T4 b babcock slides for thursday
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This document summarizes research on the impact of US ethanol production on corn price volatility. It finds that the 2012 drought increased corn prices by $1.65 per bushel on average from 2006-2009, with $0.59 due to ethanol production and $0.45 due to increased demand. New modeling shows that if another drought hit in 2014, corn prices would be higher under current ethanol policy compared to waiving the ethanol mandate or restricting ethanol production to 5 billion gallons.
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T4 b babcock slides for thursday
- 1. Impact of US Ethanol Production on Price Volatility Bruce Babcock Iowa State University Presented at Workshop on Biofuels and Food Security Interactions, IFPRI, Washington DC, Nov 19-20.
- 2. Questions • What impact did biofuel production have on commodity prices in the 2012 drought year? • What role did biofuel policy play in determining the magnitude of the price increase?
- 3. 0 1 2 3 4 5 6 7 8 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $perbushel US Corn Prices Since 2004
- 4. 0 2000 4000 6000 8000 10000 12000 14000 0 1 2 3 4 5 6 7 8 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 millionbushels $perbushel US Corn Prices and Non-Ethanol Supplies Price Non- Ethanol Use
- 5. 100 110 120 130 140 150 160 170 180 1985 1990 1995 2000 2005 2010 2015 2020 bushelsperacre US Corn Yields since 1990 2009: Above trend, poor quality ’10 ’11 ‘13 : below trend, good quality 2012 drought Bumper crop in 2014
- 6. 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Change in US Corn Supply Change in Corn Used by Ethanol Plants Change in Net Corn Used by Ethanol Plants Comparing 2014 to 2004
- 7. 0 1 2 3 4 5 6 7 8 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $perbushel US Corn Prices Since 2004
- 8. Impact of Ethanol in Drought Year • How best to measure? – Re-run history without the drought – Simulate a re-running of history without a drought
- 9. The Impact of Ethanol and Ethanol Subsidies on Corn Prices: Revisiting History (Babcock and Fabiosa, 2011) • Increase in corn price = $1.65 (Avg increase 2006-2009) – Amount due to ethanol subsidies: $0.14 – Amount due to market demand: $0.45 – Amount due to ethanol: $0.59
- 10. Results from a New Model* • What if 2012 drought had hit again in 2014? • Impact on corn prices – Under current policy – Waiver of the mandate – Restriction on use of ethanol Zhou, W, and BA Babcock. “Estimating the Impact of Ethanol on Corn Prices Using the Competitive Storage Model.” Under review, Energy Economics.
- 11. 0 1 2 3 4 5 6 7 8 2013 2014 2015 2015 2017 2018 2019 $perbushel Impact of Drought on Corn Prices under Alternative Ethanol Scenarios Baseline
- 12. 0 1 2 3 4 5 6 7 8 2013 2014 2015 2015 2017 2018 2019 $perbushel Impact of Drought on Corn Prices under Alternative Ethanol Scenarios Baseline Drought, current law
- 13. 0 1 2 3 4 5 6 7 8 2013 2014 2015 2015 2017 2018 2019 $perbushel Impact of Drought on Corn Prices under Alternative Ethanol Scenarios Baseline Drought, current law Drought, mandate waiver
- 14. 0 1 2 3 4 5 6 7 8 2013 2014 2015 2015 2017 2018 2019 $perbushel Impact of Drought on Corn Prices under Alternative Ethanol Scenarios Baseline Drought, current law Drought, mandate waiver Drought, ethanol restricted to 5 BG