Department of Economics Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad Hart Assistant Professor/Grain Markets.

Department of Economics

Crops and Climate Change

Northwest Iowa Agronomy GroupHolstein, Iowa

December 15, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


U.S. Corn Supply and Use

Source: USDA

2007 2008 2009

Area Planted (mil. acres) 93.5 86.0 86.4

Yield (bu./acre) 150.7 153.9 162.9

Production (mil. bu.) 13,038 12,101 12,921

Beg. Stocks (mil. bu.) 1,304 1,624 1,674

Imports (mil. bu.) 20 14 10

Total Supply (mil. bu.) 14,362 13,739 14,605

Feed & Residual (mil. bu.) 5,913 5,254 5,400

Ethanol (mil. bu.) 3,049 3,677 4,200

Food, Seed, & Other (mil. bu.) 1,338 1,276 1,280

Exports (mil. bu.) 2,437 1,858 2,050

Total Use (mil. bu.) 12,737 12,065 12,930

Ending Stocks (mil. bu.) 1,624 1,674 1,675

Season-Average Price ($/bu.) 4.20 4.06 3.55


Department of EconomicsSource: USDA


U.S. Corn Harvest Progress

Source: USDA

0

20

40

60

80

100

% H

arv

est

ed

5-Year Average 2009 1992


U.S. Soybean Supply and Use

Source: USDA

2007 2008 2009

Area Planted (mil. acres) 64.7 75.7 77.5

Yield (bu./acre) 41.7 39.7 43.3

Production (mil. bu.) 2,677 2,967 3,319

Beg. Stocks (mil. bu.) 574 205 138

Imports (mil. bu.) 10 13 8

Total Supply (mil. bu.) 3,261 3,185 3,465

Crush (mil. bu.) 1,803 1,662 1,695

Seed & Residual (mil. bu.) 93 101 175

Exports (mil. bu.) 1,159 1,283 1,340

Total Use (mil. bu.) 3,056 3,047 3,210

Ending Stocks (mil. bu.) 205 138 255

Season-Average Price ($/bu.) 10.10 9.97 9.50

Department of EconomicsSource: USDA


U.S. Soybean Harvest Progress

Source: USDA

0

20

40

60

80

100

% H

arv

est

ed

5-Year Average 2009 1985


Storage Issues

Source: Hurburgh and Elmore,ICM News, 10/15/09


World Corn Production

Source: USDA


Corn – Argentina & Brazil

Source: USDA

35

38

41

44

47

50M

illio

n a

cres

1800

2100

2400

2700

3000

3300

Mill

ion b

ush

els

Area Harvested Production


World Soybean Production

Source: USDA


Soybeans – Argentina & Brazil

Source: USDA

65

75

85

95

105

Mill

ion a

cre

s

2700

3150

3600

4050

4500

Mill

ion b

ush

els

Area Harvested Production


Exchange Rates (Jan. 2003 = 1)

Source: USDA, ERS

0.4

0.6

0.8

1.0

1.2

1.4

Canada Mexico Brazil EU China South KoreaJapan Australia


0

200

400

600

800

1,000

1,200

1,400

1,600

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ion b

ush

els

Corn Soybeans

Exports & Advance Sales(1st 14 weeks of marketing year)

Source: USDA, FAS


2009 U.S. Corn Exports

Source: USDA, FAS

Other26%

Taiwan6%

South Korea17%

Egypt5%

Mexico16%

Japan30%


2009 U.S. Soybean Exports

Source: USDA, FAS

Mexico6%

Japan4%

Other19%

EU5%

China66%


0

5

10

15

20

25

30

35

40

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Bill

ion G

allo

ns

Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)

60% GHG Emission Reduction

50% GHG Emission Reduction

20% GHG Emission ReductionIf construction started after Dec. 2007


Renewable Fuels Standard (RFS)

0

2

4

6

8

10

12

14

16

2009 2010 2011

Bill

ion g

allo

ns

Additional Advanced Biofuels Biodiesel

Cellulosic Biofuels Conventional Biofuels

CropYear

Billion Bushels

2008 3.57

2009 4.11

2010 4.43

2011 4.64


Ethanol Margins

Source: ISU, CARD


0

20

40

60

80

100

120

140

Jan-8

6

Jan-8

8

Jan-9

0

Jan-9

2

Jan-9

4

Jan-9

6

Jan-9

8

Jan-0

0

Jan-0

2

Jan-0

4

Jan-0

6

Jan-0

8

Jan-1

0

Jan-1

2

Jan-1

4

Jan-1

6

Jan-1

8

$ p

er

barr

el

Crude Oil Prices

Sources: EIA, NYMEX


Ethanol Blending Advantage

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

1/3

/2007

3/3

/2007

5/3

/2007

7/3

/2007

9/3

/2007

11/3

/2007

1/3

/2008

3/3

/2008

5/3

/2008

7/3

/2008

9/3

/2008

11/3

/2008

1/3

/2009

3/3

/2009

5/3

/2009

7/3

/2009

9/3

/2009

11/3

/2009

Cents

per

ga

llon


Dept. of Energy Projections

Source: Energy Information Administration,Annual Energy Outlook 2009


Draft Lifecycle GHG Reductions

Source: EPA, May 2009


Iowa Crop Basis

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Cen

ts p

er b

ushe

l

Average 2000-05 - Corn Average 2000-05 - Soy 2009 - Corn 2009 - Soy


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)


CO2 Emissions

Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007


CH4 Emissions



N2O Emissions



Agricultural GHG Emissions



GHG Emission Statistics



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.


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


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


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



Energy Sources

Source: EPA Analysis of H.R. 2454, June 23, 2009


GHG Emissions & Abatements



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



Domestic Offsets

Source: EPA Analysis of Waxman-Markey, April 20, 2009


Domestic Offsets

Table 1. Rental values ($/acre) for U.S. cropland used to grow trees

Carbon Price ($/ton) Region 20.00 30.00 40.00 50.00 60.00 90.00 Corn Belt 81 121 161 202 242 363 Delta States 127 190 253 316 380 569 Lake States 98 147 195 244 293 440 Southeast 115 173 231 288 346 519



Shifting Land Patterns

Source: EPA, “Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture”, Nov. 2005


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



Carbon Prices Increase Over Time



Prices Are Sensitive to Offsets



Energy Price Paths



Impacts on an Average Household



USDA Estimates

Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/09

2012-2018 Production Costs Changes


Land Use Changes


Allowance Prices


Land Use Changes by 2050


Forest Cropland Pasture

(million acres)

Corn Belt 22.5 -20.6 -1.8

Great Plains -- 1.7 -3.8

Lake States 15.1 -12.1 -2.2

Northeast 2.4 -1.9 -0.5

Rocky Mts. 7.7 -5.3 -1.7

Pacific SW 0.0 0.0 0.0

Pacific NW 0.2 0.2 -0.2

South Central 10.0 -6.4 -3.6

Southeast 1.1 1.2 -1.9

Southwest -- 8.2 -8.2


Offset Revenues



Crop Production Changes



Livestock Production Changes



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/

Department of Economics Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad Hart Assistant Professor/Grain Markets.

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