An Analysis of the Long-Run Impact of
Ethanol Expansion on Agricultural Markets
Chad Hart
Center for Agricultural and Rural Development
Iowa State University
chart@iastate.edu
515-294-9911
Presentation for representatives from Nidera
Ames, Iowa
August 20, 2007
Outline
 Based on the CARD study “Emerging Biofuels: Outlook of
Effects on U.S. Grain, Oilseed, and Livestock Markets”
http://www.card.iastate.edu/publications/synopsis.aspx?id=1050
 Updated with available 2006 and 2007 data
 The objective is to estimate:



how large the biofuels sector in the U.S. could become
the impact of the biofuels sector on crops markets, trade, and on
livestock markets
the response of world agricultural markets
Model Interactions
U.S. Ethanol Industry
•Current ethanol capacity: 124 plants,
6.48 billion gallons/year
•Total capacity under construction and
expansion: 6.4 billion gallons/year
•76 new ethanol plants and 7
expansion projects underway
•2.2 billion bushels of corn were used
in producing fuel ethanol in
2006/2007 marketing year.
•3.2-3.5 billion bushels of corn are
expected to be used in producing fuel
ethanol for 2007/2008 marketing year.
Key Determinants of Impacts
 Crude oil prices
 Used NYMEX futures prices as a guide
 Policy incentives in the U.S.
 $0.51/gallon ethanol blenders credit
 $0.54/gallon import duty and 2.5% import tariff
 Demand for E-85 included
Projected U.S. Ethanol Production
billion gallons
16
14
12
10
8
6
4
2
0
2006
2008
2010
2012
Ethanol Production
2014
2016
Projected U.S. Dry Mill Margins
US$/bushel
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2006
2008
2010
2012
2014
-0.20
-0.40
Margin Over Operating Costs
Margin Over Total Cost
2016
Wholesale Gasoline and Ethanol Prices
US$/gallon
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
2006
2008
2010
Unleaded Gasoline
2012
Ethanol
2014
2016
Projected U.S. Corn Planted Area
million acres
95
90
85
80
75
70
2006
2008
2010
2012
Corn Planted Area
2014
2016
Projected Utilization of U.S. Corn
million bushels
7000
6000
5000
4000
3000
2000
1000
0
2006
2007
Feed
Fuel
2008
HFCS
2009
Seed
Food, Other
2010
Exports
2016
Projected U.S. Corn and Soybean Prices
US$/bushel
8.00
7.00
6.00
5.00
4.00
3.00
2.00
2006
2007
2008
2009
2010
Corn
2011
2012
Soybeans
2013
2014
2015
2016
Projected U.S. Soybean Planted Area
million acres
80
75
70
65
60
2006
2008
2010
2012
Soybean
2014
2016
Projected Brazilian Ethanol Production
million gallons
8000
7000
6000
5000
4000
2007
2008
2009
Brazil
2010
2016
Projected Ethanol Production
million gallons
1500
1000
500
0
2007
2008
2009
China
EU
2010
India
2016
Projected World Area Harvested
million hectares
225
175
125
75
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected Argentine Area Harvested
million hectares
20
15
10
5
0
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected Brazilian Area Harvested
million hectares
35
30
25
20
15
10
5
0
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected World Corn Net Exports
2007/08
2016/17
15%
11%
21%
19%
4%
7%
57%
66%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Wheat Net Exports
2007/08
2016/17
11%
45%
11%
20%
16%
49%
24%
24%
Argentina
Canada
Argentina
Canada
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Net Exports
2007/08
2016/17
2% 11%
2% 9%
28%
45%
42%
61%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Meal Net Exports
2007/08
2016/17
6%
15%
8%
12%
52%
53%
28%
26%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Oil Net Exports
2007/08
2016/17
3%
10%
26%
27%
63%
71%
Argentina
Brazil
U. S.
Argentina
Brazil
U. S.
Impact of Higher Crude Oil Price
 Increased crude oil price by $10/barrel over the projection
 Margins on ethanol plants increase
 New incentive to invest in added capacity for ethanol
production
 Eventually, a new equilibrium reached where there is no
incentive to invest in or exit the ethanol industry
 Will demand for ethanol be enough?


E-10 market will saturate around 15 billion gallons
Drop in ethanol price will eventually encourage increase in
demand for the flex-fuel cars
Projected U.S. Ethanol Production
billion gallons
24
22
20
18
16
14
12
10
8
6
4
2
0
2006
2008
2010
2012
Ethanol Production
2014
2016
Projected U.S. Dry Mill Margins
US$/bushel
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2006
2008
2010
2012
2014
-0.20
-0.40
Margin Over Operating Costs
Margin Over Total Cost
2016
Wholesale Gasoline and Ethanol Prices
US$/gallon
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1.00
2006
2008
2010
Unleaded Gasoline
2012
Ethanol
2014
2016
Projected U.S. Corn Planted Area
million acres
105
100
95
90
85
80
75
70
2006
2008
2010
2012
Corn Planted Area
2014
2016
Projected Utilization of U.S. Corn
million bushels
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2006
2007
Feed
Fuel
2008
HFCS
2009
Seed
Food, Other
2010
Exports
2016
Projected U.S. Corn and Soybean Prices
US$/bushel
8.00
7.00
6.00
5.00
4.00
3.00
2.00
2006
2007
2008
2009
2010
Corn
2011
2012
Soybeans
2013
2014
2015
2016
Projected U.S. Soybean Planted Area
million acres
80
75
70
65
60
2006
2008
2010
2012
Soybean
2014
2016
Projected Brazilian Ethanol Production
million gallons
8000
7000
6000
5000
4000
2007
2008
2009
Brazil
2010
2016
Projected Ethanol Production
million gallons
1500
1000
500
0
2007
2008
2009
China
EU
2010
India
2016
Projected World Area Harvested
million hectares
225
175
125
75
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected Argentine Area Harvested
million hectares
20
15
10
5
0
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected Brazilian Area Harvested
million hectares
35
30
25
20
15
10
5
0
2007
2008
2009
Corn
Wheat
2010
Soybeans
2016
Projected World Corn Net Exports
2007/08
2016/17
15%
19%
21%
7%
23%
8%
57%
50%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Net Exports
2007/08
2016/17
2% 11%
2% 9%
25%
45%
42%
64%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Meal Net Exports
2007/08
2016/17
6%
15%
7%
13%
52%
53%
26%
28%
Argentina
Brazil
Argentina
Brazil
U. S.
Rest of World
U. S.
Rest of World
Projected World Soybean Oil Net Exports
2007/08
2016/17
3%
5%
26%
29%
66%
71%
Argentina
Brazil
U. S.
Argentina
Brazil
U. S.
Thank You