1. Ag & Energy A Disruptive Event David Miller Director, Research & Commodity Services, Iowa Farm Bureau

2. Food, Feed or Energy A couple key questions –If crude oil stays above $60, how will agriculture be affected? –Are biofuels a fad or a sustainable trend? –What unintended consequences are apt to arise from the emergence of the biofuels industry? –Will we run out of corn?

3. A Disruptive Event Corn price expectations Land capitalization Increased risk Acreage shifts

5. Pulling: Ethanol From Corn Where do we get all of these acres?

6. Ethanol & Corn Use What if: –100 million acres of corn –200 bushels per acre –20 billion bushel corn crop –10 billion ethanol grind –30 billion gallons of ethanol Is this possible in a decade?

7. Corn Price Determination PC = 3*[(PG*.667)+VEETC+DDG-OP-CAP] PC = 3*[(1.80*.667)+0.51+0.22-0.52-0.24] PC = 2*1.77 = 3.54

8. Land Values P (Land) = [(P (Corn) *Y (Corn) )+G (Payments) -OP (Costs) ]/(I (rate) ) P (Land05) = [($2.00*170)+$50-$150]/(.06) P (Land05) = [$240]/(.06) = $4,000 P (Land08) = [($3.50*180)+$0-$180]/(.06) P (Land08) = [$450]/(.06) = $7,500

9. Cash Rents CR = P (Land) * 0.05 CR (Land05) = $4,000 * 0.05 = $200 CR (Land08) = $7,500 * 0.05 = $375

10. In Conclusion Demand shocks last much longer than supply shocks Supply adjustments will come much quicker than we currently anticipate Livestock production will adjust to new price levels Adjustments will be made worldwide It appears that we can have food, feed and fuel