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Navigating the Ag & Energy Disruption: Insights from David Miller

Join David Miller, Director of Research & Commodity Services at Iowa Farm Bureau, for a thought-provoking discussion on the impact of crude oil prices on agriculture, the sustainability of biofuels, unintended consequences, and the future of corn production. Explore key questions and potential disruptions in the ag and energy sectors.

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Navigating the Ag & Energy Disruption: Insights from David Miller

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  1. Ag & EnergyA Disruptive Event David Miller Director, Research & Commodity Services, Iowa Farm Bureau

  2. Food, Feed or Energy • A couple key questions • If crude oil stays above $60, how will agriculture be affected? • Are biofuels a fad or a sustainable trend? • What unintended consequences are apt to arise from the emergence of the biofuels industry? • Will we run out of corn?

  3. A Disruptive Event • Corn price expectations • Land capitalization • Increased risk • Acreage shifts

  4. Pulling: Ethanol From Corn • Where do we get all of these acres?

  5. Ethanol & Corn Use • What if: • 100 million acres of corn • 200 bushels per acre • 20 billion bushel corn crop • 10 billion ethanol grind • 30 billion gallons of ethanol • Is this possible in a decade?

  6. Corn Price Determination • PC = 3*[(PG*.667)+VEETC+DDG-OP-CAP] • PC = 3*[(1.80*.667)+0.51+0.22-0.52-0.24] • PC = 2*1.77 = 3.54

  7. Land Values • P(Land) = [(P(Corn)*Y(Corn))+G(Payments)-OP(Costs)]/(I(rate)) • P(Land05) = [($2.00*170)+$50-$150]/(.06) • P(Land05) = [$240]/(.06) = $4,000 • P(Land08) = [($3.50*180)+$0-$180]/(.06) • P(Land08) = [$450]/(.06) = $7,500

  8. Cash Rents • CR = P(Land) * 0.05 • CR(Land05) = $4,000 * 0.05 = $200 • CR(Land08) = $7,500 * 0.05 = $375

  9. In Conclusion • Demand shocks last much longer than supply shocks • Supply adjustments will come much quicker than we currently anticipate • Livestock production will adjust to new price levels • Adjustments will be made worldwide • It appears that we can have food, feed and fuel

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