1. Corn Ethanol: Feed & Fuel for the Future
Iowa Egg Industry Symposium
Ames, Iowa
November 11, 2009
Chad Hart
Assistant Professor/Grain Markets Specialist 1 1

2. U.S. Corn Supply and Use 2007 2008 2009 Area Planted (mil. acres) 93.5
86.0
86.4
Yield
(bu./acre)
150.7
153.9
162.9
Production
(mil. bu.)
13,038
12,101
12,921
Beg. Stocks
1,304
1,624
1,674
Imports 20 14 10
Total Supply
14,362
13,739
14,605
Feed & Residual
5,913
5,254
5,400
Ethanol
3,049
3,677
4,200
Food, Seed, & Other
1,338
1,276
1,280
Exports
2,437
1,858
2,100
Total Use
12,737
12,065
12,980
Ending Stocks
1,625
Season-Average Price
($/bu.)
4.20
4.06
3.55
USDA’s 2009 projections based on conditions around Oct. 1. It would be the 2nd largest corn crop, just behind Guesses on freeze damage range from 100 to 300 million bushels. Demand is projected to recover across the board (higher feed, ethanol, and export demand), but we may want to watch feed demand. Ethanol demand is about 100 million bushels above mandate levels. Export demand is being helped with some smaller customers buying early. Ending stocks currently shown as flat, but will likely decline with the freeze impact. Current price estimate of $3.35/bushel had been higher than the market before the freeze, but is now well below market levels.
Source: USDA 2 2

3. World Corn Production Source: USDA
World corn production has projected to be flat, with the U.S. increase offsetting a drop in the rest of the world. The freeze probably shifted corn production below last year’s level. Half of the drop in the rest of the world is in China (drought).
Source: USDA 3 3

4. But the concern was the slowed maturity of the crop
But the concern was the slowed maturity of the crop. Many points in South Dakota, Minnesota, Wisconsin, Illinois, Indiana, and Ohio still at Milk and Dough stages in early October. The freeze may have damaged much of this corn.
Source: USDA 4 4

5. U.S. Corn Harvest Progress
The continuing flow of moisture in the Midwest has dramatically slowed harvest. Looking back through data since 1985, this is the slowest harvest on record (1992 was the slowest before this).
Source: USDA 5 5

6. Iowa Corn Harvest Progress
The continuing flow of moisture in the Midwest has dramatically slowed harvest. Looking back through data since 1985, this is the slowest harvest on record (1992 was the slowest before this).
Source: USDA 6 6

7. Storage Issues Source: Hurburgh and Elmore, ICM News, 10/15/09
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Hurburgh and Elmore,
ICM News, 10/15/09 7 7

8. Feed Guidelines Source: Robertson, Elmore and Hurburgh,
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Robertson, Elmore and Hurburgh,
ICM News, 10/15/09 8 8

9. Feed Guidelines Source: Robertson, Elmore and Hurburgh,
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Robertson, Elmore and Hurburgh,
ICM News, 10/15/09 9 9

10. Dr. Hurburgh’s Q & A Low corn test weights
Due to rapid maturation at the end of the season
Kernel fill was not complete
Corn will spoil more quickly
Corn will break apart most easily
Users will find corn has lower protein level
Smaller particles after grinding
Source: Hurburgh, ICM News, 11/1/09

11. Renewable Fuels Standard (RFS)
50% GHG Emission Reduction
60% GHG Emission Reduction
20% GHG Emission Reduction
If construction started after Dec. 2007
The renewable fuels blueprint for the next 13 years. Corn-grain based ethanol is a conventional biofuel. Conventional biofuels build to 15 billion gallons by 2015, after that cellulosic takes off to 16 billion gallons by The GHG reductions are in comparison to gasoline. 11

12. Renewable Fuels Standard (RFS)
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
2011
4.64
Over the near term, corn-grain ethanol is the big biofuel. The table shows the corn needed to create enough ethanol to meet the conventional biofuel targets. For the 2008 crop year, the mandate called for 3.57 billion bushels of corn for ethanol. We used 3.7 billion bushels. For the 2009 crop year, the mandate points to 4.11 billion bushels and projected usage is at 4.2 billion bushels. By 2015, we are looking at roughly 5 billion bushels worth of demand. 12 12

13. Corn Supply & Use Source: USDA
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: USDA 13 13

14. Grain Component Production
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Hurburgh et al.,
2008 ICM Conference 14 14

15. Industry Outlook Source: Crosbie,
Storage and quality issues are concerns. Two wet crops in a row, increased drying costs. Hail damage in some areas leading to mold problems.
Source: Crosbie, 15 15

16. Ethanol Margins Source: ISU, CARD
The graph breaks ethanol prices into costs and returns on a per gallon basis. Yellow is energy costs to create a gallon of ethanol. Maroon is corn costs (less distillers grains value) to create a gallon of ethanol. Blue is all other costs and returns. The black line is a rough measure of breakeven for the industry. The high returns in 2005 and 2006 spurred on ethanol development. The breakeven returns of the last year have halted that construction. But margins have improved in the last few months.
Source: ISU, CARD

17. Crude Oil Prices Sources: EIA, NYMEX
Crude oil is working its way back up, providing room for higher ethanol and crop prices.
Sources: EIA, NYMEX

18. Ethanol Blending Advantage
Ethanol blending margins have mostly stayed positive, so blenders have continued to pull in ethanol. Margins above 4.5 cents indicate blending is economical without the tax credit. Ethanol blending margin = (wholesale gasoline price + federal taxes) – (90%*wholesale gasoline price + 10%*wholesale ethanol price + federal taxes – tax credit).

19. Dept. of Energy Projections
Department of Energy indicates we will not meet the 2022 mandate, but biofuels will grow substantially.
Source: Energy Information Administration,
Annual Energy Outlook 2009

20. Draft Lifecycle GHG Reductions
The big policy argument right now is indirect land use (bright green part of the bars). Without the indirect land use effect, current biofuels would meet GHG emission goals. Policy may be changed by Congress.
Source: EPA, May 2009 20

21. Outside Influences (Jan. 2007 = 1)
Biofuels have linked the energy and agricultural markets. We followed oil high to its record highs and followed it most of the way down. Ethanol policy helped put the brakes on ethanol’s price fall (in comparison to oil) and provided somewhat of a floor for crop prices. But with oil heading upward again, crop prices will follow.

22. Thoughts for 2009 and Beyond
General economic conditions
Recession: Are we done yet?
Projected economic recovery is a major key for crop prices for the 2009 marketing year
Continued weakness in the dollar helping exports
Most important ag. statistics: Harvest progress, crop production, feed demand
USDA is indicating 2009 season-average prices in the neighborhood of $3.55 for corn
Futures Nov. 9: Corn $3.71
2010/11 based on futures Nov. 9: Corn $4.21

23. Thank you for your time. Any questions. My web site: http://www. econ
Thank you for your time! Any questions? My web site: Iowa Farm Outlook: Ag Decision Maker: