Impact of U.S. Ethanol Fuel Policy on Feed & Food Prices

Impact of U.S. Ethanol Fuel Policy on Feed & Food PricesAMI Foundation 2008 Environmental Conference, June 5-6, 2008 Kansas City

Ron Plain, Ph.D.D. Howard Doane ProfessorDept of Agricultural EconomicsUniversity of Missouri-Columbiahttp://web.missouri.edu/~rplain

Change is inevitable…..

Except from a vending machine.

SummaryThe key economic force today is raising

energy pricesHigher energy prices make ethanol more valuableHigher ethanol prices means more corn is processed into ethanol and less is fed to livestock and peopleHigh corn prices mean more corn acres and fewer acres of other crops

OutlineBasics of ethanol production

CellulosicGrain

Overview of U.S. policySubsidiesMandatesTariff

Economics of ethanolImpact of ethanol policy

Basics of Ethanol ProductionEthanol is an alcohol made by fermenting grain and other carbohydratesThis is an old process which traditionally has been used to produce ethanol for use as a beverage97% of U.S. ethanol is made from cornRest: milo, wheat, brewery waste, whey, etc<0.01% made from cellulose

Cellulosic Ethanol

Cellulose is a long chain polymeric polysaccharide of beta glucose: (C6H12O5)n

Cellulose is the chief constituent of the cell walls of all plants. Cotton in its raw state contains about 91% and is the purest form of natural cellulose. Other sources include hemp (77%), softwoods & hardwoods (57% to 65%).

Cellulosic Ethanol

Cellulosic ethanol is ethanol made from cellulose. It is the same as grain ethanol: C2H5OH. The only difference is the source material.The interest in cellulosic ethanol comes from the huge supply of low-value source material:

Wood – trees, limbs, paper, cardboardGrass - switchgrass, corn stalks, straw, fescueDistillers Grains

Cellulosic Ethanol

Producing ethanol from cellulose is something we’ve known how to do for over 100 years

Doing it in a cost-competitive manner is something we have yet to learn

However, there are many people seeking research grants who claim to be close to solving the cost problem

Grain Ethanol

A bushel of corn will produce ~2.8 gallons of ethanol, 17 lbs of CO2 and 17 lbs of DDGS

water

Laddonia Ethanol Plant

Ethanol Production, 1980-07

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Bill

ion

Gal

lons

Source: Renewable Fuels Association

U.S. Daily Ethanol Production

0

100

200

300

400

500

600Ja

n

Feb

Mar

Apr

May Jun

Jul

Aug Se

p

Oct

Nov

Dec

Thou

sand

Bar

rels

2006 2007 2008


Ethanol Capacity Growth

0

2

4

6

8

10

12

14

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

billi

on g

allo

ns

Jan. 1 capacity Under construction

Source: Renewable Fuel Association website http://www.ethanolrfa.org/industry/statistics/#B

Ethanol Plant Statistics, 5/28/08

151 existing plants in 26 states with capacity to produce 8.6919 billion gallons of ethanol per year (49 plants farmer owned)51 new plants under construction and 7 expansions with capacity to produce 4.914 billion gallons of ethanol per year>50 plants being planned



CellulosicGrain



Subsidies for Ethanol Production

51 cent per gallon federal excise tax credit45 cent per gallon under new Farm BillMissouri has producer tax credits

20 cents on first 12.5 million gallonsIowa and Illinois state excise tax exemptions

1 to 1.5 cents per gallon with income tax credits for Iowa retailers selling more than 60 percent ethanol-blended fuel

Ethanol Production & Renewable Fuels Mandate

02468

1012141618

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Bill

ion

Gal

lons

Ethanol Production 05 Mandate07 Mandate

2007 Renewable Fuels Mandate

05

10152025303540

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

Bill

ion

Gal

lons

Corn ethanol Cellulosic Bio-diesel More non-grain


02468

101214161820

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Bill

ion

Gal

lons

mandated use

actual production

Beginning in 2015, the U.S. will annually use more corn to make ethanol than the U.S. produced in any year before 1971

U.S. Ethanol Imports, 2002-07

0

100

200

300

400

500

600

70020

02

2003

2004

2005

2006

2007

Mill

ion

Gal

lons


There is a 54¢ per gallon tariff on imported ethanol

U.S. Ethanol Imports

0

20

40

60

80

100

120

140Ja

n

Feb

Mar

Apr

May Jun

Jul

Aug Se

p

Oct

Nov

Dec

Mill

ion

Gal

lons

2006 2007 2008


World Ethanol Production, 2007

4%4%

38%

49%

5%

U.S.A.

Brazil

E.U.

China

others


U.S. Ethanol Imports, 2007

18%

17%

9%

10%2%

44%BrazilJamaicaEl SalvadorCosta RicaTrinadadOthers



CellulosicGrain



Economics of BioFuelsThe economics of biofuels is confusing, in part, because we measure gasoline and diesel in gallons and corn and soybeans in bushelsMeasuring everything in pounds makes the economics easier to understand

Economics of EthanolCorn is worth 10¢ per poundGasoline is worth 45¢ per poundDDGS is worth 9.5¢ cents per poundThe cost of conversion is 4¢ per poundThere is a federal government subsidy of 2.5¢for each pound of corn converted to ethanol and DGS

Ethanol Plants Have Been Very Profitable

In 2006, U.S. plants produced ethanol for about $1.34 per gallon. The average price of ethanol was about $2.58 per gallon.

Profit=$1.24/gal or $3.42/bu

Value of ethanol

Formulation of Alcohols

H

O

H-C-H

H

Methanol

CH3OH

62,800 BTU

H

O

H-C-H

H-C-H

H

Ethanol

C2H5OH

84,400 BTU

H

O

H-C-H

H-C-H

H-C-H

H

Propanol

C3H7OH

100,000 BTU

H

O

H-C-H

H-C-H

H-C-H

H-C-H

H

Butanol

C4H9OH

110,000 BTUGasoline is mostly C8H18

Gasoline has 125,000 BTU/gallon

Ethanol as FuelOver 90% of U.S. ethanol is used as fuel Although ethanol and gasoline can be blended in any proportion, in the U.S. it is largely:

10% ethanol & 90% gasoline85% ethanol & 15% gasoline (E85)

Blends with high ethanol content require modifications in the automobile (flexible fuel vehicle)

Sensor to detect ethanol/gasoline ratioCorrosion resistant fuel tank & lines

Ethanol Price with $2 Gasoline Rack Price ~ $2.70 Retail Gasoline

0.000.501.001.502.002.503.003.504.004.50

1 3 5 7 9 11 13 15 17 19

Billion Gallons/Year

$/ga

llon

Mandated use

E10 octane enhancerE85 fuel

Assuming no bottlenecks

Ethanol & Unleaded Gasoline Average Rack Price – FOB Omaha

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00 J

an 0

5

Apr Ju

l

Oct

Jan

06

Apr Ju

l

Oct

Jan

07

Apr Ju

l

Oct

Jan

08

Apr

$/ga

llon

ethanol gasoline

Source: http://www.neo.ne.gov/statshtml/66.html

Iowa Ethanol & Midwest Retail Gasoline Prices

1.30

1.80

2.30

2.80

3.30

3.80

4.3010

/27/

2006

12/2

7/20

06

2/27

/200

7

4/27

/200

7

6/27

/200

7

8/27

/200

7

10/2

7/20

07

12/2

7/20

07

2/27

/200

8

4/27

/200

8

$/ga

llon

ethanol gasoline


CellulosicGrain



Impact on corn prices

Corn Milled for Ethanol

0.00.51.01.52.02.53.03.54.04.5

90-9

1

92-9

3

94-9

5

96-9

7

98-9

9

00-0

1

02-0

3

04-0

5

06-0

7

08-0

9

Bill

ion

Bus

hels

Forecast% corn for ethanol:

2000-01: 6%

2005-06: 14%

2006-07: 20%

2007-08: 23%

2008-09: 33%

1.251.501.752.002.252.502.753.003.253.503.754.004.254.504.755.005.255.505.756.006.25

JAN

APR JUL

OCT

$ Per Bu.

Avg. 1999-03200620072008

Omaha Corn Prices, weekly

U.S. Corn Price, 1970-09

0.0

1.0

2.0

3.0

4.0

5.0

6.070

-71

72-7

3

74-7

5

76-7

7

78-7

9

80-8

1

82-8

3

84-8

5

86-8

7

88-8

9

90-9

1

92-9

3

94-9

5

96-9

7

98-9

9

00-0

1

02-0

3

04-0

5

06-0

7

08-0

9

Dol

lars

Per

Bus

hel

U.S. Retail Gasoline Prices,All Grades, All Formulations, 1996-2008

50

100

150

200

250

300

350

400

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

cent

s/ga

llon

Source: U.S. Energy Information Administration

Spot Crude Oil Prices 1995-2008WTI, Monthly Average Price, Cushing, Oklahoma

0

20

40

60

80

100

120

1401

99

5

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

$/b

arre

l


Crude Oil Futures Prices

120

121

121

122

122

123

123

124 J

ul 0

8 S

ep 0

8 N

ov

08

Jan

09

Mar

09

May

Jul

09

Sep

09

No

v 0

9 J

an 1

0 M

ar 1

0 M

ay J

ul 1

0 S

ep 1

0 N

ov

10

Jan

11

Mar

11

May

Jul

11

Sep

11

No

v 1

1 J

an 1

2 M

ar 1

2 M

ay J

ul 1

2 S

ep 1

2 N

ov

12

Jan

13

Mar

13

May

Jul

13

Sep

13

No

v 1

3

$/b

arre

l

Source: New York Mercantile Exchange close on 6/04/08

Crude Oil Futures Prices

120

121

122

123

124

125

126 J

ul 0

8 S

ep 0

8 N

ov

08

Jan

09

Mar

09

May

Jul

09

Sep

09

No

v 0

9 J

an 1

0 M

ar 1

0 M

ay J

ul 1

0 S

ep 1

0 N

ov

10

Jan

11

Mar

11

May

Jul

11

Sep

11

No

v 1

1 J

an 1

2 M

ar 1

2 M

ay J

ul 1

2 S

ep 1

2 N

ov

12

Jan

13

Mar

13

May

Jul

13

Sep

13

No

v 1

3

$/b

arre

l

Source: New York Mercantile Exchange close on 6/04/08

$122/barrel = $2.90/gal

Ethanol-Gasoline Price Relationship

0.0

1.0

2.0

3.0

4.0

5.0

0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0

Retail Gasoline $/gal

Eth

anol

$/g

al

Source: Ron Plain

2007 Ethanol-Corn Price Relationship

0.00.51.01.52.02.53.03.5

1 2 3 4 5 6 7 8 9Corn $/bu

Etha

nol $

/gal breakeven shutdown

Source: Ron Plain

U.S. Average Corn Price, 1908-2006

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

$ Per Bushel

Source: USDA/NASS


0.000.501.001.502.002.503.003.504.00

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

$ Per Bushel

Source: USDA/NASS

1908-194235 years Avg $0.78

1942-197230 years

Avg $1.26

1973-200634 years Avg $2.37


0.000.501.001.502.002.503.003.504.00

1908

1912

1916

1920

1924

1928

1932

1936

1940

1944

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

$ Per Bushel

1908-194235 years Avg $0.78

1942-197230 years Avg $1.26

1973-200634 years Avg $2.37

The 1940s step raised corn price 62%; the 70s step 88%. A 75% step will take corn to $4.15/bu

What’s the next level?

Impact on DDGS Prices

Northwest Iowa Prices, 2006-08

0

50

100

150

200

25010

/6/2

006

10/2

0/20

0611

/3/2

006

11/1

7/20

0612

/1/2

006

12/1

5/20

0612

/29/

2006

1/12

/200

71/

26/2

007

2/9/

2007

2/23

/200

73/

9/20

073/

23/2

007

4/6/

2007

4/20

/200

75/

4/20

075/

18/2

007

6/1/

2007

6/15

/200

76/

29/2

007

7/13

/200

77/

27/2

007

8/10

/200

78/

24/2

007

9/7/

2007

9/21

/200

710

/5/2

007

10/1

9/20

0711

/2/2

007

11/1

6/20

0711

/30/

2007

12/1

4/20

0712

/28/

2007

1/11

/200

81/

25/2

008

2/8/

2008

2/22

/200

83/

7/20

083/

21/2

008

4/4/

2008

4/18

/200

85/

2/20

085/

16/2

008

5/30

/200

8

$ Per Ton

Corn DDGS WDGS

Source: LMIC

WDGS Price as % of DDGS Price, Northwest Iowa, 2006-08

20

25

30

35

40

45

10/6

/200

610

/20/

2006

11/3

/200

611

/17/

2006

12/1

/200

612

/15/

2006

12/2

9/20

061/

12/2

007

1/26

/200

72/

9/20

072/

23/2

007

3/9/

2007

3/23

/200

74/

6/20

074/

20/2

007

5/4/

2007

5/18

/200

76/

1/20

076/

15/2

007

6/29

/200

77/

13/2

007

7/27

/200

78/

10/2

007

8/24

/200

79/

7/20

079/

21/2

007

10/5

/200

710

/19/

2007

11/2

/200

711

/16/

2007

11/3

0/20

0712

/14/

2007

12/2

8/20

071/

11/2

008

1/25

/200

82/

8/20

082/

22/2

008

3/7/

2008

3/21

/200

84/

4/20

084/

18/2

008

5/2/

2008

5/16

/200

85/

30/2

008

Percent

Source: LMIC

DDGS Price as % of Corn Price, Northwest Iowa, 2006-08

65707580859095

100105110115

10/6

/200

610

/20/

2006

11/3

/200

611

/17/

2006

12/1

/200

612

/15/

2006

12/2

9/20

061/

12/2

007

1/26

/200

72/

9/20

072/

23/2

007

3/9/

2007

3/23

/200

74/

6/20

074/

20/2

007

5/4/

2007

5/18

/200

76/

1/20

076/

15/2

007

6/29

/200

77/

13/2

007

7/27

/200

78/

10/2

007

8/24

/200

79/

7/20

079/

21/2

007

10/5

/200

710

/19/

2007

11/2

/200

711

/16/

2007

11/3

0/20

0712

/14/

2007

12/2

8/20

071/

11/2

008

1/25

/200

82/

8/20

082/

22/2

008

3/7/

2008

3/21

/200

84/

4/20

084/

18/2

008

5/2/

2008

5/16

/200

85/

30/2

008

Percent

Source: LMIC

Ethanol’s Impact on Food Prices

PrimaryThrough corn products

SecondaryThrough animal products

TertiaryThrough competitive crops

More corn acres = fewer acres for other crops

Food Marketing Bill

18.7

8

4

3.5

4.7

43.62.74.31.53.5

3.1

38.5

Farm ValuePackagingTransportationFuel & ElecPretax ProfitsAdvertisingDepreciationInterestRentRepairsBusiness TaxesOtherLabor

Source: USDA/ERS data for 2002

Impact on Food Prices

In 2002, the farm value of U.S. consumer food expenditures was 18.7%. Corn made up 11.3% of that farm value. Thus, corn, directly and mostly indirectly, accounted for 2.1% of consumer food expenditures.

Food Marketing Bill

16.6

8

4

3.5

4.7

43.6

2.74.31.53.53.1

38.5

2.1Farm Value-otherPackagingTransportationFuel & ElecPretax ProfitsAdvertisingDepreciationInterestRentRepairsBusiness TaxesOtherLaborFarm Value-corn

Source: USDA/ERS data for 2002


Since corn only accounted for 2.1% of consumer food expenditures, doubling corn prices should raise the cost of food by 2.1%; tripling the price of corn should raise the cost of food by 4.2%.


American spend 10% of their disposable personal income on food. A 4.2% increase in food costs due to a tripling in corn prices should increase the cost of living by 0.42%.

Food Prices, April 08 vs April 07Food + 5.1%

At home +5.9%Away from home +4.1%

Cereals & bakery + 8.9%Meat, poultry, fish & eggs + 3.7%Dairy +11.8%Fats & oils +12.3%Sugar & sweets + 5.1%Fruits & vegetables + 4.1%

Impact on crop acres

Million Acres Planted by Crop2006 2007 Change

Corn 78.327 93.600 + 15.273Soybeans 75.522 63.631 - 11.891Wheat 57.344 60.433 + 3.089Cotton 15.274 10.830 - 4.444Sorghum 6.522 7.718 + 1.196Oats 4.168 3.760 - 0.408 Barley 3.452 4.020 + 0.568 18 crops 315.835 319.990 + 4.030

July 08 Corn Futures

July 08 Soybean Futures

U.S. Soybean/Corn Price Ratio, 1975-08

0.00.51.01.52.02.53.03.54.0

75-7

6

77-

78

79-

80

81-

82

83-

84

85-8

6

87-

88

89-

90

91-

92

93-

94

95-

96

97-

98

99-

00

01-

02

03-

04

05-

06

07-

08

65

75

85

95

105

115

125

135

145

MAY JUL SEP NOV JAN MAR

$ Per Ton

Avg.2001-06

2006/07

2007/08

Average Price Non-Alfalfa Hay

Impact on livestock

U.S. Corn Usage

Feed

Exports

Ethanol

Other

Feed

Exports

Ethanol

Other

2000 crop 2007 crop

Corn usage is up 30% since 2000

FORECAST CHANGE IN CORN USAGE 2007-17 (million bushels)

1700

125

110175

Ethanol

Exports

Other

Feed

Source: February 2008 USDA Agricultural Baseline Projections

U.S. Feeding of Corn, 2005-06

Beef

Poultry

Hogs

Dairy

Other

Source: PRX ProExporter Network

March 2008 Corn Futures

January 2008 Feeder Cattle Futures

A dime increase in the price of corn reduces the value of feeder cattle by $6-9 per head

Federally Inspected, Weekly

35

40

45

50

55

60

65

70

75

80

Jan

Apr Ju

l

Oct

Thou. Head

2005 2006 2007 2008

2008 cow slaughter is up 4.2%

Beef Cow Slaughter

Cost of Slaughter Hog ProductionIowa State University Calculations, 1987-2008

37

42

47

52

57

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Marketing Month

$ Per Live Cwt

Source: John Lawrence, Iowa State University

Over time, the price of a commodity will equal the cost of production

U.S. Average Corn & Broiler Price, 1960-1985

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

Cor

n $

20

30

40

50

60

70

80

90

Bro

iler $

Corn Broilers

Source: USDA/NASS

U.S. Average Corn & Pork Price, 1960-1985

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

Cor

n $

0

20

40

60

80

100

120

140

160

180

200

Pork

$

Corn Pork

Source: USDA/NASS

U.S. Average Corn & Beef Price, 1960-1985

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

Cor

n $

0

0.5

1

1.5

2

2.5

3

Bee

f $

Corn Beef

Source: USDA/NASS

U.S. Average Corn & Milk Price, 1960-1985

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

1960

1961

1962

1963

1964

1965

1966

1967

1968

1969

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

Cor

n $

0

2

4

6

8

10

12

14

16

Milk

$

Corn Milk

Source: USDA/NASS

U.S. Average Corn & Hog Price, 1960-2007

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Cor

n $

0

20

40

60

80

100

120

Hog

$

Corn Hogs

Source: USDA/NASS

U.S. Average Corn & Cattle Price, 1960-2007

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Cor

n $

0

20

40

60

80

100

120

140

160

180

200

Cat

tle $

Corn Cattle

Source: USDA/NASS

Meat Consumption

U.S. Per Capita Meat ConsumptionRetail Weight, 1955-2007

160170180190200210220230240250

55 60 65 70 75 80 85 90 95 00 05

Poun

ds

Impact of EthanolBuilding lots of ethanol plantsDriving up corn prices

More corn acresFewer acres of other crops

Higher prices for other cropsRecord net farm income

Driving up cash rents and land pricesDriving up livestock production costs

Less meat, milk and eggs being producedLots of DDGS will benefit cattleNew grain storage/shipping patterns

The New Ag Market?

Crude oil drives ethanol pricesEthanol drives corn pricesCorn drives livestock productionLivestock production drives meat prices

Impact on Oil Prices

Spot Crude Oil Prices 1996-2008WTI, Cushing, Oklahoma

0

20

40

60

80

100

120

140

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

$/ba

rrel


U.S. Gasoline Usage, 1986-07

0

20

40

60

80

100

120

140

16019

86

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Bill

ion

Gal

lons



0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.019

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Bill

ion

Gal

lons


Gasoline & Ethanol Production, 1986-07

0

20

40

60

80

100

120

140

16019

86

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Bill

ion

Gal

lons

ethanol gasoline


U.S. Gasoline Usage

142 billion gallons gasoline used per yearMandating 10% ethanol in all gasoline would require that nearly half of the U.S. corn crop be processed into ethanolIf all U.S. corn were made into ethanol, it would produce 33 billion gallons per yearTo replace all U.S. gasoline would require 78 billion bushels of corn annually

78 Billion Bushels of Corn

Record U.S. corn yield is 160 bu/acre78 billion bushels at 160 bu/acre would require 488 million harvested acres of cornEquals 164% of 2007 U.S. harvested acreage of corn, soybeans, wheat, sorghum, cotton, rice, sunflowers, barley, oats, rye, peanuts, tobacco, canola, sugar beets, sugarcane, potatoes, dry edible beans, proso millet and hay combined.

Diesel-Gasoline Price Spread

U.S. Retail Fuel Prices, 2000-2008

50

150

250

350

450

55020

00

2001

2002

2003

2004

2005

2006

2007

2008

cent

s/ga

llon

retail gas $ retail diesel $


U.S. Retail Diesel-Gasoline Price Spread, 2000-2008

-60

-40

-20

0

20

40

60

80

2000

2001

2002

2003

2004

2005

2006

2007

2008ce

nts/

gallo

n


Gas-Diesel Price SpreadCrude oil yields roughly 58% gasoline and 30%

diesel fuel.When gasoline demand is greater than 193% of diesel demand, gasoline prices are high relative to dieselWhen gasoline demand is less than 193% of diesel, gasoline prices are low relative to diesel

Impact on Environment

Ethanol: energy gain or loss?The fossil fuel energy gain from ethanol in new

dry milled plants is above 30%. This is higher than in the past because of efficiency gainsOn the farm

Reduced tillageIn ethanol plants

Faster, higher yielding conversion

Greenhouse Gas EmissionsCorn Biomass

Gasoline Ethanol Ethanol--grams of GHG/MJ of energy--

Feedstock + 4 + 24 + 10Refining fuel +15 + 40 + 9Vehicle +72 + 71 + 71Feedstock Uptake 0 - 62 - 62Land use change 0 +104 +111Total +92 +177 +138

Source: Searchinger, et al, Science, February 29, 2008

Source: Takle & Hofstrand, Iowa State University

Questions?

U.S. Meat Expenditures, 1970-07

0.00.51.01.52.02.53.03.54.04.55.0

1970

1980

1990

2000

% DPI

Source: Livestock Marketing Information CenterSource: Livestock Marketing Information Center

In 2007, the average American spent 1.71% of their income to buy 222 lbs of red meat and poultry

In 1970, the average American spent 4.2% of their income to buy 194 lbs of red meat and poultry

U.S. Food Expenditures, 1929-07

0

5

10

15

20

25

3019

29

1939

1949

1959

1969

1979

1989

1999

% DPI

Source: USDA/ERSSource: USDA/ERS

In 2007 Americans spent only 9.9% of

DPI on food

In 2007 Americans spent only 9.9% of

DPI on food

Documents

Impact of U.S. Ethanol Fuel Policy on Feed & Food Prices