Grain, Oilseed, and Biofuel Outlook

Chad Hart

Center for Agricultural and Rural Development

Iowa State UniversityE-mail: chart@iastate.edu

January 18, 2008

Pro Ag Outlook

Harlan, Iowa

Nearby Corn Futures

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

9/1/

2006

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

$ pe

r B

ushe

l

Corn Futures As Of 1/16/2008

4.80

5.00

5.20

5.40$

per

Bus

hel

Corn Market Factors

Domestic demand changes•Livestock feed•Biofuels

South American plantings•Export competition

Competition for acreage•Corn vs. soybeans vs. wheat

Tighter stocks•More sensitivity to weather shocks

U.S. Corn Supply and Demand2006/07 estimate

2007/08 forecast

Change from last month

Change from last year

Planted area (million acres) 78.3 93.6 0.0 19.5Harvested area (million acres) 70.6 86.5 0.5 22.5Yield (bushels per acre) 149.1 151.1 -1.2 1.3

Beginning stocks 1,967 1,304 0.0 -33.7Production 10,535 13,074 -0.7 24.1

Total supply 12,514 14,393 -0.6 15.0Feed and residual 5,598 5,950 5.3 6.3Food, seed, and industrial 3,488 4,555 -0.8 30.6

Ethanol 2,117 3,200 0.0 51.2Domestic use 9,086 10,505 2.6 15.6Exports 2,125 2,450 0.0 15.3

Total use 11,210 12,955 2.1 15.6Ending stocks 1,304 1,438 -20.0 10.3

Stocks/use 11.6 11.1

Average market price 3.04 3.70/4.30 10.4/8.9 21.7/41.4

Million bushels

Percent

Dollars per bushel

Percent

Source: USDA

Corn for Grain Yields 2007Bushels and Change From Previous Year

797

18515 168#

22

180#15

142-14

97-48

9513

13018

165-5

17512

155-2

1715

14025 129

-17

165#25

103-39

124-23

146-15

150#40

1424

145-1

1608

125-4

175-10

127-2

100-32

1165

150-9

14540

195#15

1286

100-10

U.S. 151.12.0

# Record High

NC = No Change

12124

106-19

148#27

148-9 85

-35

210#NC

111-9

135-8

129NC

Source: USDA

U.S. Corn Stocks

10.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

98-99 99-00 00-0l 0l-02 02-03 03-04 04-05 05-06 06-07 07-08

Billion Bushels

Beginning Supply Dec Mar Jun SepSource: USDA

Corn Utilization

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

96/97 98/99 00/01 02/03 04/05 06/07

Mil

lion

Bus

hels

Feed Ethanol Other Exports

Exchange Rates

0.80

0.85

0.90

0.95

1.00

1.05

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07

Canada Mexico Brazil Argentina RussiaIndia China South Korea Japan EU

Exchange Rate Futures

0.80

0.85

0.90

0.95

1.00

1.05

Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08

Canada Mexico Brazil Russia South Korea Japan EU

World Corn ProductionCountry or

Region 2007/08 2006/07 ChangePercent Change

Million tons PercentWorld 766.7 703.9 62.9 8.9EU-27 47.4 54.7 -7.3 -13.3FSU-12 13.5 12.8 0.7 5.3South Africa 10.0 7.3 2.7 37.0Argentina 22.5 22.5 0.0 0.0Brazil 50.0 51.0 -1.0 -2.0China 145.0 145.5 -0.5 -0.3United States 332.1 267.6 64.5 24.1

Source: USDA

South American Corn Area

0

5

10

15

20

25

30

35

40

1992/1993 1995/1996 1998/1999 2001/2002 2004/2005 2007/2008

Mil

lion

Acr

es

Argentina Brazil

WMO data indicate that temperatures were not high enough to cause significant widespread damage to corn advancing through the tasseling and silking stages.

Source: USDA

Temperatures in Argentina

Corn Production Costs - NationalCorn

Item 2005 2006 2007F 2008F 2009FOperating costs: Seed 40.47 43.55 48.93 50.02 51.21 Fertilizer 69.35 80.17 93.96 99.95 102.34 Chemicals 22.84 23.62 24.67 25.64 26.40 Custom operations 9.97 10.58 10.93 11.27 11.59 Fuel, lube, and electricity 26.50 28.73 30.98 32.98 34.56 Repairs 14.00 14.45 14.86 15.22 15.60 Other variable expenses 0.12 0.12 0.12 0.13 0.13 Interest on operating capital 3.12 4.76 5.16 4.94 5.81 Total, operating costs 186.37 205.98 229.61 240.15 247.64

Allocated overhead: Hired labor 2.08 2.19 2.22 2.27 2.33 Unpaid labor 22.02 23.56 23.86 24.45 25.02 Capital recovery 64.02 66.71 69.99 73.12 75.56 Land 93.27 90.84 95.44 97.78 100.67 Taxes and insurance 6.51 7.01 7.39 7.51 7.63 General farm overhead 12.61 13.45 13.83 14.17 14.52 Total, allocated costs 200.51 203.76 212.73 219.30 225.73

Total costs listed 386.88 409.74 442.34 459.45 473.37

Source: USDA-ERS

Basis in 2006

Basis in 2007

Basis in 2008

Nearby Soybean Futures

5

6

7

8

9

10

11

12

13

149/

1/20

06

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

$ pe

r B

ushe

l

Soybean Futures As Of 1/16/2008

11.50

12.00

12.50

13.00

13.50$

per

Bus

hel

Soybean Market Factors

Domestic demand changes•Livestock feed•Biofuels

South American plantings•Export competition

Competition for acreage•Corn vs. soybeans vs. wheat

Tighter stocks•More sensitivity to weather shocks

U.S. Soybean Supply and Demand2006/07 estimate

2007/08 forecast

Change from last month

Change from last year

Planted area (million acres) 75.5 63.6 -0.1 -15.7Harvested area (million acres) 74.6 62.8 0.0 -15.8Yield (bushels per acre) 42.7 41.2 -0.4 -3.7

Beginning stocks 449 574 0.2 27.7Production 3,188 2,585 -0.3 -18.9Imports 9.0 6.0 0.0 -33.6

Total Supply 3,647 3,165 -0.3 -13.2Crush 1,806 1,830 0.0 1.3Seed and Residual 148 165 1.1 11.3

Domestic use 1,955 1,995 0.1 2.1Exports 1,118 995 0.0 -11.0

Total Use 3,073 2,990 0.1 -2.7Ending stocks 574 175 -5.4 -69.5

Stocks/use ratio 18.7 5.9

Average market price 6.43 9.90/10.90 7.0/6.3 54.0/69.5

Percent

Million bushels

Percent

Dollars per bushel

Source: USDA

Soybean Yields 2007Bushels and Change From Previous Year

211

361

24-7

24-3

305

43-5

45-5

51.51

331 26

-18

42#7

27-7

39-6

41-3

40#14

37-1

50.50.5

31-4

38-8

21-11

354

47#NC

247

411

19-10

U.S. 41.2-1.5

# Record HighNC = No Change

42#8

18-21

37#13

27-4

33-9

39-5

#

Source: USDA

U.S. Soybean Stocks

2.33

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

98-99 99-00 00-0l 0l-02 02-03 03-04 04-05 05-06 06-07 07-08

Billion Bushels

Beginning Supply Dec Mar Jun Sep

Source: USDA

Soybean Meal Futures as of 1/16/2008

320

330

340

350

360$

per

Ton

Soybean Oil Futures as of 1/16/2008

52

53

54

55

56C

ents

per

Pou

nd

Exchange Rates

0.80

0.85

0.90

0.95

1.00

1.05

Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07

Canada Mexico Brazil Argentina RussiaIndia China South Korea Japan EU

World Soybean Production

Country or Region 2007/08 2006/07 Change

Percent Change

Million tons PercentWorld 220.3 235.6 -15.2 -6.5U.S. 70.4 86.8 -16.4 -18.9Argentina 47.0 47.2 -0.2 -0.4Brazil 60.5 59.0 1.5 2.5China 14.3 16.0 -1.7 -10.6Foreign 150.0 148.8 1.2 0.8

Source: USDA

South American Soybean Area

0

10

20

30

40

50

60

1992/1993 1995/1996 1998/1999 2001/2002 2004/2005 2007/2008

Mil

lion

Acr

es

Argentina Brazil

BrazilCrop Weather Summary

January 10, 2008

• Significant late start to the rainy season in most major soybean areas;

• Seasonal showers still sporadic in portions of the central interior (beans flowering – pod-filling);

• Near-normal precipitation in southern growing areas.

ErraticShowers

Normalrains

Favorable

Source: USDA

Precipitation in Brazil

Corn-Soybean Price Ratio

1.5

2.0

2.5

3.09/

1/20

06

11/1

/200

6

1/1/

2007

3/1/

2007

5/1/

2007

7/1/

2007

9/1/

2007

11/1

/200

7

1/1/

2008

Soybean Production Costs - National

Source: USDA-ERS

Soybeans Item 2005 2006 2007F 2008F 2009FOperating costs: Seed 32.62 34.06 38.27 39.12 40.05 Fertilizer 10.06 11.08 13.94 14.82 15.18 Chemicals 14.32 14.97 14.79 15.37 15.83 Custom operations 6.67 7.02 7.25 7.48 7.69 Fuel, lube, and electricity 13.62 15.75 16.98 18.08 18.95 Repairs 11.29 11.60 11.93 12.22 12.52 Other variable expenses 0.13 0.15 0.15 0.16 0.16 Interest on operating capital 1.50 2.23 2.37 2.24 2.64 Total, operating costs 90.21 96.86 105.68 109.49 113.02

Allocated overhead: Hired labor 2.03 2.12 2.15 2.20 2.25 Unpaid labor 16.77 16.81 17.02 17.44 17.85 Capital recovery 50.17 51.47 54.00 56.41 58.30 Land 86.68 88.25 92.72 94.99 97.80 Taxes and insurance 6.06 6.57 6.93 7.04 7.15 General farm overhead 12.47 12.54 12.90 13.21 13.54 Total, allocated costs 174.18 177.76 185.72 191.29 196.89

Total costs listed 264.39 274.62 291.40 300.78 309.91

2008 Winter Wheat PlantedAcres (000) and Change From Previous Year

17050

104 870

50

600100

2400-100

8023

185

480120

900150

1200200

550130

5015

9900-500 530

90

400165

25030

780220

705

40030

1200150

2700460

1950-10011

-6

343

480-10

12525

800#170

650185

1020200

5700-200

78030

18010

17010

U.S. 46,6101,623

# Record High& Record Low

1900-200

620200

6000-200

130&-5

28050

175030

124

330#40

130-10

Source: USDA

Price Summary2006/07 estimate

2007/08 forecast

(midpoint)Change from

last monthChange from

last year

Crops and productsWheat ($/bu) 4.26 6.65 3.9 56.1Rice ($/cwt) 9.74 11.15 0.0 14.5Corn ($/bu) 3.04 4.00 9.6 31.6Soybeans ($/bu) 6.43 10.40 6.7 61.7Soybean oil (¢/lb) 31.02 47.50 10.5 53.1Soybean meal ($/s.t.) 205.44 320.00 14.3 55.8Cotton (¢/lb) 46.50 51.50*

*Average price for August-November 2007. USDA is prohibited by law from publishing cotton price projections.

Percent

Source: USDA

Biofuel Factors

Feedstock costs and competition•High corn prices•High soybean oil prices•Vegetable oil demand in Southeast Asia

Energy markets•High oil and gas prices

Continued government support•Passage of the 2007 Energy Act•Efforts to extend biofuel tax credits

Consumer demand for biofuels•Southeast U.S.

Ethanol Expansion

Source: Renewable Fuels Association

0

1

2

3

4

5

6

7B

illi

on G

allo

ns

Biodiesel Growth

Source: National Biodiesel Board

0

50

100

150

200

250

300

350

400

450

500

1999 2000 2001 2002 2003 2004 2005 2006 2007

Mil

lion

Gal

lons

Renewable Fuels Standard

0

5

10

15

20

25

30

35

40B

illi

on G

allo

ns

RFS by Fuel

0

5

10

15

20

25

30

35

40B

illi

on G

allo

ns

Corn-based Ethanol Cellulosic BiofuelsBiodiesel Additional Advanced Biofuels

Current ethanol capacity: 137 plants, 7.63 billion gallons/year

Total capacity under construction and expansion: 5.74 billion gallons/year

63 new ethanol plants and 7 expansion projects underway

U.S. Ethanol Industry

2.1 billion bushels of corn were used in producing fuel ethanol in 2006/2007 marketing year.

3.2-3.5 billion bushels of corn are expected to be used in producing fuel ethanol for 2007/2008 marketing year.

Oil Futures As Of 1/16/2008

82

83

84

85

86

87

88

89

90

91

92

Feb.2008

Dec.2008

Dec.2009

Dec.2010

Dec.2011

Dec.2012

Dec.2013

$ pe

r B

arre

l

Historical Ethanol Margins

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

3/21

/200

5

5/21

/200

5

7/21

/200

5

9/21

/200

5

11/2

1/20

05

1/21

/200

6

3/21

/200

6

5/21

/200

6

7/21

/200

6

9/21

/200

6

11/2

1/20

06

1/21

/200

7

3/21

/200

7

5/21

/200

7

7/21

/200

7

9/21

/200

7

11/2

1/20

07

$ pe

r G

allo

n

Ethanol Gross Margin Net Cost of Corn Cost of Nat. Gas

Projected Ethanol Margins

0.00

0.50

1.00

1.50

2.00

2.50

Feb-08

Apr-08

Jun-08

Aug-08

Oct-08

Dec-08

Feb-09

Apr-09

Jun-09

Aug-09

Oct-09

Dec-09

$ pe

r G

allo

n

Ethanol Gross Margin Net Cost of Corn Cost of Nat. Gas

Plant Location

Comparing Futures Prices

2.00

2.10

2.20

2.30

2.40

2.50$

per

Gal

lon

Ethanol Gasoline

A Quick Look at Ethanol Blending

January 2007 November 2007

Unleaded E-10 Unleaded E-10

($/gallon) ($/gallon)

Gasoline 1.490 1.341 2.520 2.268

Ethanol 0.226 0.208

Price before Taxes

1.490 1.567 2.520 2.476

Fed. Gas Tax 0.184 0.184 0.184 0.184

Ethanol Tax Credit

-0.051 -0.051

Price after Fed. Taxes

1.674 1.700 2.704 2.609

Gasoline and ethanol prices are monthly average rack prices for Omaha

Ethanol Usage - 2004 (latest available)

Blending Percentage

0%

1 - 25%

25 - 50%

50 - 75%

75 - 100%

RFS by Fuel

0

5

10

15

20

25

30

35

40B

illi

on G

allo

ns

Corn-based Ethanol Cellulosic BiofuelsBiodiesel Additional Advanced Biofuels

Current biodiesel capacity: 165 plants, 1.85 billion gallons/year

Total capacity under construction and expansion: 1.35 billion gallons/year

80 new plants underway

U.S. Biodiesel Industry

2.8 billion pounds of soybean oil was used in producing biodiesel in 2006/2007 marketing year.

3.8 billion pounds of soybean oil are expected to be used in producing biodiesel for 2007/2008 marketing year.

Biodiesel Growth

Source: National Biodiesel Board

0

50

100

150

200

250

300

350

400

450

500

1999 2000 2001 2002 2003 2004 2005 2006 2007

Mil

lion

Gal

lons

Biodiesel Internationally

EUBiofuel targets: 5.75% by 2010

10% by 2020

ArgentinaBiodiesel mandate: 5% by 2010

BrazilBiodiesel mandate: 2% in 2008

5% by 2010

Many U.S. producers have targeted the EU market

Biodiesel Price Ratios

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

Soybean Oil Biodiesel

Thanks for your time!

Any questions?