1. Department of Economics Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate.edu 515-294-9911

2. Department of Economics U.S. Corn Supply and Use Source: USDA 200720082009 Area Planted(mil. acres)93.586.086.4 Yield(bu./acre)150.7153.9162.9 Production(mil. bu.)13,03812,10112,921 Beg. Stocks(mil. bu.)1,3041,6241,674 Imports(mil. bu.)201410 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.)4.204.063.55

3. Department of Economics

4. Source: USDA

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

6. Department of Economics U.S. Soybean Supply and Use Source: USDA 200720082009 Area Planted(mil. acres)64.775.777.5 Yield(bu./acre)41.739.743.3 Production(mil. bu.)2,6772,9673,319 Beg. Stocks(mil. bu.)574205138 Imports(mil. bu.)10138 Total Supply(mil. bu.)3,2613,1853,465 Crush(mil. bu.)1,8031,6621,695 Seed & Residual(mil. bu.)93101175 Exports(mil. bu.)1,1591,2831,340 Total Use(mil. bu.)3,0563,0473,210 Ending Stocks(mil. bu.)205138255 Season-Average Price($/bu.)10.109.979.50

7. Department of Economics Source: USDA

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

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

10. Department of Economics World Corn Production Source: USDA

11. Department of Economics Corn – Argentina & Brazil Source: USDA

12. Department of Economics World Soybean Production Source: USDA

13. Department of Economics Soybeans – Argentina & Brazil Source: USDA

14. Department of Economics Exchange Rates (Jan. 2003 = 1) Source: USDA, ERS

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

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

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

18. 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

19. Department of Economics Renewable Fuels Standard (RFS) Crop Year Billion Bushels 20083.57 20094.11 20104.43 20114.64

20. Department of Economics Ethanol Margins Source: ISU, CARD

21. Department of Economics Crude Oil Prices Sources: EIA, NYMEX

22. Department of Economics Ethanol Blending Advantage

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

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

25. Department of Economics Iowa Crop Basis

26. 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, 219-212 –S. 1733, Clean Energy Jobs and American Power Act Introduced 9/30/09, In committee (actually, six committees)

27. Department of Economics CO 2 Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

28. Department of Economics CH 4 Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

29. Department of Economics N 2 O Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

30. Department of Economics Agricultural GHG Emissions Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

31. Department of Economics GHG Emission Statistics Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

32. 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 2021-2039). 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.

33. Department of Economics Climate Change Legislation Source: Craig Raysor, Gillon & Associates, PLLC Agriculture provisions in H.R. 2454 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

34. 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

35. 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

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

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

38. 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

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

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

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

42. 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

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

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

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

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

47. Department of Economics USDA Estimates Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/09 2012-2018 Production Costs Changes

48. 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

49. 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 Belt22.5-20.6-1.8 Great Plains--1.7-3.8 Lake States15.1-12.1-2.2 Northeast2.4-1.9-0.5 Rocky Mts.7.7-5.3-1.7 Pacific SW0.0 Pacific NW0.2 -0.2 South Central10.0-6.4-3.6 Southeast1.11.2-1.9 Southwest--8.2-8.2

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

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

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

53. Department of Economics Thank you for your time! Any questions? My web site: http://www.econ.iastate.edu/faculty/hart/ Iowa Farm Outlook: http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http://www.extension.iastate.edu/agdm/