The Impacts of Expanded Biodiesel Production on the World Soybean Market Rafael Costa, Dwi Susanto & Parr Rosson Center for North American Studies (CNAS) Dept. of Agricultural Economics Texas A&M University

Objective Quantify the Impacts of Increased Biodiesel Production in the U.S. and Brazil on the International Soybean Market

Overview Biodiesel and Soybeans in the World Trade - Biodiesel Production and Expansion - World Soybean Production and Exports Methodology Scenarios and Results Conclusions

World Biodiesel Market EU is the largest biodiesel producer (1,711 million gallons in 2008), however… - Major feedstock for EU production is canola oil, not soybean oil U.S. is largest soybean-based biodiesel producer in the world followed by Brazil - In 2008, U.S. production = 393 million gallons. Brazil production = 290 millions gallons

Biodiesel Domestic Policies U.S. - Renewable Fuels Standard (RFS) has been a boost to biofuels production - FAPRI Forecast for 2018, U.S. production = 1,184 million gallons Brazil - Government program National Biodiesel Production Program (PNPB) establishes legal mandate for the use of biodiesel as a fuel - FAPRI Forecast for 2018, Brazil production = 875 million gallons

World Soybean Industry Source: PS&D, FAS/USDA World Soybean Production (1990/ /09) 1990/911994/951998/992002/032008/09 0% 20% 40% 60% 80% 100% ROW Argentina Brazil U.S. World Soybean Exports (1990/ /09) 1990/911994/951998/992002/032008/09 0% 20% 40% 60% 80% 100% ROW Argentina Brazil U.S.

Methodology – International Spatial Equilibrium Model Quadratic programming model developed by Costa (2007). Spatial and temporal dimensions (quarters). 18 excess supply and 8 excess demand regions in Brazil. 5 exporting (excess supply) regions: US, Argentina, Rest of South America (RSA), Canada, and India. 5 importing countries (excess demand) regions: China, EU, Southeast Asia, Mexico, and the rest of the world (ROW).

Simulation Analysis 3 Scenarios - Scenario 1: 10% Increase in Biodiesel Production in the U.S. and Brazil  Total soybean crushed in the U.S. and Brazil goes up by 4,732 and 2,828 TMT, respectively  Conversion rate one bushel = 1.49 gallons of biodiesel, total biodiesel production in the U.S. and Brazil increases by 259 and 154 million gallons, respectively - Scenario 2: 20% Increase in Biodiesel Production in the U.S. and Brazil  Total soybean crushed in the U.S. and Brazil goes up by 9,464 and 5,657 TMT, respectively  Similarly, total biodiesel production in the U.S. and Brazil increases by 518 and 309 million gallons, respectively - Scenario 3: 30% Increase in Biodiesel Production in the U.S. and Brazil  Total soybean crushed in the U.S. and Brazil goes up by 14,196 and 8,485 TMT, respectively  Similarly, total biodiesel production in the U.S. and Brazil increases by 777 and 464 million gallons, respectively

Scenario 1: Impact on Prices ($/MT) Exporting CountryBase modelScenario 1Deviation (%) United States Brazil* Argentina Rest of South America Canada India Importing Country China European Union Southeast Asia Rest of the World *Farm Price

Scenario 1: Impact on Exports and Imports (thousand MT) Exporting CountryBase modelScenario 1Deviation (%) United States Brazil Argentina Rest of South America Canada India Total Importing Country China European Union Southeast Asia Mexico Total

Scenario 2: Impact on Prices ($/MT) *Farm Price Exporting CountryBase modelScenario 2Deviation (%) United States Brazil* Argentina Rest of South America Canada India Importing Country China European Union Southeast Asia Rest of the World

Scenario 2: Impact on Exports and Imports (thousand MT) Exporting CountryBase modelScenario 2Deviation (%) United States Brazil Argentina Rest of South America Canada India Total Importing Country China European Union Southeast Asia Mexico Total

Scenario 3: Impact on Prices ($/MT) Exporting CountryBase modelScenario 3Deviation (%) United States Brazil* Argentina Rest of South America Canada India Importing Country China European Union Southeast Asia Rest of the World *Farm Price

Scenario 3: Impact on Exports and Imports (thousand MT) Exporting CountryBase modelScenario 3Deviation (%) United States Brazil Argentina Rest of South America Canada India Total Importing Country China European Union Southeast Asia Mexico Total

Conclusions In all scenarios, the direction of the impacts was the same. Only change was in the magnitude. U.S. and Brazil -  Biodiesel Production =>  Crushed Soybeans =>  Soybean prices &  Exports Importing Countries -  Soybean prices &  Imports World Trade Decreases

Conclusions (Cont.) Future considerations - Dynamic setting would improve our ability to assess the impacts of biodiesel production on the world soybean market - Development of a stronger biodiesel industry will depend on changes in the petroleum prices.

Questions? Rafael Costa Ph: