1. AN ECONOMETRIC ANALYSIS OF THE IMPACT OF THE EXPANSION IN THE U.S. PRODUCTION OF ETHANOL FROM CORN AND BIODIESEL FROM SOYBEANS ON MAJOR AGRICULTURAL VARIABLES, 2005 TO 2015 Jake Ferris Professor Emeritus Department of Agricultural Economics Michigan State University

2. Federal and state energy and environmental policies to encourage renewable fuels are designed to: Improve air and water quality Reduce U.S. dependence on foreign oil Promote economic growth in rural areas Shore up farm prices and incomes Save expenditures on farm programs

3. Baseline and Scenario Projections on Ethanol

4. Distribution of U.S. Output of Vegetable Oils and Animal Fats

5. Prices on Soybean Oil, Corn Oil and Yellow Grease

6. Baseline and Scenario Projections on Biodiesel

7. Baseline and Scenario Projections on Ethanol and Biodiesel Combined

8. AGMOD Econometric U.S. Agriculture International Sector Commodity Oriented Core Model –538 equations –732 variables –Gauss-Seidel Solution Satellite Models Assumptions –USDA Baseline –2002 Farm Bill –Normal Weather 2006-15 Projections –Ethanol –Biodiesel –Both

9. Ethanol: Percent Change in the Scenario over the Baseline, 2006 to 2015 VariablesPercent ChangeVariablesPercent Change Ethanol Output+37Total margin Corn Crops+6 Production+2 LivestockNC Exports-6 Corn gluten feed Farm price+6 Production+14 Gross margin+8 Amount fed+6 Soybeans Price+3 ProductionDDGS Exports-2 Production+30 Farm price+1 Price Gross margin+2Farm bill cost-6 Meal price+1Meat supply Soy oil price+1Livestock prices+2

10. Biodiesel: Percent Change in the Scenario over the Baseline, 2006 to 2015 VariablesPercent ChangeVariablesPercent Change Biodiesel Output+915Total margin Corn Crops+4 ProductionNC Livestock+1 ExportsNC Corn gluten feed Farm price+1 ProductionNC Gross margin+1 Amount fedNC Soybeans Price-4 Production+1DDGS ExportsNC ProductionNC Farm price+6 Price-6 Gross margin+8Farm bill cost Meal price-7Meat supplyNC Soy oil price+29Livestock pricesNC

11. Renewables: Percent Change in the Scenario over the Baseline, 2006 to 2015 VariablesPercent ChangeVariablesPercent Change Renewables+44Total margin Corn Crops+11 Production+2 LivestockNC Exports-6 Corn gluten feed Farm price+6 Production+14 Gross margin+8 Amount fed+6 Soybeans PriceNC ProductionDDGS ExportsNC Production+30 Farm price+8 Price-5 Gross margin+11Farm bill cost-6 Meal price-5Meat supply Soy oil price+32Livestock prices+2

12. Caveat on Price Projections

13. World Ending Stocks of Coarse Grain and Wheat as a Percent of Annual Utilization

14. Caveat on Price Projections

15. Conclusions U.S. agriculture can accommodate expansion in production of renewable fuels. Higher prices in the feed grain and soybean sectors will have minimal long run effects on the livestock industries and retail food prices. Renewable fuels programs will help ensure an economically viable agriculture and reduce federal farm program costs.