Iowa State University Extension Dr. Robert Wisner: Grain Outlook 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 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

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

Late Dec. ‘06 1/29/07

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

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

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

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

Figure 2. 8/30/06

With Excellent Weather 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

Needed Yld. @ current Acres

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.

Potential production 46.8 Mil. T. 5.5 Bil. Bu for ethanol Potential U.S. DGS demand by 20 Potential U.S. DGS demand by 2012 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 Potential production 46.8 Mil. T. With 6.5 bil. Bu.: 51.8 Mil. T

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

* Included in Food, Ind. & Seed

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

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

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

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?

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

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