U.S. Agricultural Policy and Energy

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Presentation transcript:

U.S. Agricultural Policy and Energy Andrew Schmitz, Charles B. Moss, and Troy G. Schmitz

Consumer and Producer Choice of Ethanol and Gasoline

Ethanol Market

Structural of Agricultural Policy Loan Rate Target Price Consumer Price Loan Deficiency Payment Countercyclical Payment

Effect of Ethanol Countercyclical Payments Loan Deficiency Payment

Changes in Level and Consumption of Corn Supply and Demand 0.4 0.5 0.6 0.7 Corn Price ($/bu.) 2.06 2.05 2.04 2.03 Total Demand 9,677.39 9,694.31 9,707.53 9,718.15 Food/Alcohol/Industrial 2,014.47 2,015.93 2,017.06 2,017.97 Feed/Residual Use 5,748.25 5,762.46 5,773.58 5,782.50 Exports 1,894.35 1,895.62 1,896.62 1,897.42 CCP Payments (million $) 4,580.46 4,665.04 4,729.97 4,781.05 2.64 2.56 2.49 2.44 10,795.06 10,920.13 11,017.89 11,096.40 3,938.81 3,949.53 3,957.92 3,964.65 5,006.79 5,111.89 5,194.05 5,260.02 1,827.70 1,837.14 1,844.53 1,850.46 0.00 580.60 1,095.25 1,507.50

Fuel Market Crude Oil Price (Per Gallon of Gasoline) Fuel Price (Per Gallon of Gasoline) Crude Oil (Gallon of Gasoline Equivalent) Fuel (Gallon of Gasoline Equivalent)

Added Effects of Ethanol Measured in the Fuel Market 0.4 0.5 0.6 0.7 Gasoline Market Price ($/gallon) 2.961 Gasoline Market (billion gallons) 139.897 139.904 139.907 Gain in Consumer Surplus (billion $) 5.397 5.439 5.460 Loss to Gasoline & Oil Producers -5.379 -5.421 -5.442 Loss to Foreign Producers -3.753 -3.782 -3.797 Loss to Domestic Producers -1.614 -1.626 -1.633 Gain to Ethanol Producers 0.069 0.070 0.071 Net Welfare Gain 3.852 3.883 3.898

Summary of Welfare Costs and Benefits: U.S. Ethanol Production Supply Elasticity 0.50 0.70 Food/Alcohol/Industrial -1,008 -813 Feed/Residual Use -3,094 -2,466 Producer Impact 1,154 975 Treasury Costs 4,084 3,274 Ethanol Tax Credit -2,761 -2,780 Change in Surplus in Fuel Market Other 16 13 Total 9,137 -6,863 9,447 -6,059 Net Gain (Domestic) +2,274 +3,388 Foreign Net Cost (Grain Market) -993 -794 Net Gain (Global) +1,281 +2,594

Comparison of CCPs with Ethanol Tax Credit 0.4 0.5 0.6 0.7 Increased Corn Production 1,924.33 1.933.61 1,940.86 1,946.68 Decreased CCPs 4,580.46 4,084.44 3,634.72 3,273.55 Increased Ethanol Tax Credit 2,747.94 2,761.19 2,771.54 2,779.86

Corn and Gasoline Price and Relative Price Ratio, 2005-2007