Global Economic Impacts of Ethanol Industry Growth

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Global Economic Impacts of Ethanol Industry Growth By Dr. Robert Wisner, University Professor of Economics and Coles Professor of International Agriculture Iowa State University Ames, Iowa, U.S.A.

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Global Economic Impacts of Ethanol Industry Growth. By Dr. Robert Wisner, University Professor of Economics and Coles Professor of International Agriculture Iowa State University Ames, Iowa, U.S.A. Some perspectives. Iowa – the epicenter of biofuels growth The U.S. – rapid expansion & - PowerPoint PPT Presentation

Transcript of Global Economic Impacts of Ethanol Industry Growth

Page 1: Global Economic Impacts of Ethanol Industry Growth

Global Economic Impacts of Ethanol Industry Growth

By Dr. Robert Wisner, University Professor of Economics and Coles

Professor of International Agriculture

Iowa State University Ames, Iowa, U.S.A.

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Some perspectives

• Iowa – the epicenter of biofuels growth

• The U.S. – rapid expansion & huge agricultural changes

• Brazil – also expanding very rapidly

• Global impacts

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International Impacts• U.S. ethanol plants under construction to use

58 mil. tons of corn (doubling use)– 3.5 times the volume of Japan imports of

U.S. corn– 130% of 2006 EU corn crop– 70% of global corn exports

• Other countries are expanding ethanol & biodiesel

• Strong negative impacts on animal ag.• Sharply higher food costs• Major risk-management challenges in Ag. & bioenergy

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Other Countries with Ethanol Fuels• Canada• China• EU• Thailand

Countries considering ethanol fuels–South Africa–Ukraine–Japan

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Chinese Corn-Ethanol Plant

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U.S. Corn-Ethanol Plant

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U.S. Bioenergy Industries2006-07 growth, 34% annually in ethanol, more rapid in biodieselPrimary feedstocks: corn & soy oilInvestors: farmers, outside firmsBoth political parties strongly support expansion Availability of crop land -- limiting factor Some cellulose-ethanol plants being planned10% ave. U.S. ethanol/gas in 4 yearsMajor implications for livestock & food prices

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New York Crude Oil

Futures Prices

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Corn-ethanol only partial solution to energy challenges

Other feedstocks needed•Municipal wastes•Animal agriculture wastes•Forest product wastes•New crops

New automotive technology•Hybrid gas/electric vehicles•New engine & vehicle designs•Hydrogen fuels & fuel cells

Diversification of energy sourcesIncentives for increased mass transportation Wind power use increasing

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Size of U.S. biofuels industry•121 processing plants•About 75 plants under construction or expanding •About 235 more planned•Processes 20% of U.S. corn crop for motor

fuel•Potential corn for ethanol, Sept. 2007- Aug. 2008: 30% of 2006 crop•High corn prices pull land from other crops

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Products of ethanol industry

•Ethanol•Ethanol yield: 2.75 gal./bu., 410 liters/metric ton of corn•CO2

•Dry Distillers Grain & Solubles (DDGS)•0.3 ton/ton of corn•Protein content: 24-26%•Limited in some amino acids

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73,458 (28,834) (1,834)73,458 (28,834) (1,834)

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Dallas Polk

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Osceola

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Pocahontas

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Winnebago

Clinton

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Monroe

Marion

Jasper

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Louisa

Van Buren

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Dubuque

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Iowa Corn Processing Plants, 2002

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Iowa corn processing & ethanol plants, current & planned, 10/26/06

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Audubon

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Mucatine

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Winnebago

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Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

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Woodbury

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Harrison Shelby

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Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned. 9/26/06,

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

Hamilton GrundyBuchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

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Clayton

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66 Planned + current in Iowa11 Just across the borders

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Figure 1.

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Iowa corn processing & ethanol plants, current & planned, 11/20/06

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Capacity: 129% of 2006 cropCapacity: 140% of 2006 Crop

Iowa Corn Processing Plants, Current & Planned, 5/04/07

70 Potential Iowa Plants 11 Just across IA Borders

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*Needed corn Acres @ 188 bu./A. state avg. in 2010

*** *

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Existing & Planned U.S. Corn Processing Plants

Blue = OperatingRed = constructionGreen = plannedPink = Expansion of Existing plants

Figure 2.

8/30/06

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5.5 Bil. Bu for ethanol

area

bill

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Ethanol Economics• $0.026/liter increase in ethanol price raises break-

even Corn price $11.03/ton• $39.40/ton rise in corn price increases cost/gal.

$0.095/liter • Ethanol prod’n cost $0.318/liter (Univ. of Minnesota-

@$80/ton corn)• May 8,’07 Iowa ethanol price: $0.556/liter• Recent margin: $0.143/liter (34%) (incl.$0.119/liter

subsidy)• Drops to zero @ corn price of about $200/ton in IA

-- up 48-50% from May 4 price• Other variables: DDGS price, Natural Gas • Note: Plant construction costs have risen sharply

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140 Mil. Tons Corn for ethanol

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5.5 Bil. Bu. For Ethanol

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Source of data: USDA, NASS

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Illinois Corn Yields Drought Tolerant?

2004 2005• NW 184 140• NE 174 129 • WEST 192 141• E.SE. 175 139 • SW 158 133• SE 158 130

% chg.

-24

-26

-27

-21

-16

-18

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$ per Gal.

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Mil. Acre shifts to corn: Hay: 1.0 mil CRP: 3.0Coton: 0.6S. Red wheat: 4.3Other wheat: 0.4; oats 1.0

5.5 bil. Gallons of Ethanol

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Implications for U.S. and World Livestock, Poultry & Food Costs

• U.S. supplies 2/3 of world corn exports, 20-25% of wheat & 35-40% of cotton exports

• Costs of livestock & poultry feed to double• Large increase in variability of feed & food

costs• Food aid availability?• Accelerated ag expansion into areas with

fragile eco systems • Shift livestock industries from U.S. to South

America? • Rural employment implications in U.S.

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Infrastructure Needs of bioenergy Market(Time Frame: 3 to 4 years)

Sharp Increases in:• Inputs for corn production• Corn receiving, drying, storage, farm

transporting infrastructure• Efficient rail shipping of ethanol & DDGS• More tank cars for ethanol movement• Electric power generation• Water supply systems• Research on pipelines for ethanol• Retail facilities for E-85, E-20 & E-30 stations

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Environmental Issuesfor Research: ethanol

• Impact on groundwater supplies• Long-term effects, mono-culture ag.• Allowable maximum removal of corn stover & grasseso Soil erosion impactso Soil organic matter impactso Diminished wildlife habitatso Water quality impacts from more fertilizer

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Key Issues for Agriculture• Alternative feedstocks: which ones, how

soon? Biomass, sweet sorghum, sugar beets, high-oil crops, cane sugar, others

• Differential impacts on livestock & poultry species

• Environmental: continuous corn, off-take of biomass, erosion-prone land

• Efficient use of distillers grain, including new uses

• Risk Management: livestock, crops, ethanol

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What Could Change Prospects of Tightening Global Grain Supply?

• Accelerated corn yield increases• Crude oil price collapse• Early break-through in economical cellulose

conversion• U.S.Ethanol import tax removed – longer term

impacts• U.S. $0.51 blending credit reduced or made

variable• Declining global livestock feeding

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http://www.econ.iastate.edu/faculty/wisner/