Expanding Ethanol Industry & Outlook

Transcription

1 Expanding Ethanol Industry & Outlook Glynn Tonsor Dept. of Agricultural Economics Michigan State University GreenStone Farm Credit Services Informational Meeting GreenStone Farm Credit Services Informational Meeting Ovid, MI February 27, 2007

2 Feb. 12, 2007 update Total operating plants: 113 Under construction: 78 Expansions: 7 Total: 198 Current 5,583.4 Under Construction & Expansion 6,243.5 Total Capacity: 11,826.9

3 Source: MI Corn Grower s (as of August 2006)

4 Source: MI Corn Grower s (as of August 2006) Manistee? McBain? #6 Ithaca & #7 Corunna? Watervliet?

5 Ethanol Plants Bu/Millions Running Sum Caro /07 Woodbury Albion Rega 06/ /7 months Rega 07/ /08 Maryville Ithaca /?? Rega II? Corona Watervliet McBain Manistee Alma

6 Corn Flow Now

7 Historical Ethanol Gross Margins Source: CARD: Assumes 1 corn bu. & 165,000 British thermal units of natural gas are required to create 2.7 gallons of ethanol and 17 DDGS lbs. Feb. 16, 2007 Ethanol Price: Corn Price: Nat. Gas Price: $2.10/gal $4.17/bu. $7.44/mmBtu

8 Projected 2007 Ethanol Gross Margins Source: CARD: Assumes 1 corn bu. & 165,000 British thermal units of natural gas are required to create 2.7 gallons of ethanol and 17 DDGS lbs. Mar 07 to Dec 07 Ethanol: $2.10/gal to $1.90/gal Corn: $4.17/bu. to $4.13/bu. [$4.38 in July] Nat. Gas: $7.50/mmBtu to $9.17/mmBtu

9 Nearby Ethanol Futures

10 Monthly Corn Futures

11 Corn Futures (as of 2/22/07) Mar May Jul Sep Dec Jul Dec Jul Dec Jul Dec

12 Dec 07 Corn Rally

13 Corn Futures Volatility CBOT Corn Volatility: average volatility Ranged from 19.4% to 21.9% 2006 average volatility of 28.8% 7 of 12 months in 2006 were highest since 1980 Sources: Chicago Board of Trade;

14 U.S. Corn Price vs Ending Stocks/Use Ratio Price ($/BU) Ending Stocks/Use Ratio

15 EndStocks/Use.05 to.1 = $3 to $ U.S. Corn Price vs Ending Stocks/Use Ratio Ratio:.05 Price: $3 Ratio:.10 Price: $2.30 Price ($/BU) Ending Stocks/Use Ratio

16 EndStocks/Use.1 to.15 = $2.30 to $ U.S. Corn Price vs Ending Stocks/Use Ratio Ratio:.10 Price: $2.30 Ratio:.15 Price: $2 Price ($/BU) Ending Stocks/Use Ratio

17 Soybean Futures (as of 2/22/07) Mar May Jul Nov Mar Nov Nov

18 Soybean Rally (Nov 07)

19 Soybean Meal Futures (as of 2/22/07) Mar Jul Sep Dec Mar Dec

20 SBM Rally (Dec 07)

21 Distillers Grains w/ Solubles (DGS) Issues: Can by-products offset corn prices? What implications does DGS use have? As DGS market matures: Which producers will have DGS access? What type of purchasing arrangement?

22 Chicago Wholesale DDGS - to - Corn Ratio ($/ton) Wholesale DDGS - to -Corn Price Ratio ($/ton) Feb. 22, 2007: DDGS= $135/ton Corn = $4.18/bu. Ratio = Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Source: LMIC ( )

23 1.4 Chicago Wholesale DDGS - to - Corn Ratio ($/ton) Wholesale DDGS - to -Corn Price Ratio ($/ton) Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Source: LMIC ( )

24 1.4 Chicago Wholesale DDGS - to - Corn Ratio ($/ton) Wholesale DDGS - to -Corn Price Ratio ($/ton) Feb. 22, 2007: DDGS= $135/ton Corn = $4.18/bu. Ratio = Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Source: LMIC ( )

25 $140 Eastern Cornbelt (Springfield, IL) Distillers Prices $120 DDGS (90% DM) MWDGS (45-50% DM) WDGS (30-35% DM) $100 $/ton FOB $80 Feb. 22, 2007 DDGS = $132.50/ton MWDGS = $65/ton WDGS = $38/ton $60 $40 $20 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Source: Livestock Marketing Information Center and USDA-AMS; Last updated 2/22/2007

26 $100 Eastern Cornbelt (Springfield, IL) Distillers Price Spreads Dry - Modified Wet $80 Dry - Wet Modified Wet - Wet $60 $/ton FOB $40 Feb. 22, 2007 DDGS-WDGS = $94.50/ton DDGS-MWDGS = $67.50/ton MWDGS-WDGS = $27.00/ton $20 $0 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Source: Livestock Marketing Information Center and USDA-AMS; Last updated 2/22/2007

27 Increasing Risk Exposure DGS risk management? Increases in importance with inclusion rates Cross-hedging of price risk?

28 NASS/Nebraska Corn Board Co-Product Study 12 state survey of livestock producers (Jan/Feb) Identify: Co-product use Inclusion levels Channel of purchase (plant, feed co., broker) Available/desired services (nutrient profile,..) Purchase type Spot or contract (several lengths) Reference point of price (corn, soybean meal, other?)

29 Past NASS DGS Survey 721 Iowa & Minnesota Producers & 25 Ethanol Plants Ethanol Plants (2004) 30% had minimum order for DGS; avg. min = 9.8 tons DGS sales agreements: Monthly Quarterly 6-Month Yearly % 15% 10% 13% 9% 12% NA 20% Spot Clock No Contract % 18% 11% 10% 19% 13% NASS report accessed 1/25/07 at:

30 Past NASS DGS Survey: Ethanol Plants (2004) Transportation of DDGS, 2003 Paid by Plant Rail % Plants Using Transport Mode 100 % Product Hauled by Transport Mode 16 Average Miles Hauled 1,550 Average Transport Costs/Ton 30 Truck Paid by Buyer Rail , Truck Transportation of WDGS, 2003 % Plants Using % Product Hauled by Transport Mode Average Miles Hauled Average Transport Costs/Ton Paid by Plant Rail Transport Mode 0 Truck Paid by Buyer Rail 0 Truck NASS report accessed 1/25/07 at:

31 Past NASS DGS Survey Livestock Producers (2003) Cow/calf, dairy, cattle on feed, hogs, turkeys (721 total) Avg Peak Inventory (head) All Operations Operations Feeding DGS (%) Operations Profile Feeding Distillers Grains Avg Peak Inventory (head) Avg Years Feeding DGS Not Feeding Distillers Grains Avg Peak Inventory (head) % Considered Feeding DGS Cow/Calf Dairy Cattle on Feed 2, , , Hogs 15, , , Turkeys 124, , , NASS report accessed 1/25/07 at:

32 Glynn Tonsor Dept. of Agricultural Economics Michigan State University Webpage: