Department of Economics Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad Hart Assistant Professor/Grain Markets Specialist

Department of Economics U.S. Corn Supply and Use Source: USDA Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)13,03812,10112,921 Beg. Stocks(mil. bu.)1,3041,6241,674 Imports(mil. bu.) Total Supply(mil. bu.)14,36213,73914,605 Feed & Residual(mil. bu.)5,9135,2545,400 Ethanol(mil. bu.)3,0493,6774,200 Food, Seed, & Other(mil. bu.)1,3381,2761,280 Exports(mil. bu.)2,4371,8582,050 Total Use(mil. bu.)12,73712,06512,930 Ending Stocks(mil. bu.)1,6241,6741,675 Season-Average Price($/bu.)

Department of Economics

Source: USDA

Department of Economics U.S. Corn Harvest Progress Source: USDA

Department of Economics U.S. Soybean Supply and Use Source: USDA Area Planted(mil. acres) Yield(bu./acre) Production(mil. bu.)2,6772,9673,319 Beg. Stocks(mil. bu.) Imports(mil. bu.)10138 Total Supply(mil. bu.)3,2613,1853,465 Crush(mil. bu.)1,8031,6621,695 Seed & Residual(mil. bu.) Exports(mil. bu.)1,1591,2831,340 Total Use(mil. bu.)3,0563,0473,210 Ending Stocks(mil. bu.) Season-Average Price($/bu.)

Department of Economics Source: USDA

Department of Economics U.S. Soybean Harvest Progress Source: USDA

Department of Economics Storage Issues Source: Hurburgh and Elmore, ICM News, 10/15/09

Department of Economics World Corn Production Source: USDA

Department of Economics Corn – Argentina & Brazil Source: USDA

Department of Economics World Soybean Production Source: USDA

Department of Economics Soybeans – Argentina & Brazil Source: USDA

Department of Economics Exchange Rates (Jan = 1) Source: USDA, ERS

Department of Economics Exports & Advance Sales (1 st 14 weeks of marketing year) Source: USDA, FAS

Department of Economics 2009 U.S. Corn Exports Source: USDA, FAS

Department of Economics 2009 U.S. Soybean Exports Source: USDA, FAS

Department of Economics Renewable Fuels Standard (RFS) 60% GHG Emission Reduction 50% GHG Emission Reduction 20% GHG Emission Reduction If construction started after Dec. 2007

Department of Economics Renewable Fuels Standard (RFS) Crop Year Billion Bushels

Department of Economics Ethanol Margins Source: ISU, CARD

Department of Economics Crude Oil Prices Sources: EIA, NYMEX

Department of Economics Ethanol Blending Advantage

Department of Economics Dept. of Energy Projections Source: Energy Information Administration, Annual Energy Outlook 2009

Department of Economics Draft Lifecycle GHG Reductions Source: EPA, May 2009

Department of Economics Iowa Crop Basis

Department of Economics GHG Emission Rules Greenhouse gas rules are coming –Whether through legislation or regulation EPA has the authority to regulate GHGs –Via Clean Air Act However, Congress would like to set the rules –H.R. 2454, American Clean Energy and Security Act of 2009, Passed in U.S. House of Rep. on 6/26/09, –S. 1733, Clean Energy Jobs and American Power Act Introduced 9/30/09, In committee (actually, six committees)

Department of Economics CO 2 Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:

Department of Economics CH 4 Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:

Department of Economics N 2 O Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:

Department of Economics Agricultural GHG Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:

Department of Economics GHG Emission Statistics Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks:

Department of Economics Climate Change Legislation Source: Congressional Research Service American Clean Energy and Security Act of 2009 (H.R. 2454) Requires utilities to supply an increasing percentage of their demand from a combination of energy efficiency savings and renewable energy (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in ). Provides for issuing, trading, banking, retiring, and verifying renewable electricity credits. Establishes targets to cap and reduce greenhouse gas (GHG) emissions, annually, so that GHG emissions from capped sources are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050; and establish a federal GHG registry. Provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances.

Department of Economics Climate Change Legislation Source: Craig Raysor, Gillon & Associates, PLLC Agriculture provisions in H.R Provides some exemptions from the GHG emission reduction requirements for agriculture and forestry Provides incentive-based approach to GHG emission reduction/capture Allows USDA to help establish eligible GHG offset practices and review of those practices Shifts question on indirect-land-use to an independent panel for study with EPA and USDA to review in the future Allows for a specific exemption for livestock (enteric fermentation from ruminant animals) from uncapped emissions guidelines

Department of Economics Lots of Analysis The EPA has funded the development of several models that are capable of examining the impact of this bill and other similar bills The environmental economists who worked on these models are very well respected and the work is sound However, the only certainty in the bill is the limit on carbon, everything else is assumption driven Source: ISU, Dermot Hayes presentation, Oct. 2009

Department of Economics Key Assumptions The US economy was already on a slow growth path for energy consumption, the analysis assumes that this continues Coal fired plants largely shut down and are replaced by nuclear Enormous reliance on international and domestic offsets If we cannot build the large number of nuclear plants or find the international offsets, then the price of carbon will increase at about twice the reported rate Source: ISU, Dermot Hayes presentation, Oct. 2009

Department of Economics Energy Sources Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics GHG Emissions & Abatements Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics Domestic Offsets Implementing regulations not yet written Uncertainty about how the offsets would work in agriculture, particularly for conservation tillage, but the intention is clearly to use these offsets as a way to stimulate agricultural incomes Consideration of leakage is prohibited pending a study Heavy reliance on the growth of trees on pasture and crop land Source: ISU, Dermot Hayes presentation, Oct. 2009

Department of Economics Domestic Offsets Source: EPA Analysis of Waxman-Markey, April 20, 2009

Department of Economics Domestic Offsets Source: ISU, Dermot Hayes presentation, Oct. 2009

Department of Economics Shifting Land Patterns Source: EPA, “Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture”, Nov. 2005

Department of Economics International Offsets Must be a developing country that is a member of a unilateral or multilateral emissions reduction agreement with the United States Must have the technical capacity to monitor, measure, report and verify forest carbon fluxes resulting from deforestation Must have the capacity to reduce emissions from deforestation, including strong forest governance The international offset project itself must be shown to result in permanent verifiable reductions that are net of any leakage measures Source: ISU, Dermot Hayes presentation, Oct. 2009

Department of Economics Carbon Prices Increase Over Time Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics Prices Are Sensitive to Offsets Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics Energy Price Paths Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics Impacts on an Average Household Source: EPA Analysis of H.R. 2454, June 23, 2009

Department of Economics USDA Estimates Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/ Production Costs Changes

Department of Economics Land Use Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09 Allowance Prices

Department of Economics Land Use Changes by 2050 Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09 ForestCroplandPasture (million acres) Corn Belt Great Plains Lake States Northeast Rocky Mts Pacific SW0.0 Pacific NW South Central Southeast Southwest

Department of Economics Offset Revenues Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Department of Economics Crop Production Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Department of Economics Livestock Production Changes Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Department of Economics Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: