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

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

3. 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

5. 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

6. Corn Supply YearBeg stocksProductionSupply Bil. Bu. 2002/031.609.0110.62 2003/041.0910.1111.21 2004/050.9611.8113.15 2005/062.1111.0313.15 2006/071.9710.5412.51 2007/081.3013.0714.40 2008/091.6212.1013.74

7. Corn Usage bil. bu Crop yearfeedfoodexportstotal 20025.562.341.599.49 20035.802.541.9010.23 20046.162.691.8110.66 20056.162.982.1311.27 20065.603.492.1211.21 20075.904.362.4412.74 20085.354.991.7012.04 Source: USDA

8. Food and Industrial Corn Use mil. bu. Crop Year HFCSSucroseStarchFuelLiquorCereal 20045202222791,323133189 20055292292751,603135190 20065102392722,117136190 20074902352623,026135192 20084702372353,700134193 Source: USDA

9. Corn Usage 200220072008 Feed57.8%46.6%44.4% Food12.9%10.3%10.7% Exports19.1% 14.2% Ethanol10.3%23.7%30.7%

11. May 2009 Corn Price (CBOT)

12. Soybean Supply YearCarry-inProductionTotal 200317824542638 200411231243242 200525630633322 200644931883647 200757426773261 200820529593176

13. Soybean Usage YearCrushExportsSeedTotal 200315308871092525 2004169610971932986 200517399401942873 2006180611181483073 200718011160933056 2008163512101663011

14. Soybean Carryout & Price YearCarryoutPrice 2003112$7.34 2004256$5.74 2005449$5.66 2006574$6.43 2007205$10.40 2008165$9.65

15. Bio-Diesel Crop Year Methyl-Ester Production 2005/061,555 2006/072,761 2007/082,981 2008/092,200 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

16. March 2009 Bean Prices

17. Soybeans Very small Crop in 2007 Very little carry-over More acreage in 2008 2008 crop will not cover usage Very low ending stocks in Sept. 2009 Continuing high prices More acreage in 2009

18. 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

19. Global vegetable oil ending stock and biodiesel production

20. 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

21. 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

25. 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

26. 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

27. 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)

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

29. 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!