The University of Georgia
“Markets in Transition”
East District Agent Update
February 16, 2007
George A. Shumaker, PhD
Professor Emeritus
University of Georgia
Ethanol and the Corn Market
Comparison of 2007 Dryland Crops Costs and Returns
2007 Exp
Price
Exp Yield
Income
Variable Cost
Return Over VC
Corn, Conv Variety, Dryland
$3.90
85
$332
$200
$132
Cotton BT/RR, Dryland
$0.60
700
$420
$380
$40
$415.00
2700
$560
$429
$131
$6.75
30
$203
$178
$25
Peanut, Dryland
Soybean RR, Dryland
Wheat/Cotton
$4.00
$0.60
55
575
$565
$530
$35
Wheat/Soybean
$4.00
$6.75
55
24
$382
$328
$54
Comparison of 2007 Irrigated Crops Costs and Returns
2007 Exp
Price
Exp
Yield
Corn BT Variety,
Irrigated
$3.90
Cotton BR/RR, Irrigated
Peanut, Irrigated
Soybean RR, Irrigated
Income
Variable
Cost
Return Over
VC
185
$722
$445
$277
$0.60
1100
$660
$482
$178
$415.00
3700
$768
$529
$239
$6.75
50
$338
$225
$113
Wheat/Cotton Irrigated
$4.00
$0.60
65
850
$770
$692
$78
Wheat/Soybean
Irrigated
$4.00
$6.75
65
40
$530
$435
$95
December Corn Futures
Monthly Corn Futures
U.S. CORN SITUATION
Production
Use
End Stocks
14,000
12,000
Million Bushels
10,000
8,000
6,000
4,000
2,000
0
2000
2001
2002
2003
2004
2005
2006
20
20
20
20
20
20
20
19
19
19
19
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
80
Planted
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
Million Acres
U.S. CORN ACREAGE
Harvested
90.0
85.0
80.0
75.0
70.0
65.0
60.0
55.0
50.0
45.0
40.0
19
8
19 0
8
19 1
8
19 2
8
19 3
8
19 4
8
19 5
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
06
Bushels Per Acre
U.S. Corn Yields
180.0
160.0
140.0
120.0
100.0
80.0
60.0
20
20
20
20
20
20
20
19
19
06
05
04
03
02
01
00
99
98
97
96
95
94
F. S.& I.
19
19
19
93
92
91
90
89
88
87
86
85
84
83
82
81
80
Feed Use
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
Million Bushels
U.S. Corn Usage
Export
12,000
10,000
8,000
6,000
4,000
2,000
0
Corn Used For Ethanol
3000
Projected
Projected
Million Bushels
2500
2000
1500
1000
500
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Less Formally, Farmers’
Statements Support this Policy…
Economics of Ethanol
One bushel of corn yields 2.7 gal ethanol
Ethanol Price
Ethanol Income
DDGS Income
Carbon Dioxide Income
Corn Cost
Process Cost per bushel
Net Income per bushel
Net Income per gallon
$2.06/gal
$5.64
$1.13
$0.13
$4.04
$1.89
$0.90
$0.33
Ethanol Breakeven Matrix
Corn
Price
$2.50
$3.00
$3.50
$4.00
$4.25
$1.50
$0.13
-$0.05
-$0.23
-$0.41
-$0.50
Ethanol Price
$1.75
$0.38
$0.20
$0.02
-$0.16
-$0.25
$2.00
$0.63
$0.45
$0.27
$0.09
$0.00
Ethanol Weekly
1/17/2007
1/3/2007
12/20/2006
12/6/2006
11/22/2006
11/8/2006
10/25/2006
10/11/2006
SE Reg Gas
9/27/2006
9/13/2006
8/30/2006
8/16/2006
8/2/2006
Ethanol Futures
7/19/2006
7/5/2006
6/21/2006
6/7/2006
5/24/2006
5/10/2006
4/26/2006
4/12/2006
3/29/2006
3/15/2006
3/1/2006
2/15/2006
2/1/2006
1/18/2006
1/4/2006
Ethanol Futures vs Spot Regular Gas
Basis
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
35% drop from
the high.
Weekly Light Crude Oil Futures
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
Million Bushels
U.S. Corn End Stocks
6,000
5,000
4,000
3,000
2,000
1,000
0
20
20
07
06
90.0
05
04
03
02
01
00
99
98
Harvested
20
20
20
20
20
20
19
19
97
96
95
94
93
92
91
90
89
88
87
86
85
Planted
19
19
19
19
19
19
19
19
19
19
19
19
19
Million Acres
U.S. CORN ACREAGE
152 bu/ac
86.6 ma
85.0
80.0
75.0
70.0
65.0
60.0
55.0
50.0
45.0
40.0
20
20
07
06
05
04
03
02
01
00
99
98
Harvested
20
20
20
20
20
20
19
19
97
96
95
94
93
92
91
90
89
88
87
86
85
Planted
19
19
19
19
19
19
19
19
19
19
19
19
19
Million Acres
U.S. CORN ACREAGE
160 bu/ac
82.3 ma
90.0
85.0
80.0
75.0
70.0
65.0
60.0
55.0
50.0
45.0
40.0
Where Can We Get 8 Mil. Acres?
Soybeans = 7.5
Cotton = 2.5
Wheat = 0.5
Peanuts =0.25
Total = 10.75
Georgia Corn Situation
• 2006 Consumption
• 2006 Production
• “Imports”
212.7 mil bu
26.2 mil bu
186.5 mil bu
100 mil gal Ethanol Plant = @37 mil bu
Will produce about 315, 000 tons DDGS
Would need @ 5% of total poultry ration
to use it all.
November Soybean Futures
20
20
20
20
20
20
20
20
19
19
19
07
06
05
04
03
02
01
00
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
82
81
80
Planted
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
Million Acres
U.S.SOYBEAN ACREAGE
Harvested
80.0
75.0
70.0
65.0
60.0
55.0
50.0
45.0
40.0
U.S. SOYBEAN SITUATION
Production
Use
End Stocks
3,500
3,000
Million Bushels
2,500
2,000
1,500
1,000
500
0
2000
2001
2002
2003
2004
2005
2006
2007
Economics of Biodiesel
It takes 7 ½ pounds of oil to make
one gallon of biodiesel.
Biodiesel Price
Glycerin Income
Oil cost @ $.31/lb
Process Cost
Total Cost
Net Income per gallon
$2.70/gal
$0.13
$2.38
$0.62
$3.00
-$0.17
Biodiesel Breakeven Matrix
Biodiesel Price
Oil Price
$2.00
$2.25
$2.50
$2.75
$0.20
$0.03
$0.28
$0.53
$0.78
$0.25
($0.36)
($0.11)
$0.14
$0.39
$0.30
($0.74)
($0.49)
($0.24)
$0.01
1/17/2007
1/3/2007
12/20/2006
12/6/2006
11/22/2006
11/8/2006
South Atlantic Diesel
10/25/2006
10/11/2006
9/27/2006
9/13/2006
8/30/2006
8/16/2006
8/2/2006
7/19/2006
7/5/2006
SE B100
6/21/2006
6/7/2006
5/24/2006
5/10/2006
4/26/2006
4/12/2006
3/29/2006
3/15/2006
3/1/2006
2/15/2006
2/1/2006
1/18/2006
1/4/2006
Comparison of Biodiesel & Diesel Prices
Jan 4, 2006 to Date
Basis
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$-
December Cotton Futures
U.S. COTTON ACREAGE
Planted Acres
Harvested Acres
18.0
16.0
12.0
10.0
8.0
6.0
4.0
2.0
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
0.0
19
Million Acres
14.0
U.S. COTTON SITUATION
Production
Use
End Stocks
30.00
Million Bales
25.00
20.00
15.00
10.00
5.00
0.00
2000
2001
2002
2003
2004
2005
2006
2007
July Wheat Futures
U.S WHEAT SITUATION
Production
Use
End Stocks
3,000
Million Bushels
2,500
2,000
1,500
1,000
500
0
2000
2001
2002
2003
2004
2005
2006
2007
Any Questions?
“The Cure for
High Prices
Is
High Prices!”
How so?
• Some buyers will reduce use
• Some buyers will not buy at high prices
• Substitutes will be used more freely
Result = demand contracts
• Some sellers will seek to produce more
• Some sellers will willingly sell all they have
• Some sellers will undercut the market
• More substitutes will be produced
Result = Supply expands
The Corollary is also true:
“The Cure for Low Prices is Low
Prices!”
The Laws of Supply and Demand
have not been repealed –
but it often takes time for
enforcement to become apparent!
35% drop from
the high.
Weekly Light Crude Oil
Futures
Renewable Fuels & US Policy
•
Ethanol and renewable fuels were in the spotlight of State
of the Union message and the Democratic response
•
President Bush…..
“We have made a lot of progress, thanks to good policies in
Washington and the strong response of the market. …….Let us build
on the work we have done and reduce gasoline usage in the United
States by 20 percent in the next ten years.”
“To reach this goal, we must increase the supply of alternative fuels,
by setting a mandatory Fuels Standard to require 35 billion gallons of
renewable and alternative fuels in 2017 -- this is nearly five times the
current target. “
•
Senator Webb….
“We are looking for affirmative solutions that will strengthen our nation
by freeing us from our dependence on foreign oil, and spurring a wave
of entrepreneurial growth in the form of alternate energy programs. We
look forward to working with the President and his party to bring about
these changes."