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Dr. Robert Wisner: Grain Outlook 3/15/06

Iowa State University . Extension. Dr. Robert Wisner, University Professor & Extension Economist. Dr. Robert Wisner: Grain Outlook 3/15/06. Future Size of the Iowa Ethanol Industry 2/07/07. The Corn Market Setting for 2006-07. Second-highest U.S. yield/A. on record

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Dr. Robert Wisner: Grain Outlook 3/15/06

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  1. Iowa State University Extension Dr. Robert Wisner, University Professor & Extension Economist Dr. Robert Wisner: Grain Outlook 3/15/06 Future Size of the Iowa Ethanol Industry 2/07/07

  2. The Corn Market Setting for 2006-07 • Second-highest U.S. yield/A. on record • Corn crop 1.3-1.4 billion bushels below expected demand (2nd year of short-fall vs. demand) • Corn processing for ethanol to be up 34% from 2005-06 • Plants under construction have 2.13 Bil. Bu. capacity – all should be on line in 16-20 months • Corn processing increases next 2 years likely 32-40 percent per year(55% of ’06 Crop by 2010) • Iowa top ethanol producing state • World grain stocks low

  3. Ethanol Economics • $0.10 increase in ethanol price raises break-even Corn price $0.28/bu. • $1.00 rise in corn price increases cost/gal. $0.36 • Ethanol prod’n cost $1.30/gal. (Minnesota- @$2 corn) • Cost increases about $0.36/gal. for each $1 increase in corn • 1/29/07 ethanol price: $1.91/gal. • December 06 margins: $0.64/gal. (incl.$.51credit) • 1/29/07: Drops to zero @ corn price of about $3.70 corn in IA($4.10 with USDA costs) • Other variables: DDGS price, Natural Gas

  4. Late Dec. ‘06 1/29/07

  5. Iowa Corn Processing Plants Annual Capacity Operating Plants 970 mil. bu. Expanding Plants 282 New, Under Construction 198 Planned 1,246 Potential total rated capacity 2,761 mil. bu. Equals 137% of 2006 Iowa Corn Crop 1/29/07

  6. 69 Potential Iowa Plants 11 Just across IA Borders Capacity: 137% of 2006 Crop Iowa Corn Processing Plants, Current & Planned, 2/02/07

  7. http://www.card.iastate.edu/ag_risk_tools/basis_maps

  8. * * *Needed corn Acres @ 188 bu./A. state avg. in 2010

  9. Figure 2. 8/30/06

  10. U.S. Corn Acres Needed, 2007? • Production deficit: 2006 = 1,300 mil. Bu. • New ethanol demand (45-50% of current construction): 950-1,060 mil. Bu. • Export + feed shrinkage: 350-400 mil. Bu.? • Total short-fall: 1,850 to 1,960 mil. Bu. • Potential carryover decrease, ’07-08: 0.0 • Needed extra harv. acres: 11.6-12.3 Mil. A. @ 160 Bu./A. on all acres (U.S. +13% to +14%) • Still Leaves Potential Very Tight Supply With Excellent Weather

  11. Needed Yld. @ current Acres

  12. How Much More Construction to Reach 5.5 Bil. Bu. Corn for Ethanol? • Estimated 2006-07 corn for ethanol: -- 2.15 Bil. Bu. • Processing capacity under construction: -- 2.13 Bil. Bu. • Plants breaking ground & soon to build: -- 0.3 Bil. Bu. Total: 4.58 Bil. Bu. Capacity yet to break ground to reach 5.5 Bil. Bu.: 0.92 Bil. Bu. Total U.S. Planned & Proposed Plants not Included Above: Approx. 5.9 Bil. Bu.

  13. Potential U.S. DGS demand by 2012 Potential U.S. DGS demand by 20 COF @ 20% of ration 7.1 mil. T. Dairy @ 20% of ration 6.13 mil. T. Hogs @ 15% of ration 6.72 mil. T. Total 19.95 mil.T. Potential production 46.8 Mil. T. Potential production 5.5 Bil. Bu for ethanol With 6.5 bil. Bu.: 51.8 Mil. T

  14. U.S. Annual Average Corn Price, 1908-2005 1942-1972 30 years Avg $1.26 1908-1942 35 years Avg $0.78 1973-2005 33 years Avg $2.37 Data Source: USDA/NASS

  15. * Included in Food, Ind. & Seed

  16. Implications of Emerging Energy Market • A lot more corn acres will be needed • Corn prices: increasingly volatile & weather-sensitive • Basis opportunities will be greater • More storage, handling capacity needed • Winter & spring 2006-07: look for periods of higher corn, SB prices, strong basis • Cautions about selling 2008 and later crops • Corn, biodiesel to pull bean prices up • Options may be useful in managing risks • Rent & Land Value Implications

  17. Key Issues for Agriculture • Alternative feedstocks: which ones, how soon?Biomass, sweet sorghum, sugar beets, high-oil crops, cane sugar, others • Differential impacts on livestock & poultry species • Environmental:continuous corn, off-take of biomass, erosion-prone land • Efficient use of distillers grain, including new uses • Risk Management: livestock, crops, ethanol

  18. Key Issues for Agriculture, II • Future transition of corn-ethanol plants to other feedstocks • Policy issues:import tax, blending credit, LDPs, CCPs, E-85 vs. E-10, pipeline possibilities, vehicle redesigning, Hydrogen sources • Global developments: EU biodiesel, Brazil export potential, Asia, S. Africa bioenergy & global grain supply, demand & prices • Infrastructure needs: grain handling & storage, transportation, ethanol & ddgs transport • High Prices encourage oil exploration & conservation

  19. Should you shift bean acres to corn? • Market says yes • How much yield drag? • Impacts of shorter planting & harvest seasons? • Ability to move, handle, & store more corn? • Soil types? • Availability of top corn seed varieties?

  20. What Could Change These Prospects? • Accelerated corn yield increases • Crude oil price collapse • Break-through in economical biomass conversion • Ethanol import tax removed – longer term impacts • $0.51 blending credit reduced • Declining livestock feeding

  21. Source: Dr. John Lawrence, ISU Extension Economist & Director, Iowa Beef Center

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