# WAEES Biofuels and Related Models Overview By John Kruse, PhD Principal and Directory of Quantitative Analysis Email: jkruse@waees-llc.com

# WAEES Scenario Analyses (2015) Scenario Analysis 1. RFS 2 Policy

- Volume Obligations

- Biodiesel



## - Ethanol

- Advanced

- Tax credits

- Ethanol blend wall issues 2. International Policy



## - Argentina Policy

- Brazil Policy

- EU-28 Biofuels Policy 3. Biofuels Technology

- Feedstock Conversion



## - Renewable Diesel 4. Crude oil prices 

## 5. Biofuels Feed Stocks

- Supply Availability

- Yield growth

- Production shocks

- New sources

- Market changes

- Technology 6. International supply shocks

- Ukraine disturbance

- South America yields



## - US yields 7. International demand shocks

- China feed demand

- Africa meat & feed consumption

- Calorie consumption 

# WAEES Global Partial 

# Equilibrium Modeling System 8. Trait & Technology Analysis

- Valuation of GE crops

- Impacts of labeling GE foods

- Impact of new trait introduction



# WAEES has run 25 specific scenarios in 2015 as of the end of April. Over 20,000 equations

# Commodity Coverage  

# Corn  

# Sorghum  

# Barley  

# Wheat  

# Rice  

# Cotton  

# Soybeans & Derivatives  

# Sunflowers & Derivatives  

# Rapeseed & Derivatives  

# Palm Oil  

# Sugarcane, Sugar Beets, & Sugar  

# Biodiesel  

# Ethanol  

# Cattle  

# Hogs  

# Beef  

# Pork  

# Broilers  

# Dairy & Dairy Products (Quasi Trend Model)

# Geographic Coverage of the WAEES Agricultural & Biofuels Partial Equilibrium Models (USDA Regions)

North America • US • Canada • Mexico Central America & the Caribbean South America • Argentina • Bolivia • Brazil • Chile • Paraguay • Uruguay • Other South America The European Union (28 countries) Area, yield, production individual countries Other Europe Former Soviet Union • Russia • Ukraine • Uzbekistan • Other Former Soviet Union Middle East • Iran • Saudi Arabia • Turkey • Other Middle East East Asia • China • Japan • South Korea • Taiwan • Other East Asia South Asia • Bangladesh • India • Pakistan • Other South Asia Southeast Asia • Indonesia • Malaysia • Myanmar • Philippines • Thailand • Vietnam • Other Southeast Asia Oceania • Australia • Other Oceania North Africa • Egypt • Other North Africa Sub-Saharan Africa • Kenya • Nigeria • South Africa • Other Sub-Saharan Africa

# Concept Coverage
 

# Supply Components

 

### Crops: Area, Yield, Production, Imports, Beginning Stocks  

### Livestock: Breeding Herd, Market Animals, Calf Crop, Pig Crop, Slaughter Weight, Production, Imports, Beginning Stocks  

### Biofuels & RINs: Capacity, Capacity Utilization, Production, Imports, Beginning Stocks  

# Demand Components

 

### Crops: Food, Feed, Industrial, Exports, Ending Stocks  

### Livestock: Slaughter, Death Loss, Food Use, Exports, Ending Stocks  

### Biofuels & RINs: Consumption, Exports, Ending Stocks  

# Commodity Prices (except dairy)  

# Regional Crop Costs of Production for the United States, Brazil, Argentina, China, and India  

# Assumptions used regarding Real GDP Growth, Population, Inflation, Exchange Rates, Crude Oil Prices, and Policy.

# Partial Equilibrium Modeling System (Conceptual Framework Representation for One Country)

Crop Feed Demand Crop Food Demand 

## Per Capita Income & Distribution Other Crop Demand Population Age Distribution & Health Concerns Cultural Tastes & Preferences Meat Food Demand Biofuels Demand Fuel Fertilizer 

## Chemical Machinery Crop Prices Area

Harvested Yield Seed 

## Land Transport Labor Interest Crop Cost 

## of Production

Veterinary

Feed Meat Prices Market



## Animals Livestock

Cost of Production 

## Breeding Herd 

## Government Policy Technology

Inflation Exchange Rates Conditioning Assumptions Crop Supply & Demand Livestock Supply & Demand

### Country 1 Residual Supplier 

# WAEES Structural Partial Equilibrium Models

Food Use Total Supply Production

Net Exports Feed

Use Ending Stocks Farm Price Beginning

Stocks Area Harvested Yield

Industrial Use Port Price

Food Use Total Supply Production

Ending Stocks Feed Use Net Imports Beginning

Stocks Area

Harvested Yield

Industrial Use Farm Price

Total Demand Transportation Cost Import Tariffs Exchange Rates Port Price 

## Country 3

Food Use Total Supply Production

Ending Stocks Feed Use Net Imports Beginning

Stocks Area

Harvested Yield

Industrial Use Farm Price

Total Demand Transportation Cost Import Tariffs Exchange Rates Port Price 

## Country 2

Food Use Total Supply Production

Ending Stocks Feed Use Net Imports Beginning

Stocks Area

Harvested Yield

Industrial Use Farm Price

Total Demand Transportation Cost Import Tariffs Exchange Rates Port Price 

## Country N



# ...

# Data Sources Macroeconomic  

### Real GDP, Inflation: IMF through 2019, WAEES thereafter  

### Population: United Nations  

### Exchange Rates: WAEES model based on IMF forecast of real GDP, inflation, and other factors  

### Crude oil and other energy prices: U.S. Department of Energy, Energy Information Administration (EIA) 

# Ag Commodity Supply & Demand  

### USDA PS&D Database, ERS, & NASS (90%)  

### FAO Database  

### Eurostat (EU-28 by country supply data)  

### USDA Gain Reports  

### Country Ministries of Ag 

# Policies & Tariffs  

### USDA FSA & USDA GAIN Reports  

### Country Ministries of Agriculture  

### WTO  

### OECD  

### European Commission 

# Ag Commodity Prices  

### USDA ERS & NASS  

### Eurostat  

### Various spot markets  

### The Jacobsen 

# Biofuels  

### US Supply & Demand: EIA, EPA EMTS Data, and ERS-FATUS  

### US Prices: USDA AMS, Nebraska Government Website, The Jacobsen  

### Int’l Supply & Demand: USDA Gain Reports, European Biodiesel Board, European Commission, Argentine Institute of National Statistics and Census(INDEC),  

### Int’l Prices: Argentine Secretary of Energy, Center for Advanced Studies on Applied Economics (CEPEA

### Brazil), USDA Gain Reports, The Jacobsen

# Crop Area Specifications Preferred Approach

Symmetry Own elasticity > Sum of the cross elasticities

# Food Demand Specifications

# Feed Demand Specifications

εGrain Consuming Units Corn Feed Demand 

# = 1

# US Biofuels RIN Models

D6 RIN Volume Obligation D6 RIN Ending Stocks D6 RIN

Price Domestic D6 RIN Production Carryover RIN stocks Imported D6 RIN Production Demoted D5 RINs Supplied D5 RIN Volume Obligation D5 RIN Carryover Stocks D5 RIN Price Domestic D5 RIN Production Carryover RIN stocks Imported D5 RIN Production Demoted D4 RINs Supplied

D5 RINs Demoted to D6 RINs D4 RIN Volume Obligation D4 RIN

Carryover Stocks D4 RIN Price Domestic D4 RIN Production Carryover RIN stocks Imported D4 RIN Production

D4 RINs Demoted to D5 RINs D3 RIN Volume Obligation D3 RIN Price Domestic D3 RIN Production Imported D3 RIN

Production

Imported Sugarcane Ethanol Renewable Diesel Adv Sorghum Ethanol Renewable Diesel Biogas Naptha Heating Oil Compressed Gas Dom Sugarcane Ethanol Butanol

Biodiesel

Renewable Diesel Butanol Corn Ethanol Renewable Diesel

# US Biofuel Feedstock Sources

Sugarcane Ethanol Production Corn Biodiesel Production

Renewable Diesel Production Soybean Oil

Cellulosic Biomass Butanol Production

Sorghum Canola Oil DDG Corn Oil Inedible Tallow White Grease Brown Grease Poultry Fat
Palm Oil Heating Oil Naptha

Landfill Waste Management Biogas Animal Waste Management Compressed Gas Yellow Grease 

## Boxes with a dashed outline are included in the WAEES biofuels model as assumptions.

# US Biofuels Partial Equilibrium Models For Ethanol & Biodiesel

High Blend Use Total Supply Ethanol Production

Ending Stocks Low Blend

Use Exports Ethanol Price Imports Beginning Stocks

Exports Total Supply Biodiesel Production

Ending Stocks Fuel Use Biodiesel Price Imports Beginning Stocks 

## Corn Ethanol Biodiesel

Capacity Capacity

Utilization Capacity Capacity Utilization

Conventional Mandate Market Biodiesel Mandate Market Glycerin Production Distillers’ Grains Production Corn Oil Production Processing Margin Ethanol Price Corn Price Processing Margins Biodiesel Price

#2 Diesel

Price Glycerin Price Feed Stock Prices Technology DDG Price DDG Corn Oil Price Other Costs

Unleaded Gasoline Price Crude Oil Price Conventional RIN Price Biodiesel RIN Price Advanced RIN Price Brazil Ethanol PriceBrazil Ethanol

Supply World Sugar Price Brazil Ethanol Demand

Cellulosic RIN

Price Sorghum EthanolIndustrial Use Total Supply Oil Production

Ending Stocks Food

Use Exports Oil Price Imports Beginning Stocks 

## Soybean Oil Sunflower Oil Rapeseed Oil 

# The Structure of the Oilseed Oil Models

Industrial Use Total Supply Oil Production

Ending Stocks Food

Use Exports Oil Price Imports Beginning Stocks

Industrial Use Total Supply Oil Production

Ending Stocks Food

Use Exports Oil Price Imports Beginning Stocks

Industrial Use Total Supply Oil Production

Ending Stocks Food

Use Exports Oil Price Imports Beginning Stocks 

## Palm Oil

Biofuels Use Other

Industrial Use Biofuels Use Other

Industrial Use Biofuels Use Other

Industrial Use Biofuels Use Other

Industrial Use

# Hog Fat Market Structure

Food Use Inedible

Use Lard Supply Lard Production (Edible Hog Fat) White Grease Production (Inedible Hog Fat) Beginning Stocks

Ending Stocks Hog Slaughter

Lard Price Imports

Other Industrial Use Methyl Ester UseExports White Grease Price White Grease Imports White Grease Supply

White Grease Methyl Ester Use White Grease Exports White Grease Feed Use White Grease Ending Stocks White Grease Beginning Stocks

White Grease Oleo Chemical Use


### Dashed lines indicate that data is not specifically reported

# DDG Corn Oil and Other Fat Market Structures

Feed Use Methyl Ester Use Poultry Fat

Production Poultry Fat Price

Feed Use Methyl Ester Use DDG Corn Oil Production DDG Corn Oil Price DDG Production

Feed Use Methyl Ester Use Brown Grease Production Brown Grease Price



### Dashed lines indicate that data is not specifically reported De-canted Trap Waste Soybean Oil ByProduct Processing Other Sources

Renewable Diesel UseNet Exports Total Supply Biodiesel Production Ending Stocks Beginning Stocks 

## Biodiesel

Biodiesel Domestic Target Processing Margins Technology 

# Indonesia Biodiesel and Palm Oil Models

Industrial Use Total Supply Oil Production

Ending Stocks Food

Use ExportsPalm Oil Port Price Imports Beginning Stocks 

## Palm Oil

Biofuels Use Other Industrial Use Palm Oil

Domestic Price Export & Specific Tariffs US Biodiesel Plant Price US D4 RIN Price– US D6 RIN Price Supply Incentive Price US Biodiesel Blenders Credit

EU Palm Biodiesel Price

# ASSUMPTIONS

# Crude Oil Price West Texas Intermediate

# RFS Volume Obligation Assumptions Baseline and Scenarios

# Brazil Exchange Rate Reals per US dollar

# US Corn Yields

# US Corn Production and Harvested Area NBB Minimum Scenario

# US Soybean Yields

# US Soybean Production and Harvested Area

# Extraction of corn oil from DDG’s

# DDG Corn Oil Production and Use Minimum Scenario

– Marketing Year

# SCENARIO RESULTS

# Determining US Sugarcane Ethanol Imports

 

## Step 1: Model Minimum

– CA CARB Requirements

 

## Step 2: Check to see if Brazil ethanol is competitive with starch ethanol production (Brazil anhydrous FOB price*Brazil exchange rate*(1+ad valorem tariff)) vs conventional ethanol plant price). If Brazil prices are lower, then turn on the ethanol import equation. The US will import ethanol until the arbitrage is no longer profitable. If Brazil prices are higher proceed to Step 3.  

## Step 3: Determine excess of advanced gap over CARB requirements If Advanced VO

– Biodiesel VO*1.55-Cellulosic VO

– CARB>0 and Ethanol VO < (Ethanol Blend Wall + High Ethanol Blend Consumption) then check the advanced ethanol price (conventional ethanol price

– conventional RIN price + advanced RIN price) vs . Brazil anhydrous FOB price*Brazil exchange rate*(1+ad valorem tariff)). If the advanced 

## price is higher, turn on the advanced ethanol import equation. The model will import sugarcane ethanol until the arbitrage is no longer profitable, is equivalent to the biodiesel costs of advanced RINs, or reaches the level determined by Advanced VO

– Biodiesel VO*1.55-Cellulosic VO

– CARB .

# U.S. Ethanol Consumption Minimum Scenario

– Sep/Aug Marketing Year

# US Biodiesel Production & Imports Minimum Scenario

– Calendar Year

# US Methyl Ester Production By Feedstock Source Minimum Scenario

– Oct/Sep Marketing Year

# Biodiesel Plant Prices Minimum Scenario

– Calendar Year

# RIN Prices Minimum Scenario

– Oct/Sep Marketing Year

# Soybean Oil Price Minimum Scenario

– Oct/Sep Marketing Year

# Biodiesel Returns and Variable Costs Minimum Scenario

– Oct/Sep Marketing Year

# Argentine Biodiesel Exports  

# Biodiesel production in Argentina is estimated as a function of the biodiesel margin.  

# The margin is defined on a dollar per metric ton basis as: Expected biodiesel price

– cost of soy oil

– other costs  

# The expected price of biodiesel is the international market price (US plant price) * (1- 9% export tariff).  

# The price of soybean oil is the AR port price * (1-32% export tariff).  

# Argentine net exports are determined by production

– domestic use

– change in ending stocks. (Domestic use determined by their blending mandates with some lag in actual consumption versus mandated blend levels).  

# US biodiesel trade is the residual of the rest of the world biodiesel trade.

# Argentina Biodiesel Exports Minimum Scenario

– Calendar Year

# US Farm Program Payments (ARC & PLC)

# US Farm Program Payments (ARC & PLC)

# Thank You! John Kruse, PhD Principal & Director of Quantitative Analysis, WAEES Jkruse@waees-llc.com 573-228-9842

# Crop Area Specifications Alternative Approach 1

Symmetry Own elasticity > Sum of the cross elasticities

# Crop Area Specifications Alternative Approach 2

Symmetry Own elasticity > Sum of the cross elasticitiesOther Use Total Supply Barley Production

Ending Stocks Feed

Use Exports Barley Price Imports Beginning Stocks

Other Use Total Supply Corn Production

Ending Stocks Feed

Use Exports Corn Price Imports Beginning Stocks

Other Use Total Supply Sorghum Production

Ending Stocks Feed

Use Exports Sorghum Price Imports Beginning Stocks 

## Corn Barley Sorghum 

# The Structure of the Grains Models

Area Harvested Yield Area Harvested Yield Area Harvested Yield

Biofuels Use Food

Use

# Yellow Grease Market Structure

Yellow Grease Price Yellow Grease

Imports Yellow Grease Supply

Yellow Grease Methyl Ester Use Yellow Grease Feed Use Yellow Grease Ending Stocks Yellow Grease Beginning Stocks Yellow Grease Production

Yellow Grease Exports Frying Oil Use High FFA Animal Fats 

### Dashed lines indicate that data is

not specifically reported

# Tallow Market Structure

Food Use Inedible Use Edible Tallow Supply Edible Tallow Production Beginning Stocks

Ending Stocks Edible

Tallow Price Imports Cattle Slaughter

Fatty Acid Use Feed Use Inedible Tallow Supply Inedible Tallow Production Beginning Stocks

Ending Stocks Inedible Tallow Price Imports

Methyl Ester Use Exports

# WAEES Partial Equilibrium Models Global Crops Module • Feed Grains • Corn • Sorghum 

### • Barley 

## • Food Grains • Wheat • Rice 

## • Cotton • Sugar 

## • Oilseeds, Meals & Oils • Soybeans • Sunflowers • Rapeseed • Palm Oil 

# Global Livestock Module • Live Animals • Cattle • Hogs 

## • Meat • Beef • Pork • Poultry 

# Biofuels Module • Ethanol • Biodiesel • RINs 

# Quasi-Trend Models • Dairy • Milk • Cheese • Butter • Non Fat Dry Milk 

# Recursive Models • Exchange Rates • Partial US Macro • US Farm Income 

## • PPI/Cost of Prod • Food Exp/CPI Over 20,000 equations