1. Grain, Oilseed, and Biofuel Outlook for 2009
Osage, Iowa
December 18, 2008
Chad Hart
Assistant Professor/Grain Markets Specialist 1

2. U.S. Corn Supply and Use $4.40 $4.00 Source: USDA-WAOB, Dec. 2008 +50
-300
-100
+350
$4.40
-0.40
$4.00
Source: USDA-WAOB, Dec. 2008 2 2

3. U.S. Soybean Supply and Use
-30
+30
$9.85
-0.85
$9.00
Source: USDA-WAOB, Dec. 2008

4. World Corn Production Source: USDA-WAOB, Dec. 2008
Rest of the world corn production is projected to be up this year. But the increase is not coming from the usual suspects. South American production is projected to be down in 2008, while Europe and China have increased production.
Source: USDA-WAOB, Dec. 2008

5. World Soybean Production
World soybean production is up across the board. China, as with corn, is ramping up production.
Source: USDA-WAOB, Dec. 2008

6. Crop Basis Patterns Sources: CARD, Iowa State; IA Dept. of Ag.
While basis patterns are closing in on more historically normal levels, energy prices will likely maintain somewhat weaker basis than usual.
Sources: CARD, Iowa State; IA Dept. of Ag.

7. Livestock Adjustments
Sows farrowing:
Sept-Nov million, down 5% from last year
Dec-Feb million, down 3% from last year
Broiler-type eggs set: 203 million, down 8% from last year
Broiler chicks placed: 159 million, down 10% from last year
Feedlot placements: 2.44 million, down 11% from last year
Livestock consolidation is underway and with it comes lower feed demand. The recent reduction in crop prices can help ease consolidation pressure, but the economic weakness is also taking its toll on meat demand.
Sources: Various USDA-NASS reports

8. Ethanol Margins Source: ISU, CARD
Ethanol is basically at break-even as it has been for some time (unless you’re locked in). The futures for ethanol, corn, and natural gas do not show that situation improving any time soon. In fact, it may get worse before it gets better.
Source: ISU, CARD

9. Biodiesel Margins Source: ISU, CARD
The biodiesel outlook over 2008 is actually better than it has been. Biodiesel prices caught up to feedstock costs and margins have been relatively good over the past few months. The fall in both biodiesel prices and feedstock costs has held those margins above average capital costs. Futures prices indicate this pattern might hold for a while.
Source: ISU, CARD

10. Renewable Fuels Standard (RFS)
Calendar Year
Billion Bushels
2009
3.75
2010
4.29
2011
4.50
Crop
Year
Billion Bushels
2008
3.57
2009
4.11
2010
4.43
Corn-based ethanol goes in as conventional biofuel. The tables show the amounts of corn needed to meet the conventional biofuel portion of the RFS with corn-grain ethanol. The Renewable Fuels Association lists current ethanol production capacity at billion gallons, with another 2.8 billion gallons under construction. So ethanol capacity is large enough to meet the RFS for the next few years is the 1st year for the biodiesel portion of the RFS, with 500 million gallons of biodiesel needed to meet the mandate. In 2007, we produced roughly 450 million gallons. And the U.S. has enough biodiesel capacity on the ground today to produce over 2 billion gallons of biodiesel from a variety of sources. 10 10

11. U.S. Blended Motor Gasoline Consumption
One of the biggest factors influencing the biofuel industry is the overall usage of fuel. This graph shows the dramatic decline in projected gasoline consumption for this year and next. The higher energy prices earlier this year had a definite impact.
Source: Energy Information Administration

12. Outside Influences (Jan. 2007 = 1)
Agriculture’s link to the energy markets has been a strong one. Corn and soybean prices have tracked with oil prices since late in 2006.

13. Outside Influences (Sept. 2008 = 1)
But the recent weakness in the Dow has pounded oil and the crops significantly.

14. Corn & Soybean Area Growth rate of 1.55 million acres per year
While total land devoted to crop production has been fairly steady over the past few years, the amount of land planted to corn and soybeans has been on the rise. Minor feed grains and cotton have been giving up ground.

15. CRP Expiring Contracts
Some CRP land has also come back into production. This graph shows the acreage with expiring CRP contracts. The contracts expire at the end of September in each year. So the land that can come out of CRP in 2008 can not enter production until 2009 at the earliest. Currently CRP has 34.7 million acres. But the 2008 farm bill has set 32 million acres as the top for CRP, starting in So an additional 2.7 million must come out over the next two years.
Source: USDA-FSA

16. Input Costs Source: USDA, Agricultural Prices, Nov. 2008
Input costs have risen dramatically, especially over the past year.
Source: USDA, Agricultural Prices, Nov. 2008

17. The Rise and Fall of Fertilizer Prices
But some fertilizer prices are going down as fast as they went up.
Source:
TheMarket.pdf

18. Ammonia Prices Source: http://www.fertilizerworks.com/html/market/
TheMarket.pdf

19. Iowa Corn Prices vs. Costs
Average return over the time period, -7 cents per bushel. Current corn prices for Iowa are around estimated costs.
Source: USDA-NASS and Duffy and Smith,

20. Iowa Soybean Prices vs. Costs
Average return over the period, 31 cents per bushel. Current Iowa prices still slightly above estimated costs.
Source: USDA-NASS and Duffy and Smith,

21. Crop Costs for Central Illinois
Corn
Soybeans
2008
2009 %
Change
% Change
($/acre)
Fertilizer
118
215
82% 45 98
118%
Fuel and Oil 19 26
37%
Crop Ins. 8 12
50% 20 27
35%
Utilities 3 4
33%
Seed 62 78
26% 42 53 5
25% 18 22
22%
Total Non-land Costs
388
529
36%
239
321
34%
Cost projections as of this summer.
Source: Schnitkey, July 2008

22. Rough Estimates for 2009 Iowa Corn
Non-land
Cost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre)
(bu/acre)
($/bu)
513.05
190.00
703.05
165
4.26
225.00
738.05
4.47
Based on Schnitkey’s percentage increase in non-land costs applied to Duffy’s non-land cost estimate for 2008 for Iowa.
December 2009 Corn Futures = $ (12/17/08)

23. Rough Estimates for 2009 Iowa Soybeans
Non-land
Cost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre)
(bu/acre)
($/bu)
268.10
190.00
458.10 49
9.35
225.00
493.10
10.06
Based on Schnitkey’s percentage increase in non-land costs applied to Duffy’s non-land cost estimate for 2008 for Iowa.
November 2009 Soybean Futures = $8.96 (12/17/08)

24. Crop Exports Source: USDA, PSD
Exports have been fairly strong over the past two years and even with the revisions downward for the 2008 crops, export levels would still be considered historically good. As the financial crisis seems to be spreading worldwide, there are concerns about economic weakness, especially in developing countries, which would weaken the outlook for exports.
Source: USDA, PSD

25. Exchange Rates (Jan. 2007 = 1) Source: OANDA.com
Exports have been fairly strong over the past two years and even with the revisions downward for the 2008 crops, export levels would still be considered historically good. As the financial crisis seems to be spreading worldwide, there are concerns about economic weakness, especially in developing countries, which would weaken the outlook for exports.
Source: OANDA.com

26. Pace of Corn Export Sales
Source: USDA, FAS

27. Pace of Soybean Export Sales
Source: USDA, FAS

28. U.S. Stocks-to-Use Ratios
Even with the revision to higher corn and soybean ending stocks for 2007 and 2008, the U.S. stock situation is tight.

29. World Stocks-to-Use Ratios
But the world has higher than usual soybean stocks. Corn stocks have been tight worldwide for several years.

30. Thoughts for 2008 General economic conditions Energy demand
A lot of recent market trade has been tied to reaction to the financial crisis and the world’s response
Economic slowdown raises concern about export and energy demand
Energy demand
Higher energy prices did constrain demand
Will it recover?
Most important ag. statistic: Crude oil price or Dow Jones Index
Current futures are indicating 2008 season-average prices of $ for corn and $ for soybeans

31. Thoughts for 2009 and Beyond
Many of the storylines from 2008 will continue
Tight stocks for both corn and soybeans
The competition for acreage
Ethanol’s buildout & livestock’s adjustment
Energy price & general economy concerns
Market volatility will remain high
Link to the energy markets
More market players with different trading objectives
Given current factors, the 2009 outlook is for crop prices around $4.00 for corn and $8.75 for soybeans
Key factor: Economic growth returns by late 2009

32. Thank you for your time. Any questions. http://www. econ. iastate