Crops and Climate Change Northwest Iowa Agronomy Group

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Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad

Crops and Climate Change Northwest Iowa Agronomy Group Holstein, Iowa December 15, 2009 Chad Hart Assistant Professor/Grain Markets Specialist chart@iastate. edu 515 -294 -9911 Department of Economics

U. S. Corn Supply and Use 2007 2008 2009 93. 5 86. 0 86.

U. S. Corn Supply and Use 2007 2008 2009 93. 5 86. 0 86. 4 Area Planted (mil. acres) Yield (bu. /acre) 150. 7 153. 9 162. 9 Production (mil. bu. ) 13, 038 12, 101 12, 921 Beg. Stocks (mil. bu. ) 1, 304 1, 624 1, 674 Imports (mil. bu. ) 20 14 10 Total Supply (mil. bu. ) 14, 362 13, 739 14, 605 Feed & Residual (mil. bu. ) 5, 913 5, 254 5, 400 Ethanol (mil. bu. ) 3, 049 3, 677 4, 200 Food, Seed, & Other (mil. bu. ) 1, 338 1, 276 1, 280 Exports (mil. bu. ) 2, 437 1, 858 2, 050 Total Use (mil. bu. ) 12, 737 12, 065 12, 930 Ending Stocks (mil. bu. ) 1, 624 1, 675 Season-Average Price ($/bu. ) 4. 20 4. 06 3. 55 Department of Economics Source: USDA

Department of Economics

Department of Economics

Department of Economics Source: USDA

Department of Economics Source: USDA

U. S. Corn Harvest Progress Department of Economics Source: USDA

U. S. Corn Harvest Progress Department of Economics Source: USDA

U. S. Soybean Supply and Use 2007 2008 2009 Area Planted (mil. acres) 64.

U. S. Soybean Supply and Use 2007 2008 2009 Area Planted (mil. acres) 64. 7 75. 7 77. 5 Yield (bu. /acre) 41. 7 39. 7 43. 3 Production (mil. bu. ) 2, 677 2, 967 3, 319 Beg. Stocks (mil. bu. ) 574 205 138 Imports (mil. bu. ) 10 13 8 Total Supply (mil. bu. ) 3, 261 3, 185 3, 465 Crush (mil. bu. ) 1, 803 1, 662 1, 695 Seed & Residual (mil. bu. ) 93 101 175 Exports (mil. bu. ) 1, 159 1, 283 1, 340 Total Use (mil. bu. ) 3, 056 3, 047 3, 210 Ending Stocks (mil. bu. ) 205 138 255 Season-Average Price ($/bu. ) 10. 10 9. 97 9. 50 Department of Economics Source: USDA

Department of Economics Source: USDA

Department of Economics Source: USDA

U. S. Soybean Harvest Progress Department of Economics Source: USDA

U. S. Soybean Harvest Progress Department of Economics Source: USDA

Storage Issues Department of Economics Source: Hurburgh and Elmore, ICM News, 10/15/09

Storage Issues Department of Economics Source: Hurburgh and Elmore, ICM News, 10/15/09

World Corn Production Department of Economics Source: USDA

World Corn Production Department of Economics Source: USDA

Corn – Argentina & Brazil Department of Economics Source: USDA

Corn – Argentina & Brazil Department of Economics Source: USDA

World Soybean Production Department of Economics Source: USDA

World Soybean Production Department of Economics Source: USDA

Soybeans – Argentina & Brazil Department of Economics Source: USDA

Soybeans – Argentina & Brazil Department of Economics Source: USDA

Exchange Rates (Jan. 2003 = 1) Department of Economics Source: USDA, ERS

Exchange Rates (Jan. 2003 = 1) Department of Economics Source: USDA, ERS

Exports & Advance Sales (1 st 14 weeks of marketing year) Department of Economics

Exports & Advance Sales (1 st 14 weeks of marketing year) Department of Economics Source: USDA, FAS

2009 U. S. Corn Exports Department of Economics Source: USDA, FAS

2009 U. S. Corn Exports Department of Economics Source: USDA, FAS

2009 U. S. Soybean Exports Department of Economics Source: USDA, FAS

2009 U. S. Soybean Exports Department of Economics Source: USDA, FAS

Renewable Fuels Standard (RFS) 50% m E HG G 60% on i s s

Renewable Fuels Standard (RFS) 50% m E HG G 60% on i s s i ion s s i Em ion t c du Re ion t c u Red 20% GHG Emission Reduction If construction started after Dec. 2007 Department of Economics

Renewable Fuels Standard (RFS) Department of Economics Crop Year Billion Bushels 2008 3. 57

Renewable Fuels Standard (RFS) Department of Economics Crop Year Billion Bushels 2008 3. 57 2009 4. 11 2010 4. 43 2011 4. 64

Ethanol Margins Source: ISU, CARD Department of Economics

Ethanol Margins Source: ISU, CARD Department of Economics

Crude Oil Prices Sources: EIA, NYMEX Department of Economics

Crude Oil Prices Sources: EIA, NYMEX Department of Economics

Ethanol Blending Advantage Department of Economics

Ethanol Blending Advantage Department of Economics

Dept. of Energy Projections Department of Economics Source: Energy Information Administration, Annual Energy Outlook

Dept. of Energy Projections Department of Economics Source: Energy Information Administration, Annual Energy Outlook 2009

Draft Lifecycle GHG Reductions Department of Economics Source: EPA, May 2009

Draft Lifecycle GHG Reductions Department of Economics Source: EPA, May 2009

Iowa Crop Basis Department of Economics

Iowa Crop Basis Department of Economics

GHG Emission Rules • Greenhouse gas rules are coming Whether through legislation or regulation

GHG Emission Rules • Greenhouse gas rules are coming Whether through legislation or regulation • EPA has the authority to regulate GHGs Via Clean Air Act • However, Congress would like to set the rules H. R. 2454, American Clean Energy and Security Act of 2009, Passed in U. S. House of Rep. on 6/26/09, 219 -212 S. 1733, Clean Energy Jobs and American Power Act Introduced 9/30/09, In committee (actually, six committees) Department of Economics

CO 2 Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas

CO 2 Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas Emissions and Sinks: 1990 -2007

CH 4 Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas

CH 4 Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas Emissions and Sinks: 1990 -2007

N 2 O Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse

N 2 O Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas Emissions and Sinks: 1990 -2007

Agricultural GHG Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas

Agricultural GHG Emissions Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas Emissions and Sinks: 1990 -2007

GHG Emission Statistics Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas

GHG Emission Statistics Department of Economics Source: EPA, Inventory of U. S. Greenhouse Gas Emissions and Sinks: 1990 -2007

Climate Change Legislation American Clean Energy and Security Act of 2009 (H. R. 2454)

Climate Change Legislation American Clean Energy and Security Act of 2009 (H. R. 2454) • Requires utilities to supply an increasing percentage of their demand from a combination of energy efficiency savings and renewable energy (6% in 2012, 9. 5% in 2014, 13% in 2016, 16. 5% in 2018, and 20% in 2021 -2039). • Provides for issuing, trading, banking, retiring, and verifying renewable electricity credits. • Establishes targets to cap and reduce greenhouse gas (GHG) emissions, annually, so that GHG emissions from capped sources are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050; and establish a federal GHG registry. • Provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances. Department of Economics Source: Congressional Research Service

Climate Change Legislation Agriculture provisions in H. R. 2454 • Provides some exemptions from

Climate Change Legislation Agriculture provisions in H. R. 2454 • Provides some exemptions from the GHG emission reduction requirements for agriculture and forestry • Provides incentive-based approach to GHG emission reduction/capture • Allows USDA to help establish eligible GHG offset practices and review of those practices • Shifts question on indirect-land-use to an independent panel for study with EPA and USDA to review in the future • Allows for a specific exemption for livestock (enteric fermentation from ruminant animals) from uncapped emissions guidelines Department of Economics Source: Craig Raysor, Gillon & Associates, PLLC

Lots of Analysis • The EPA has funded the development of several models that

Lots of Analysis • The EPA has funded the development of several models that are capable of examining the impact of this bill and other similar bills • The environmental economists who worked on these models are very well respected and the work is sound • However, the only certainty in the bill is the limit on carbon, everything else is assumption driven Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Key Assumptions • The US economy was already on a slow growth path for

Key Assumptions • The US economy was already on a slow growth path for energy consumption, the analysis assumes that this continues • Coal fired plants largely shut down and are replaced by nuclear • Enormous reliance on international and domestic offsets • If we cannot build the large number of nuclear plants or find the international offsets, then the price of carbon will increase at about twice the reported rate Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Energy Sources Department of Economics Source: EPA Analysis of H. R. 2454, June 23,

Energy Sources Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

GHG Emissions & Abatements Department of Economics Source: EPA Analysis of H. R. 2454,

GHG Emissions & Abatements Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

Domestic Offsets • Implementing regulations not yet written • Uncertainty about how the offsets

Domestic Offsets • Implementing regulations not yet written • Uncertainty about how the offsets would work in agriculture, particularly for conservation tillage, but the intention is clearly to use these offsets as a way to stimulate agricultural incomes • Consideration of leakage is prohibited pending a study • Heavy reliance on the growth of trees on pasture and crop land Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Domestic Offsets Department of Economics Source: EPA Analysis of Waxman-Markey, April 20, 2009

Domestic Offsets Department of Economics Source: EPA Analysis of Waxman-Markey, April 20, 2009

Domestic Offsets Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Domestic Offsets Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Shifting Land Patterns Department of Economics Source: EPA, “Greenhouse Gas Mitigation Potential in U.

Shifting Land Patterns Department of Economics Source: EPA, “Greenhouse Gas Mitigation Potential in U. S. Forestry and Agriculture”, Nov. 2005

International Offsets • Must be a developing country that is a member of a

International Offsets • Must be a developing country that is a member of a unilateral or multilateral emissions reduction agreement with the United States • Must have the technical capacity to monitor, measure, report and verify forest carbon fluxes resulting from deforestation • Must have the capacity to reduce emissions from deforestation, including strong forest governance • The international offset project itself must be shown to result in permanent verifiable reductions that are net of any leakage measures Department of Economics Source: ISU, Dermot Hayes presentation, Oct. 2009

Carbon Prices Increase Over Time Department of Economics Source: EPA Analysis of H. R.

Carbon Prices Increase Over Time Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

Prices Are Sensitive to Offsets Department of Economics Source: EPA Analysis of H. R.

Prices Are Sensitive to Offsets Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

Energy Price Paths Department of Economics Source: EPA Analysis of H. R. 2454, June

Energy Price Paths Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

Impacts on an Average Household Department of Economics Source: EPA Analysis of H. R.

Impacts on an Average Household Department of Economics Source: EPA Analysis of H. R. 2454, June 23, 2009

USDA Estimates 2012 -2018 Production Costs Changes Department of Economics Source: USDA, Office of

USDA Estimates 2012 -2018 Production Costs Changes Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/09

Land Use Changes Allowance Prices Department of Economics Source: USDA, Office of Chief Economist

Land Use Changes Allowance Prices Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Land Use Changes by 2050 Forest Cropland Pasture (million acres) Corn Belt 22. 5

Land Use Changes by 2050 Forest Cropland Pasture (million acres) Corn Belt 22. 5 -20. 6 -1. 8 Great Plains -- 1. 7 -3. 8 Lake States 15. 1 -12. 1 -2. 2 Northeast 2. 4 -1. 9 -0. 5 Rocky Mts. 7. 7 -5. 3 -1. 7 Pacific SW 0. 0 Pacific NW 0. 2 -0. 2 10. 0 -6. 4 -3. 6 Southeast 1. 1 1. 2 -1. 9 Southwest -- 8. 2 -8. 2 South Central Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Offset Revenues Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph

Offset Revenues Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Crop Production Changes Department of Economics Source: USDA, Office of Chief Economist Statement of

Crop Production Changes Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Livestock Production Changes Department of Economics Source: USDA, Office of Chief Economist Statement of

Livestock Production Changes Department of Economics Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09

Thank you for your time! Any questions? My web site: http: //www. econ. iastate.

Thank you for your time! Any questions? My web site: http: //www. econ. iastate. edu/faculty/hart/ Iowa Farm Outlook: http: //www. econ. iastate. edu/outreach/agriculture/periodicals/ifo/ Ag Decision Maker: http: //www. extension. iastate. edu/agdm/ Department of Economics