Acre
s
What Can Ethanol Plants Pay for Corn?
$75 $95 $110 $130 $150 $4.00 $6.00 $8.00
$10.00 $12.00 $14.00 $16.00
$5.89 $7.84
$9.78 $11.72
$13.66
Shutdown Price of Corn for Ethanol
Department of Agricultural EconomicsPurdue University
Crude Oil Price ($/barrel)
Cor
n P
rice
($/ b
ushe
l)
Source: http://www.farmdoc.illinois.edu/marketing/mobr/mobr_11-01/mobr_11-01.html
Department of Agricultural EconomicsPurdue University
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 48 9 10 11 12
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00Estimated Hog Producer Breakeven Corn Price Per Bushel Quarterly
$/bu
shel
Stocks SituationStocks
March 1Expectation(Dow Jones
Survey)
Difference
------------- Million Bushels ------------------
Corn: Positive
6,523 6,690 -167
Soybeans Slight +
1,249 1,299 -50
Wheat: Neutral
1,425 1,399 +26Department of Agricultural Economics
Purdue University
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11Mar
50,000
55,000
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000Corn, Soybean, Wheat Planted Acres
Corn
Soybeans
Wheat
2011Corn + 5% Beans - 1% Wheat + 8%
U.S. Planted Acres (1,000acres) 2011 vs. 10 2011 vs. 10
08 09 10 11 March Change %
Corn 85,982 86,382 88,192 92,178 3,986 4.52%
Soybeans 75,718 77,451 77,404 76,609 -795 -1.03%
Wheat 63,193 59,168 53,603 58,021 4,418 8.24%
Cotton 9,471 9,150 10,973 12,566 1,592 14.51%
Sorghum 8,284 6,633 5,404 5,645 241 4.46%
Oats 3,247 3,404 3,138 2,839 -299 -9.53%
Barley 4,246 3,567 2,872 2,952 80 2.79%
Rice 2,995 3,135 3,636 3,018 -618 -17.00%
Sunflower 2,517 2,030 1,952 1,805 -147 -7.51%
Sum 9 Major 255,653 250,920 247,174 255,633 8,459 3.42%
Department of Agricultural EconomicsPurdue University
2011 What To Plant???
Estimated Variable Cost Per Acre: Average Quality Indiana Land (161 bu corn, 49 beans, 70 wheat)
Rotation CORN Rotation BEANS WHEAT0
50100150200250300350400450
222
125 112
239
120 119
380
182 179
425
223 194
342
183149
387
194 169
200620072008200920102011
Department of Agricultural EconomicsPurdue University
Department of Agricultural EconomicsPurdue University
2011 Estimated Crop Budget: Indiana: March 31, 2011 12:30 Eastern
Prices Corn Beans WheatHarvest Futures $6.25 $13.91 $7.96 Expected Basis -$0.30 -$0.35 -$0.80
Expected Cash Price $5.95 $13.56 $7.16
Estimated Yield/Acre and Returns/Acre Above Variable Costs
Corn $5.95 Soybeans $13.56 Wheat $7.16 Wheat/DC Bns
Land Quality bu./acre $/acre bu./acre $/acre bu./acre $/acre $/acreLow 129 $410 39 $342 62 $276 $422 Average 161 $561 49 $464 70 $320 $539 High 193 $735 59 $587 84 $394 $686
Budget: Purdue ID-166 (February 2011)
Crop Insurance Prices
2011 Price
2008 Price
Protected
RevenueCorn $6.01 $5.40 $822Soybeans
$13.49 $13.36 $562
Department of Agricultural EconomicsPurdue University
Protected Revenue calculation assumes average quality land in Indiana, and Coverage level of 85%
Corn: USDA 3/10/11 Purdue 07/08 08/09 09/10 10/11 11/12 Million Bushels
Carryin 1,304 1,624 1,673 1,708 675 Production 13,074 12,092 13,110 12,447 13,487 Total Supply 14,398 13,729 14,791 14,175 14,162 Feed & Residual 5,974 5,205 5,166 5,200 5,150 FSI Non-Fuel 1,338 1,316 1,370 1,400 1,400 FSI Fuel (Ethanol) 3,026 3,677 4,560 4,950 4,900 Export 2,436 1,858 1,987 1,950 2,000 Total Use 12,774 12,056 13,083 13,500 13,450 Ending Stocks 1,624 1,673 1,708 675 712 US Farm Price $4.20 $4.06 $3.55 $5.15-$5.65
$5.40 Ethanol % Of Use 23.7% 30.5% 34.9% 36.6%Stocks/Use 12.7% 13.9% 13.1% 5.0%
Corn 2011 Yield Scenarios: Assuming 92.2 Million Acres Planted Trend Yields Good Yields Poor Yields Million Bushels
Yield (bu./ acre) 159 169 148 Carryin 675 675 675 Production 13,487 14,335 12,554 Total Supply 14,162 15,010 13,229 Feed & Residual 5,150 5,300 4,700 FSI Non-Fuel 1,400 1,400 1,370 FSI Fuel (Ethanol) 4,900 5,100 4,700 Export 2,000 2,000 1,800 Total Use 13,450 13,800 12,570 Ending Stocks 712 1,210 659Price Estimates $5.85 $5.00 $7.50
$7.10
Soybeans: USDA 3/10/11 Purdue 07/08 08/09 09/10 10/11 11/12
Million
Bushels Carry in 574 205 138 151 140 Production 2,676 2,967 3,359 3,329 3,243 Total Supply 3,260 3,185 3,512 3,495 3,383 Seed & Residual 93 102 108 110 100 Crush 1,801 1,662 1,752 1,665 1,600 Exports 1,161 1,283 1,501 1,590 1,550 Total Use 3,055 3,047 3,361 3,355 3,250 Ending Stock 205 138 151 140 133
Farm Price $10.10 $9.97 $9.59$11.10-$12.10
$11.60
Stocks/Use 6.7% 4.5% 4.5% 4.2%Department of Agricultural Economics
Purdue University
Soybean 2011 Yield Scenarios: Assuming 76.6 Million Acres Planted Trend Yields Good Yields Poor Yields Million Bushels
Yield (bu./ acre) 43.2 45.87 40.53 Carryin 140 140 140 Production 3,243 3,443 3,043 Total Supply 3,383 3,583 3,183 Seed & Residual 100 100 100Crush 1,600 1,665 1,480 Export 1,550 1,600 1,500
Total Use 3,250 3,365 3,080
Ending Stocks 133 218 103
Price Estimates $13.25 $12.25 $14.75
$15.50
Department of Agricultural EconomicsPurdue University
Wheat: USDA
3/10/11 07/08 08/09 09/10 10/11 Mill. Bu.
Carryin 456 306 657 976Production 2,067 2,499 2,218 2,208Total Supply 2,635 2,932 2,993 3,294
Feed & Residual 30 255 150 170Other Domestic 1,035 1,005 986 1,006
Exports 1,264 1,015 881 1,275Total Use 2,329 2,275 2,017 2,451
End Stocks 306 657 976 843Farm Price $6.48 $6.78 $4.87 $5.60 - $5.80
$5.70
New Crop Pricing Alternatives
Pricing strategies that tend to work well in the Pre-harvest period include:
• Forward cash contracting• Selling futures to hedge• Buying put options• Selling cash on a forward contract and also
buying new crop call options (this is called a synthetic put), and
• Fence which combines buying a put and selling a call
Recommended Strategies
1.
2.
3.
Department of Agricultural EconomicsPurdue University
Now You Know Which
Direction To Go
In 2011/2012!