AN ECONOMETRIC ANALYSIS OF THE IMPACT
OF THE EXPANSION IN THE U.S. PRODUCTION
OF ETHANOL FROM CORN
AND BIODIESEL FROM SOYBEANS
ON MAJOR AGRICULTURAL VARIABLES,
2005 TO 2015
Jake Ferris
Professor Emeritus
Department of Agricultural Economics
Michigan State University
Federal and state energy
and environmental policies
to encourage renewable fuels
are designed to:
•
•
•
•
•
Improve air and water quality
Reduce U.S. dependence on foreign oil
Promote economic growth in rural areas
Shore up farm prices and incomes
Save expenditures on farm programs
Baseline and Scenario Projections
on Ethanol
6000
Million Gallons
5000
4000
Baseline
Scenario
3000
2000
1000
0
1995
2000
2005
Years
2010
2015
Distribution of U.S. Output
of Vegetable Oils and Animal Fats
Soybeans
Corn
Other Vegetable
Animal Fats
Prices on Soybean Oil, Corn Oil
and Yellow Grease
35
Cents per Pound
30
25
Soybean Oil
Corn Oil
Yellow Grease
20
15
10
5
0
1980
1985
1990
Years
1995
2000
Baseline and Scenario Projections
on Biodiesel
600
Million Gallons
500
400
Baseline
Scenario
300
200
100
0
1995
2000
2005
Years
2010
2015
Baseline and Scenario Projections
on Ethanol and Biodiesel Combined
7000
Million Gallons
6000
5000
4000
Baseline
Scenario
3000
2000
1000
0
1995
2000
2005
Years
2010
2015
AGMOD
•
•
•
•
•
Econometric
U.S. Agriculture
International Sector
Commodity Oriented
Core Model
– 538 equations
– 732 variables
– Gauss-Seidel
Solution
• Satellite Models
• Assumptions
– USDA Baseline
– 2002 Farm Bill
– Normal Weather
• 2006-15 Projections
– Ethanol
– Biodiesel
– Both
Ethanol: Percent Change in the Scenario
over the Baseline, 2006 to 2015
Variables
Percent Change
Ethanol Output
+37
Corn
Variables
Percent Change
Total margin
Crops
+6
Livestock
NC
Production
+2
Exports
-6
Farm price
+6
Production
+14
Gross margin
+8
Amount fed
+6
Price
+3
Soybeans
Corn gluten feed
Production
-1
DDGS
Exports
-2
Production
Farm price
+1
Price
Gross margin
+2
Farm bill cost
-6
Meal price
+1
Meat supply
-1
Soy oil price
+1
Livestock prices
+2
+30
-1
Biodiesel: Percent Change in the Scenario
over the Baseline, 2006 to 2015
Variables
Biodiesel Output
Percent Change
+915
Corn
Variables
Percent
Change
Total margin
Crops
+4
Livestock
+1
Production
NC
Exports
NC
Farm price
+1
Production
NC
Gross margin
+1
Amount fed
NC
Price
-4
Soybeans
Corn gluten feed
Production
+1
Exports
NC
Production
NC
Farm price
+6
Price
-6
Gross margin
+8
Farm bill cost
-1
Meal price
-7
Meat supply
NC
Livestock prices
NC
Soy oil price
+29
DDGS
Renewables: Percent Change in the
Scenario over the Baseline, 2006 to 2015
Variables
Renewables
Percent Change
+44
Corn
Variables
Percent Change
Total margin
Crops
Production
+2
Exports
-6
Farm price
+6
Production
+14
Gross margin
+8
Amount fed
+6
Price
NC
Soybeans
Livestock
+11
Corn gluten feed
Production
-1
Exports
NC
Production
Farm price
+8
Price
Gross margin
Meal price
Soy oil price
+11
-5
+32
NC
DDGS
+30
-5
Farm bill cost
-6
Meat supply
-1
Livestock prices
+2
Caveat on Price Projections
• Impact of low world grain supplies
• Future demand for animal protein from “lowcarb diets”
Percent
World Ending Stocks of Coarse Grain and Wheat
as a Percent of Annual Utilization
40
35
30
25
20
15
10
5
0
1985
1990
1995
2000
Years
2005
2010
2015
Caveat on Price Projections
• Impact of low world grain supplies
• Future demand for animal protein from
“low-carb diets”
Conclusions
• U.S. agriculture can accommodate expansion
in production of renewable fuels.
• Higher prices in the feed grain and soybean
sectors will have minimal long run effects on
the livestock industries and retail food prices.
• Renewable fuels programs will help ensure an
economically viable agriculture and reduce
federal farm program costs.