USDA Ag Outlook Forum - On biofuels

This presentation on biofuels from the USDA Ag Outlook conference provides the "big picture" context that so many of us need to understand the growth and history of ethanol. Here are some risk factors to the ethanol boom, as articulated by Pete Riley, Economic and Policy Analysis Staff USDA/Farm Service Agency.


Biofuel Risk Factors: Oil Prices
Current outlook is uncertain: expectations for weaker economic growth are counterbalanced by geopolitical concerns and speculative price push
• A decline in oil prices will likely mean lower ethanol prices
• As recently as 1998, oil fell to $10 barrel in the wake of the Asian financial crisis.
• Demand Side Wildcards
– Consumer squeeze/recession
– More conservation
– Vehicle technology/mpg improvements
• Supply Side Wildcards
– Lagged response to strong price signals begins to increase supply
– Calming of political hot spots
– Blockbuster new energy discoveries

Biofuel Risk Factors: Government Policy
• Response to changing markets could lead to unknown policy change
• 2005 Energy Bill only lasted 27 months
• What if the policy criteria or objectives change?
– More focus on water use
– Refine carbon rules
– View of energy independence widened to include fertilizer
– Restrictions on land use
• If ethanol import tariff expires on schedule (Jan. 1, 2009), cheaper imports from Brazil could compete in coastal markets
• Pressure mounts from higher food costs
• Subsidy and/or mandate adjustments

Biofuel Risk Factors: Technology
• Unpredictable developments can change the game: for example, the DVD makes the videocassette obsolete or cell phones do an end-around land-line phones
• Competing fuels breakthroughs:
– Improved engine performance for diesel, and more substitution for
gasoline, as in Europe
– Plug-in hybrids drawing from the electric grid
– Improvements in battery technology
– Butanol
– Fuel cells/hydrogen vehicles