# Presentation: 698035

## The New World of Biofuels:  Implications for Agriculture and Energy

**Keith Collins, Chief Economist, USDA**
***EIA Energy Outlook, Modeling, and Data Conference***
**March 28, 2007**

## Overview

**Ag 101**
**Status of Biofuels & Market Implications**
**Public Policy and Biofuels**
**Role of Research **
**USDA Energy Policy & 2007 Farm Bill**

## Ag at a Glance

| Item | 2006 | 2007F |
| --- | --- | --- |
|  | Billion $ |  |
| Farm cash receipts | 243 | 259 |
|    Crop receipts | 122 | 134 |
|       Corn receipts | 23 | 31 |
|    Livestock receipts | 121 | 125 |
| Livestock feed costs | 31 | 35 |
| Value of exports (FY) | 69 | 78 |

## Farm Program Payments . . .corn accounts for a large share

## Corn Ethanol Production . . .expect to use 27% of ’07 corn crop for nearly 9 bil. gal. 

## Biodiesel Production . . .expect to use 17% of ’07 soyoil crop for 500 mil. gal.

## Global Coarse Grain Stocks . . .getting uncomfortably tight 

**% of total use**

**2006/07F:****  ****12%**

**19% & Record corn prices**

**Crop Year**

## Expected Net Returns . . .

**Expected Net Returns . . .**
***favor corn***

## Corn Acres Planted . . .

**Corn Acres Planted . . .**
***highest Since 1945 expected***

## Projected Corn Ethanol Production... expect 12 bil. gal. in 2016/17– 30% of corn crop

## Ethanol Imports Augment Demand...imports soaring, led by Brazil

**Source:  Census and Customs CBI TRQ data **

## Projected Soy Biodiesel Production... expect 700 mil. gal. in 2016/17 – 23% of soyoil production

## Ethanol-Corn Price Spread . . .weekly data (2.75xPeth-Pcrn)

**2000**

**2002**

**2004**

**2006**

**1999**

**2001**

**2003**

**2005**

**2007**

## Ethanol-Corn Price Spread . . .annual data with alternative Peth scenarios

**Ethanol priced = **
**historical premium**

**Priced = gasoline**

**Priced = 70% gasoline**

## Challenges Facing Ethanol 

**Corn trend acreage & yields**
**Global weather**
**Demand growth for blends/E85**
**Ethanol distribution system **
**Tax credit, tariff, RFS/AFS issues**
**Livestock feed costs & adjustments**
**DDG quality**
**Meat and consumer food prices**
**Environmental issues:  nitrogen, water quantity & quality, CRP**

## Change in Fuel Use Since 2005 Met by Ethanol/Biodiesel

**Source:  2007 EIA Annual Energy Outlook**

**∆ ****Total Gas/Distillate Use**

**∆ ****E/B use**

**E/B share of **
**∆** **total fuel use**

## Options to Maintain Biofuel Growth

**Do nothing**
**Minimum prices (price controls)**
**Maintain or amend subsidies/tax**
**preferences**
**Increase renewable fuel standards**

## Projected Corn Ethanol Production. . . w/o tax credit and import tariff (USDA analysis)

## Projected Corn Prices...w/o tax credit and import tariff (USDA analysis)

## Projected Soy Biodiesel Production. . .w/o tax credit (USDA analysis)

## President’s “20 in 10” Proposal

**Reduce U.S. gasoline use by 20% in the next 10 years**
**Path:**
**Modify CAFÉ**
**Require 35 billion gallons of renewable and alternative fuels by 2017**
**Easy to achieve?**
**Role of Ethanol and Biodiesel ?  **

## USDA Baseline Biofuel Production

**“****20 in 10”**

**22 billion**

## Biomass Potential by 2017(excluding corn based ethanol)(310 million tons of biomass = 28 billion gallons of ethanol)

**Biomass Potential by 2017*****(excluding corn based ethanol)******(310 million tons of biomass = 28 billion gallons of ethanol)***

**Source: “Billion-Ton” Study**

**Forest Residues (130) **

**Crop Residues (152)**

**Perennial Crops (26) **

## Cost Competitiveness of Cellulosic Ethanol

|  | Corn Based | Cellulosic Today?--Illustrative | Cellulosic 2010-12— DOE target |
| --- | --- | --- | --- |
| Feedstock | $1.17
@$3.22/bu
2.75g/bu | $1.00
@$60/dt
60g/dt | $0.33
@$30/dt
90g/dt |
| By-Product | -$0.38 | -$0.10 | -$0.09 |
| Enzymes | $0.04 | $0.40 | $0.10 |
| Other Costs** | $0.62 | $0.80 | $0.22 |
| Capital Cost | $0.20 | $0.55 | $0.54 |
| Total | $1.65 | $2.65 | $1.10 |

**** (includes preprocessing, fermentation, labor)**

## Role for Research

**Reduce Production Costs**
**- Land Costs**
**-- Cropland**
**-- Grassland/Pasture**
**- Establishment and Reseeding**
**- Bailing and Staging**
**Transportation Costs**

## Cropland Rents . . . hard for dedicated crops to compete for land

**Cropland rents over $100/acre need over 3 dt/acre just to cover land costs**

## Production Costs . . . (actual economic data are limited)

**University of Nebraska/ARS**
**--Switchgrass, 173 acres, 5 years, 10 farmers**
**--Average yield = 3.4 tons/acre**
**--Land cost = $17/ton**
**--Production cost = $27/ton**
**  *****Total cost = $44/ton***
**Iowa State University**
**--Switchgrass from Pasture**
**--Average yield = 4 tons/acre**
**--Land cost = $13/ton**
**--Establishment + reseeding cost = $7/ton**
**--Production cost = $40/ton**
**  *****Total cost = $60/ton***

## 2007 Farm Bill Proposal

**$500 million--**** Ag Bioenergy and Biobased Products Research Initiative**
**$150 million****--Biomass Research and Development Act **
**$100 million--****Cellulosic Bioenergy Program**
**$150 million--****Forest Wood-to-Energy Program **
**Biomass Reserve Program (BRP) **

## Conclusions

***Tight agricultural markets raising risks***
***Corn ethanol:****** ***
**--Approaching limits**
**--Making minor inroads in crude oil market**
**--Can do a little more with better yields**
***Cellulosic technology: ***
**--Great prospects**
**--Large potential biomass feedstock base (technical)**
**--Must focus on economic potential**
**--Need to improve yields to reduce feedstock costs**
**--Public policy goal to get over initial adjustment costs**