Impacts of Biofuels on Impacts of Biofuels on the Souththe South

Dwi Susanto & Parr Rosson: Texas Dwi Susanto & Parr Rosson: Texas AgriLife Research & Texas AgriLife AgriLife Research & Texas AgriLife

Extension, respectivelyExtension, respectivelyDarren Hudson: Mississippi State Darren Hudson: Mississippi State

UniversityUniversity

SAEA Annual Meeting 2008SAEA Annual Meeting 2008

22

BackgroundBackgroundHigh Oil PricesHigh Oil PricesRising Output & Demand for EthanolRising Output & Demand for EthanolTrends in production of crops & Trends in production of crops &

animalsanimalsSouthern States: Grain deficit region, Southern States: Grain deficit region,

but major producer of animals but major producer of animals Energy PolicyEnergy Policy

33

44

Ethanol: Production, Demand, and Growth

(Billion Gallons & Percent)

Left Axis: Ethanol Production & Demand; Right Axis: Growth in Ethanol Production (%)

1984 1987 1990 1993 1996 1999 2002 20050

1

2

3

4

5

6

7

8

0

10

20

30

40

-10

-20

-30

Production Demand Growth

Ethanol % Change in Production

55

Nominal Crop Prices

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 20070

2

4

6

8$ per bushel

0

0.2

0.4

0.6

0.8Cents per pound (Cotton)

Corn Cotton Soybeans Wheat

66

Area Planted in Main Crops: South-Million Acres-

49.646.3 47.6 46.9 47.6

44.9 45.5 45.8

2000 2001 2002 2003 2004 2005 2006 20070.0

10.0

20.0

30.0

40.0

50.0

60.0 Corn Cotton Soybeans Wheat

10.16.7

15.913.7

10.111.3

9.713.8

77

Corn Production: South

SP=Southern Plains; DL=Delta; SE=South East; AP=Appalachian;

Corn Production - Southern States

714.6

823.4

914.1

802.0

703.6

1116.5

2002 2003 2004 2005 2006 20070.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

SP DL SE AP

189

105

67

306

347

105

359

343

-Million Bushels-

88

South’s Share of US Animals UnitsSouth’s Share of US Animals Units

12 12 11 11 11

24 23 24 23 2426 26 26 25 24

80 80 83 82 82

38 39 38 37 38

2002 2003 2004 2005 20060

20

40

60

80

100Dairy Cattle Cattle on feed Hogs Broilers Turkeys

99

Grain Deficit, SouthGrain Deficit, South

2000 2001 2002 2003 2004 2005 2006

0

100

-100

-200

-300

-400

-500

SP DL SE AP

1010

Energy PolicyEnergy PolicyEnergy Policy Act of 2005Energy Policy Act of 2005 Established Renewable Fuel Standard

Requires use of 7.5 billion gallons of biofuels (including ethanol and biodiesel) by 2012

Energy Independence and Energy Independence and Security Act of 2007Security Act of 2007

Increases supply of alternative fuels by increasing mandatory Renewable Fuel Standard

36 billion gallons of biofuels by 2022

1111

Objectives1. Project ethanol production

in US and South2. Project future corn supply

and utilization, focus on Feed Use & Exports resulting from 2007 Act

3. Discuss Implications for Agriculture, focusing on Animal Industries

1212

MethodologyMethodology Project Ethanol Production-used 12% Project Ethanol Production-used 12%

growth rate (actual), 1990-2007 for USgrowth rate (actual), 1990-2007 for US– South based on current & expected capacity South based on current & expected capacity

expansion (RFA)expansion (RFA) Projected Corn Production- used harvested Projected Corn Production- used harvested

area (exponential growth function with area (exponential growth function with dummy) & yield (geometric average), dummy) & yield (geometric average), 1987-20061987-2006

Consumption based on GCAU by animal Consumption based on GCAU by animal type, then allocated by animal shares in type, then allocated by animal shares in each state (dairy, cattle, hogs, chickens, each state (dairy, cattle, hogs, chickens, turkeys)turkeys)

1313

Regions & Data Southern States Include:

Southern Plains: Texas and OklahomaDelta: Arkansas, Louisiana, and MississippiSouth East: Georgia, Alabama, Florida, and South

CarolinaAppalachian: Tennessee, Kentucky, North Carolina,

and Virginia

Data Sources:Ethanol production: Renewable Fuels Association (RFA)Acreage planted, Prices, Animal Units, and other

Related Data are mostly obtained from USDA publications

1414

ProjectionsProjections

Ethanol Production and Corn Ethanol Production and Corn Supply and UtilizationSupply and Utilization

1515

Corn Production and Use, Ethanol Output, United States: Projections

2008 2010 2012 2014 2016 2018 2020 2022

0

10

20

30

40

-10

Ethanol ProductionFeed StockCorn ProductionCorn Exports

Corn in Million Bushels Ethanol in Billion Gallons

1616

Corn Production and Use, Ethanol Output: Projected for Southern States

0.1 0.2 0.3 0.4 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.6 0.6

2.0 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.2 2.2 2.2 2.2 2.2

1.2 1.3 1.4 1.4 1.4 1.5 1.5 1.6 1.6 1.7 1.8 1.8 1.9 2.0 2.1 2.1

-1.2 -1.2 -1.3 -1.3 -1.4 -1.4 -1.4 -1.4 -1.4 -1.3 -1.3 -1.3 -1.3 -1.2 -1.2 -1.1

2007 2010 2013 2016 2019 2022

0.0

1.0

2.0

3.0

-1.0

-2.0

Supply Feed and Residual Fuel Net

Billion Bu Million Gallons

1717

Projected US Corn Exports and Regional Disposition in South

2006 2008 2010 2012 2014 2016 2018 2020 2022

0

500

-500

-1000

-1500

Million Bu-South

0

2

4

-2

-4

Billion Bu-US

South SPlainsDelta SouthEastAppalachian US Exports

Deficit to Surplus for Delta Region

Net Export to Net Import for US

S Plains Surplus to Deficit

1818

Key PointsKey Points US corn meets domestic demand US corn meets domestic demand

for ethanol and feed until 2018for ethanol and feed until 2018• After then, US becomes a Net Importer of After then, US becomes a Net Importer of

Corn, Up to 3.7 Billion Bu in early yearsCorn, Up to 3.7 Billion Bu in early years Assumes all ethanol needs met with cornAssumes all ethanol needs met with corn

Delta increases corn output, but S Delta increases corn output, but S Plains becomes deficit, forcing Plains becomes deficit, forcing South’s deficit to increaseSouth’s deficit to increase

• Supplies from other US regions & imports increaseSupplies from other US regions & imports increase Impacts of ethanol production on Impacts of ethanol production on

animal industries reflect higher animal industries reflect higher prices, but corn remains available in prices, but corn remains available in near termnear term

• Longer term, may strain infrastructureLonger term, may strain infrastructure

1919

Key Points (cont.)Key Points (cont.) Acreage Shifts difficult to predict with any Acreage Shifts difficult to predict with any

degree of confidencedegree of confidence– A work in progressA work in progress

Specialized Infrastructure likely a major Specialized Infrastructure likely a major constraintconstraint

Objectives of 2007 Energy Independence Objectives of 2007 Energy Independence Act Difficult to AchieveAct Difficult to Achieve– Technical Feasibility PositiveTechnical Feasibility Positive

Economics Pose DifficultiesEconomics Pose Difficulties– Energy & Commodity Price UncertaintyEnergy & Commodity Price Uncertainty– Import Tariff Changes & Tax Credit ExpirationImport Tariff Changes & Tax Credit Expiration– Requirements for Specialized InfrastructureRequirements for Specialized Infrastructure