Pat Westhoff ([email protected])
FAPRI at the University of Missouri
(www.fapri-mu.org)
“Forestry, Agriculture and Climate Change:
Modeling to Support Policy Analysis”
Shepherdstown, WV
September 29, 2011

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

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

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

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

Impacts appear very region- and assumptionspecific
 Price changes differ across regions
 Assumptions about residue utilization matter a lot

How much can we aggregate and stylize
without missing what’s important?

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?
3.00
Dollars per gallon
2.50
2.00
Omaha
1.50
Sao Paulo
1.00
0.50
0.00
04/05
06/07
08/09
10/11
Source: FAPRIMU Aug. 2011
baseline update,
based on data
reported by state
of Nebraska and
USDA GAIN
reports

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…
16
14
Billion gallons
12
10
Mandated use that can
come from corn ethanol
8
Ethanol production
6
4
2
0
2006 2008 2010 2012 2014 2016 2018 2020 2021
Sources: Production
from US Department of
Energy; mandate based
on the Energy
Independence and
Security Act of 2007
7
6
Billion bushels
5
4
Ethanol & coproducts
Feed use
3
Exports
2
1
Source: FAPRIMU Aug. 2011
baseline update
0
04/05 06/07 08/09 10/11
12/13
14/15
16/17
Soybean prices
Wheat
Corn
16/17
14/15
12/13
10/11
08/09
06/07
16
14
12
10
8
6
4
2
0
04/05
16/17
14/15
12/13
10/11
08/09
06/07
Dollars per bushel
8
7
6
5
4
3
2
1
0
04/05
Dollars per bushel
Grain prices
Soybeans
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.
Corn
Soybeans
2016
2014
2012
2016
2014
2012
2010
2008
2006
2004
2002
2000
120
2010
130
2008
140
2006
150
2004
160
2002
Bushels pe r acre
Bushels pe r acre
170
48
46
44
42
40
38
36
34
32
30
2000
180
Source: FAPRI-MU baseline update, August 2011. September USDA estimates: 148.1 for corn, 41.8 for soybeans.
Change in Crop Area:
* Birur
**USDA Aug. estimates of actual area harvested
PaddyRice
***USDA Aug. estimates of area planted
USA*
EU27*
2004-15 2004-15
-1.80
-0.42
USA** EU27**
2004-11 2004-11
-0.7
0.1
(million acres)
USA***
2004-11
-0.7
Wheat
-7.80
-9.42
-4.0
-0.7
-4.5
Corn
6.16
-1.30
10.8
-2.3
11.4
rCrGrains
0.68
-1.39
-4.6
-4.4
-5.4
Soybean
8.34
1.41
-0.1
0.1
-0.3
RapeMustd
0.30
21.22
0.2
5.5
0.2
Palm
0.00
0.00
0.0
rOilseeds
0.70
5.66
-0.3
Sugarcane
-0.08
0.00
0.0
0.0
Sugarbeet
-0.11
3.50
-0.1
-0.1
OthAgri
-2.68
-3.01
Cotton
-3.4
0.0
3.71
16.24
Sum
-2.2
0.0
1.0
-0.7
-0.4
0.2
14
3.50
Dollars per gallon
3.00
2.50
2.00
Ethanol & DDGS sales
Operating costs
1.50
Net return
1.00
0.50
Source: FAPRI-MU Aug.
2011 baseline update
0.00
04/05 06/07 08/09 10/11 12/13 14/15 16/17

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
1.40
Dollars per RIN gallon
1.20
1.00
0.80
Conventional
Advanced
0.60
Biodiesel
0.40
0.20
Source: FAPRIMU Aug. 2011
baseline update
0.00
10/11
12/13
14/15
16/17
55
50
45
Dollars per ton
70
160
65
140
60
120
40
40
35
20
30
0
Source: USDA NASS.
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Million acres
Acreage
All hay price
100
80
60
Hog and chicken prices
Feeder cattle (OK City)
Barrow & Gilt (51-52% lean)
Fed cattle (5-area)
Chickens (12 city wholesale)
Source: FAPRI-MU baseline update, August 2011
2016
2014
2012
2016
2014
2012
2010
2008
2006
60
2010
80
2008
100
2006
120
100
90
80
70
60
50
40
2004
140
Dollars per hundredweight
160
2004
Dollars per hundredweight
Cattle prices

FAPRI-MU website: www.fapri-mu.org

To contact me:
 573-882-4647
 [email protected]