bioenergy implications: trying to keep up

Bioenergy implications: Trying to keep up

Pat Westhoff (westhoffp@missouri.edu)

FAPRI at the University of Missouri(www.fapri-mu.org)

“Forestry, Agriculture and Climate Change: Modeling to Support Policy Analysis”Shepherdstown, WVSeptember 29, 2011

Here’s the situation

Like Bruce McCarl, I only saw two of the presentations in advance

So I’ll make a few points about the presentations and a few of my own

Khanna: Implications of biofuel production Many nice features in model, including

Terms of trade effects Endogenous levels of fuel consumption

One conclusion: RFS increases total fuel consumption due to lower fuel prices More biofuel production reduces (producer) prices for

gasoline—OK But what about mandate compliance costs? If RINs

have value, are they reflected in consumer fuel prices?

Net effect on consumer prices appears ambiguous

Smith: CRAM in bioenergy analysis Nice discussion of impacts of oil prices and

carbon taxes

In carbon tax scenario, interesting to see impacts on hay, livestock Reminder that accounting GHG emissions

important not just in model, but in “real world” implementation

At least in U.S., easy to imagine regulations that give farmers credit for changes in crop mix, but NOT charge producers for livestock emissions

Hellwinckel: Cellulosic feedstock data effects New data suggests

Lot more crop residues and standing trees Lot less use of grasses Net effect: far less sequestration, net carbon flux

from agriculture increases over time

Reminder that new data can change stories

Aside: future of BCAP uncertain—may not continue

Galik & Abt: woody biomass Impacts appear very region- and

assumption-specific Price changes differ across regions Assumptions about residue utilization

matter a lot

How much can we aggregate and stylize without missing what’s important?

Birur: Policy impacts in a general equilibrium framework

General equilibrium approach allows an internally consistent, global picture

Lots of good and useful analysis

One important question: has world changed in unexpected and important ways since 2004?

U.S. and Brazilian ethanol prices

04/05

05/06

06/07

07/08

08/09

09/10

10/11

0.00

0.50

1.00

1.50

2.00

2.50

3.00

OmahaSao Paulo

Dol

lars

per

gal

lon

Source: FAPRI-MU Aug. 2011 baseline update, based on data reported by state of Nebraska and USDA GAIN reports

Implications U.S. has been become a net exporter of ethanol, and

has exported ethanol to Brazil

Given current market situation Allowing tariff to expire on Dec. 31 won’t cause imports Allowing tax credit to expire on Dec. 31 may increase U.S.

exports (if U.S. prices dip in response)

Current policies and markets imply U.S. will export ethanol to Brazil because it’s profitable U.S. will import ethanol from Brazil to satisfy advanced

biofuel mandate Ships passing in the night…

U.S. ethanol production and use mandates

2006

2008

2010

2012

2014

2016

2018

2020

2021

02000400060008000

10000120001400016000

Mandated use that can come from corn ethanolEthanol production

Billi

on g

allo

ns

Sources: Production from US Department of Energy; mandate based on the Energy Independence and Security Act of 2007

U.S. corn use

04/05

06/07

08/09

10/11

12/13

14/15

16/17

0

1000

2000

3000

4000

5000

6000

7000

Ethanol & coproductsFeed useExports

Billi

on b

ushe

ls

Source: FAPRI-MU Aug. 2011 baseline update

U.S. grain and soybean prices

012345678

04/0

5

06/0

7

08/0

9

10/1

1

12/1

3

14/1

5

16/1

7

Dolla

rs pe

r bus

hel

Grain prices

Wheat Corn

Source: FAPRI-MU baseline update, August 2011. September USDA projections for 2011/12: $6.50-$7.50/bu. for corn, $7.35-$8.35/bu. for wheat and $12.65-$14.65/bu. for soybeans.

02468

10121416

04/0

5

06/0

7

08/0

9

10/1

1

12/1

3

14/1

5

16/1

7

Dolla

rs pe

r bus

hel

Soybean prices

Soybeans

U.S. corn and soybean yields

120

130

140

150

160

170

180

2000

2002

2004

2006

2008

2010

2012

2014

2016

Bush

els pe

r acre

Corn

Source: FAPRI-MU baseline update, August 2011. September USDA estimates: 148.1 for corn, 41.8 for soybeans.

30323436384042444648

2000

2002

2004

2006

2008

2010

2012

2014

2016

Bush

els pe

r acre

Soybeans

Change in Crop Area: * Birur **USDA Aug. estimates of actual area harvested ***USDA Aug. estimates of area planted (million acres)

USA*2004-15

EU27*2004-15

USA** 2004-11

EU27**2004-11

USA*** 2004-11

PaddyRice -1.80 -0.42 -0.7 0.1 -0.7Wheat -7.80 -9.42 -4.0 -0.7 -4.5Corn 6.16 -1.30 10.8 -2.3 11.4rCrGrains 0.68 -1.39 -4.6 -4.4 -5.4Soybean 8.34 1.41 -0.1 0.1 -0.3RapeMustd 0.30 21.22 0.2 5.5 0.2Palm 0.00 0.00 0.0 0.0rOilseeds 0.70 5.66 -0.3 1.0 -0.4Sugarcane -0.08 0.00 0.0 0.0Sugarbeet -0.11 3.50 -0.1 -0.1OthAgri -2.68 -3.01 Cotton -3.4 0.0

3.71 16.24 Sum -2.2 -0.7 0.214

U.S. dry mill ethanol costs and returns

04/05

06/07

08/09

10/11

12/13

14/15

16/17

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Ethanol & DDGS salesOperating costsNet return

Dolla

rs p

er g

allo

n

Source: FAPRI-MU Aug. 2011 baseline update

How are ethanol prices determined? If mandates aren’t binding

In long run, gasoline prices and ethanol prices “should” be closely related

In short run, lots of complications▪ “Blend wall” means demand in conventional vehicles may be very

inelastic over a range of prices▪ Use in higher blends will take time (vehicles, pumps, etc.) and will only

happen if ethanol prices are expected to be low enough long enough

If mandates are binding Supply price must be high enough to generate sufficient

supplies Demand price must be low enough to encourage use RINs make up the difference

RIN values

10/11

11/12

12/13

13/14

14/15

15/16

16/17

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

ConventionalAdvancedBiodiesel

Dolla

rs p

er R

IN g

allo

n

Source: FAPRI-MU Aug. 2011 baseline update

U.S. hay acreage and prices

30

35

40

45

50

55

60

65

70

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Millio

n acre

s

Acreage

Source: USDA NASS.

0

20

40

60

80

100

120

140

160

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Dolla

rs pe

r ton

All hay price

U.S. livestock and poultry prices

60

80

100

120

140

160

2004

2006

2008

2010

2012

2014

2016Dolla

rs pe

r hun

dred

weigh

t

Cattle prices

Feeder cattle (OK City)Fed cattle (5-area)

Source: FAPRI-MU baseline update, August 2011

405060708090

100

2004

2006

2008

2010

2012

2014

2016Dolla

rs pe

r hun

dred

weigh

t

Hog and chicken prices

Barrow & Gilt (51-52% lean)Chickens (12 city wholesale)

Thanks!

FAPRI-MU website: www.fapri-mu.org

To contact me: 573-882-4647 westhoffp@missouri.edu