1. Let’s Talk about Ethanol
Chad Hart
Center for Agricultural and Rural Development
Iowa State University
November 1, 2007

2. Ethanol Explosion
Source: Renewable Fuels Association

3. Biodiesel Growth
Source: National Biodiesel Board

4. Renewable Fuels Standard
Source: Renewable Fuels Association

5. Ethanol Industry Snapshots
Ethanol Plants
Capacity (mgy)
Jan. 2000 54
1,749
Jan. 2001 56
1,921
Jan. 2002 61
2,347
Jan. 2003 68
2,707
Jan. 2004 72
3,101
Jan. 2005 81
3,644
Jan. 2006 95
4,336
Jan. 2007
110
5,493
Source: Renewable Fuels Association

6. U.S. Ethanol Industry
Current ethanol capacity: 131 plants, 6.92 billion gallons/year
Total capacity under construction and expansion: 6.56 billion gallons/year
73 new ethanol plants and 10 expansion projects underway
2.2 billion bushels of corn were used in producing fuel ethanol in 2006/2007 marketing year.
billion bushels of corn are expected to be used in producing fuel ethanol for 2007/2008 marketing year.

7. Ethanol – State by State

8. Biodiesel – State by State

9. Historical Corn Utilization

10. Where Are We Headed?
Based on construction announcements for ethanol plants, by the end of 2010, ethanol production capacity could exceed 14.5 billion gallons
Announced biodiesel capacity exceeds 2.5 billion gallons

11. Ethanol – State by State

12. Biodiesel – State by State

13. Projected Corn Utilization

14. That’s A Lot of Corn
13.5 billion gallons of ethanol translates into 4.9 billion bushels of corn
That’s more than the combined corn output of Iowa, Illinois, and Wisconsin in 2006.
Ethanol demand for corn has put tremendous pressure on the corn market
It will likely take both supply and demand shifts to balance out the corn market.

15. U.S. Livestock Production

16. Usage of Distillers Grains by Species

17. World Corn Exports in 2005/2006

18. World Ethanol Imports, 2006

19. Oil Futures As Of 10/31/2007

20. Nearby Corn Futures

21. Corn Futures As Of 10/31/2007

22. Support for More Corn Acres
Futures prices are providing a definite signal for more corn acres
Ethanol’s demand for corn continues to increase
This is despite the 19.5% jump in corn acreage in 2007

23. Where Will the Acreage Come From?

24. Ethanol-Livestock Synergies

25. Plant Location

26. A 50-Million Gallon Ethanol Plant …
Uses roughly 18.5 million bushels of corn
In Iowa, corn from 116,000 acres
Produces 315 million pounds of distillers grains
This could feed approx. 60,000 dairy cattle or million layers
Utilizes natural gas/coal in plant operations
Manure from 60,000 dairy cattle could produce methane to meet part of the ethanol plant’s energy needs

27. Historical Ethanol Margins

28. Projected Ethanol Margins

29. Comparing Futures Prices

30. A Quick Look at Ethanol Blending
January 2007
September 2007
Unleaded
E-10
($/gallon)
Gasoline
1.490
1.341
2.300
2.070
Ethanol
0.226
0.193
Price before Taxes
1.567
2.263
Fed. Gas Tax
0.184
Ethanol Tax Credit
-0.051
Price after Fed. Taxes
1.674
1.700
2.484
2.396

31. Ethanol Usage in 2004 (latest available)

32. Basis in 2005

33. Basis in 2006

34. Basis in 2007

35. Projected U.S. Ethanol Production
Annual production based on Jan.-July 2007 numbers ~ 6.4 billion gallons

36. Wholesale Gasoline and Ethanol Prices

37. Projected U.S. Dry Mill Margins

38. 10 Observations about Ethanol
Ethanol production growth has exceeded expectations
Growth has exceeded forecasts and has put the U.S. on pace to far exceed the RFS
But the industry is approaching another barrier point (10% of gasoline usage)
Gasoline prices are likely to remain high enough to support ethanol

39. 10 Observations about Ethanol
Ethanol margins can remain positive over a wide corn price range
Corn prices are likely to remain higher than usual
Given positive margins, ethanol plants will be competitive for corn at higher prices

40. 10 Observations about Ethanol
To maintain all corn usage demands, the U.S. will need to dramatically expand corn acreage
Other countries will response to higher corn prices as well
With heightened demand and thin stocks, the corn market will be more volatile

41. 10 Observations about Ethanol
Cellulosic ethanol has tremendous promise, but it will be several years before cellulosic ethanol truly impacts the energy markets
The merging of the energy and agricultural sectors will force substantial changes in both sectors