Global View of Grain Markets James Dunn Ag Economist Pennsylvania State University

Issues for Ag Economy Bio-Fuel High crop prices Expensive inputs More debt Cheap dollar China and India Banking crisis

Bio-Fuel Ethanol Bio-diesel Farm bill – lowered ethanol subsidy slightly – extended tariff 2 years Corn and soybean prices down – fuel prices down more Opposition growing – Texas – animal people and consumer groups

Ethanol 170 plants operating 24 under construction - 7 expanding New plants much bigger Current 11.4 bil. gal/yr – 4.2 bil. bu. New 2.07 bil. gal/yr – 0.8 bil. bu. All of these plants cannot survive Source: Renewable Fuels Association

Corn Supply YearBeg stocksProductionSupply Bil. Bu. 2002/ / / / / / /

Corn Usage bil. bu Crop yearfeedfoodexportstotal Source: USDA

Food and Industrial Corn Use mil. bu. Crop Year HFCSSucroseStarchFuelLiquorCereal , , , , , Source: USDA

Corn Usage Feed57.8%46.6%44.4% Food12.9%10.3%10.7% Exports19.1% 14.2% Ethanol10.3%23.7%30.7%

May 2009 Corn Price (CBOT)

Soybean Supply YearCarry-inProductionTotal

Soybean Usage YearCrushExportsSeedTotal

Soybean Carryout & Price YearCarryoutPrice $ $ $ $ $ $9.65

Bio-Diesel Crop Year Methyl-Ester Production 2005/061, /072, /082, /092,200 Rapid growth Even data collection new Production estimate marked down considerably from earlier this year Unprofitable now $2.50 worth of soybean oil makes $1.50 worth of bio-diesel – plus expenses

March 2009 Bean Prices

Soybeans Very small Crop in 2007 Very little carry-over More acreage in crop will not cover usage Very low ending stocks in Sept Continuing high prices More acreage in 2009

Bio-diesel Vegetable oil –Soybean oil –Rapeseed oil –Waste oil from restaurants 17 edible oils –Very big market –Three or four are most of the supply –Bio-diesel production is affecting prices

Global vegetable oil ending stock and biodiesel production

Exports Almost all corn and beans through Gulf via Mississippi River Ships were scarce and fuel was high Neither is the case now Global trade is down Container ships from Europe back to China going around Africa instead of through Suez Canal – toll - $600,000 – plus pirates

The Rest of the World Global economic problems hitting some hard Credit and input costs hitting world farmers hard Food grains still expensive Strong dollar makes imports more expensive

Will production keep up with world population growth? 6.6 bil. July 2007, 1.16% in growth in 2007 Africa – about 1 bil. – very poor, AIDS, wars, bad government –Zimbabwe Latin America 570 mil. – very poor, bad government Asia – 4 bil. – mostly poor, bad government Europe – 730 mil. and losing population North America – 440 mil. slow growth

Agriculture Productivity growing faster than population Productivity growth spreading worldwide Coelli and Rao estimate world annual growth in agricultural productivity from 1980 to 2000 to be “2.1%, with efficiency change (or catch-up) contributing 0.9% per year and technical change providing the other 1.2%. (p. 133)” Food should be able to keep up Four Horsemen of the Apocalypse – kill population off – disease, war, famine, pestilence

Can third world afford to pay? No, probably not Fastest growth in poorest countries Generally countries with worst governments – Myanmar! Doubling of food prices increases the share of food in income from 10% to 10.6% in rich countries- from 50% to 61% in poor countries ( Ron Trostle, Economic Research Service, USDA)

Planting Corn down 1% Soybeans up 1% Fertilizer prices – same as last year Chemical prices – up from last year Seed prices

Concluding Questions How much will ethanol & bio-diesel production fall? How will consumers adjust consumption in weak economy? Will we really keep cutting per capita meat consumption? How about the dollar? Agriculture is pretty independent of economy!