ILLINOIS AND US SOYBEAN SUPPLY CHAIN MARKET DYNAMICS AND FIVE-YEAR OUTLOOK

Transcription

1 Illinois Soybean Association - ISA ILLINOIS AND US SOYBEAN SUPPLY CHAIN MARKET DYNAMICS AND FIVE-YEAR OUTLOOK April 2011

2 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY STRUCTURE OF ILLINOIS AGRICULTURE AND FOOD INDUSTRY Profile of Illinois Gross State Product Illinois Ranking in Agriculture Illinois Soybean Production Soybean Production GLOBAL AGRICULTURAL OUTLOOK Global Crop Area Global Corn Supply and Demand Global Soybean Supply and Demand Global Wheat Supply and Demand US OUTLOOK FOR SOYBEANS US Crop Area US Soybean Outlook ILLINOIS SOYBEAN SUPPLY CHAIN OUTLOOK Supply Side: Crop Acreage, Yield and Production Demand Side: Processing, Livestock and Trade Demand Soybeans Surplus and Deficit Soybean Product Flows Out of Illinois Soybeans and Corn Supply and Demand Summary On-Farm and Off-Farm Storage DEMAND SECTOR OUTLOOK LIVESTOCK, BIOFUELS AND AQUACULTURE US Livestock, Dairy and Poultry Cattle Illinois Cattle Dairy informa economics, inc i

3 Illinois Diary Outlook Pork Illinois Pork Poultry US Ethanol Outlook Illinois Ethanol Outlook US Biodiesel Outlook Aquaculture US Aquaculture Production Illinois Aquaculture Production APPENDIX informa economics, inc ii

4 List of Exhibits Exhibit 1: US Soybean Supply and Demand (million bushels)... 2 Exhibit 2: Illinois Soybean Supply and Demand Trends and Baseline Outlook Summary... 3 Exhibit 3: US Ethanol Supply and Demand (million gallons)... 8 Exhibit 4: Illinois Gross State Product Ranking by Industry Exhibit 5: Gross State Product amongst Large Agricultural States Exhibit 6: Gross State Product by Industry Exhibit 7: Net Farm Income Ranking amongst States Exhibit 8: Structure of Illinois Food Manufacturing Industry (Based on Industry 2009 Value of Shipments) Exhibit 9: Market Value of State Agricultural Products Sold, Exhibit 10: Illinois s Ranking Soybeans Exhibit 11: Illinois s Ranking Corn Exhibit 12: Illinois s Ranking Cattle on Feed Exhibit 13: Illinois s Ranking Egg Production Exhibit 14: Illinois s Ranking Dairy Cows Exhibit 15: Illinois s Ranking Broiler Exhibit 16: Illinois s Ranking Turkey Production Exhibit 17: Illinois s Ranking Hogs Exhibit 18: Illinois s Ranking Ethanol Capacity Exhibit 19: Illinois s Ranking Biodiesel Capacity Exhibit 20: Illinois s Ranking Corn Processing Exhibit 21: Illinois s Ranking Glucose and Dextrose Exhibit 22: Illinois s Ranking Cereal Exhibit 23: Illinois s Ranking Land in Farm Exhibit 24: Illinois s Ranking HFCS Capacity Exhibit 25: Illinois s Ranking Starch Exhibit 26: Illinois s Ranking Soybean Processing Exhibit 27: Illinois s Ranking Rent Prices Exhibit 28: Illinois s Ranking Land Values Exhibit 29: US Soybean Production Exhibit 30: Illinois Soybean Crushing Facilities Exhibit 31: Regional Soybean Processing informa economics, inc iii

5 Exhibit 32: Historical Soybean Basis Exhibit 33: US Soybean Basis Map Exhibit 34: US Soybean Basis Map Exhibit 35: Change in US Soybean Basis, 2005 to Exhibit 36: Regional Soybean Basis Map with Infrastructure Exhibit 37: World Crop Area (million hectares) Exhibit 38: World Crop Production, Grains and Oilseed Exhibit 39: World Crop Area, Grains and Oilseed Exhibit 40: World Crop Production Yield Adjusted, Grain and Oilseed Exhibit 41: Grain and Oilseed Area, Brazil and Argentina Exhibit 42: Global, Corn Supply and Demand (million MT) Exhibit 43: China, Corn Supply and Demand (thousand MT) Exhibit 44: Global, Soybean Supply and Demand (million MT) Exhibit 45: Brazil, Soybean Supply and Demand (thousand MT) Exhibit 46: Argentina, Soybean Supply and Demand (thousand MT) Exhibit 47: China, Soybean Supply and Demand (thousand MT) Exhibit 48: Global, Wheat Supply and Demand (million MT) Exhibit 49: EU, Wheat Supply and Demand (thousand MT) Exhibit 50: FSU, Wheat Supply and Demand (thousand MT) Exhibit 51: China, Wheat Supply and Demand (thousand MT) Exhibit 52: US Crop Area Summary Exhibit 53: US Area Used for Biofuels Exhibit 54: US Field Crop Acreage Reserve 1/ Exhibit 55: US Soybean Supply and Demand (million bushels) Exhibit 56: US Soybean Meal Supply and Demand (000 ton) Exhibit 57: US Soybean Oil Supply and Demand (million lbs) Exhibit 58: US Soybean Price History and Forecast ($/bushel) Exhibit 59: Illinois Soybean Acreage Outlook Exhibit 60: Illinois Soybean Yield Outlook Exhibit 61: Illinois Soybean Production Outlook Exhibit 62: Illinois Soybean Processing Outlook Exhibit 63: Illinois Soybean Meal Feeding Outlook Exhibit 64: Illinois Soybean Meal Feeding Use by Species Outlook informa economics, inc iv

6 Exhibit 65: Illinois Soybean Demand by Market Outlook Exhibit 66: Illinois Soybean Meal Demand by Market Outlook Exhibit 67: Illinois Soybean Surplus or Deficit Outlook Exhibit 68: Illinois Soybean Meal Surplus or Deficit Outlook Exhibit 69: Soybean Net Shipments by State Exhibit 70: Soybean Meal Net Shipments by State Exhibit 71: Average Barge Freight Rates by River Location Exhibit 72: Illinois Crop Production, Net Grain and Soybean Shipments, and Modal Usage Exhibit 73: Soybean Exports through Lakes Elevators (top five destination markets) Exhibit 74: Distribution of Soybean Exports by Port Range Exhibit 75: Illinois Soybean Supply and Demand Trends and Outlook Summary Exhibit 76: Grain Storage Utilization for Illinois, Select Nearby States and the United States Exhibit 77: Illinois Grain Supplies and Elevator Capacity Exhibit 78: Illinois On Farm and Off Farm Grain Elevator Storage Capacity Exhibit 79: Grain Consuming Animal Units (Million Units) Exhibit 80: Cattle (Thousand Head) Exhibit 81: US Beef Supply and Demand Exhibit 82: Average Annual Returns to Cattle Feeders for Finishing 7 Weight Feeder Steer Exhibit 83: US Dairy Herd Exhibit 84: US Dairy Gross Margin Exhibit 85: US Hog/Pork Balance Table Exhibit 86: Dec 1 Total and Breeding Herd Inventory Exhibit 87: Annual Hog Breakevens and Production Margins Exhibit 88: Broiler and Turkey Production (million lbs per year) Exhibit 89: Broiler Margins (cents/lb) Exhibit 90: Development of the US Ethanol Industry Exhibit 91: US Ethanol Facilities Exhibit 92: Ethanol Facilities in Illinois Exhibit 93: US Ethanol Production and Consumption Exhibit 94: US Ethanol Supply and Demand (million gallons) Exhibit 95: Distillers Grains Balance Sheet (000 Short Tons of Distillers Dried Grains Equivalent) Exhibit 96: Projected Growth of Top 10 Ethanol Producing States Exhibit 97: Regional Ethanol Production and Forecast informa economics, inc v

7 Exhibit 98: Biodiesel Production and Margins Exhibit 99: Biodiesel Capacity and Utilization Exhibit 100: US Biodiesel Production and Usage Exhibit 101: US Biodiesel Production and Soybean Oil Usage Exhibit 102: 2008 US Aquaculture Production by Species Exhibit 103: US Aquaculture Production & Outlook, by Species Exhibit 104: Implied US Estimate of Soybean Utilization by Aquaculture Exhibit 105: Illinois Aquaculture Production by Species Exhibit 106: US Historical Soybean Acreage Exhibit 107: US Historical Soybean Production Exhibit 108: Top 20 Soybean Producing States Ranked by 2008 Production (1,000 bushels) informa economics, inc vi

8 Disclaimer This report was produced for the Illinois Soybean Association. Informa Economics, Inc. ( Informa ) has used the best and most accurate information available to complete this study. Informa is not in the business of soliciting or recommending specific investments. The reader of this report should consider the market risks inherent in any financial investment opportunity. Furthermore, while Informa has extended its best professional efforts in completing this analysis, the liability of Informa to the extent permitted by law, is limited to the professional fees received in connection with this project. informa economics, inc vii

9 Abbreviations and Units Abbreviations ISA = Illinois Soybean Association EPA = Environmental Protection Agency SBM = Soybean Meal SBO = Soybean Oil NASS = National Agricultural Statistics Service DOE = Department of Energy BIO = Biotechnology Industry Organization FSU = Former Soviet Union COOL = Country of Origin Labeling MTBE = Methyl tertiary butyl ether PPC = Production Per Cow CAFO = Concentrated Animal Feeding Operation AFBF = American Farm Bureau Federation EIA = Energy Information Administration CO2 = Carbon Dioxide ILUC = Indirect Land Use Changes NOP = National Organic Program rbgh = Recombinant Bovine Growth Hormone CSA = Community-supported agriculture MOSA = Midwest Organic Services Association BSE = Bovine Spongiform Encephalopathy GMO = Genetically Modified Organism WHO = World Health Organization FDA = Food and Drug Administration CTIC = Conservation Technology Information Center ISDA = Illinois State Department of Agriculture SWOT = Strengths, Weakness, Opportunities and Threats SPC = Soy Protein Concentrate HFCS = High Fructose Corn Syrup DDGS = Distiller Dried Grains with Solubles Bu = Bushel Lbs = Pounds Ac = acres Ha = Hectare Ton = short ton Mt = Metric ton Gal = gallon Bgy = Billion gallons per year Mil = million informa economics, inc viii

10 Units Bushel of corn = 56 lbs Bushel of soybeans = 60 lbs A metric ton of soybean = bushels of soybeans A metric ton of corn = bushels of corn A short ton of soybeans = A short ton of corn = One pound = kilograms Metric ton = 2,204.6 lbs Short ton = 2,000 lbs Metric ton = short tons Acre = hectares Hectare = acres From a bushel of soybeans = 47.5 lbs of soybean meal = 11.1 lbs of soybean oil From a pound of crude soybean oil = lbs of refined soybean oil = lbs of biodiesel From a bushel of corn (Ethanol sector) = 2.7 gallons of ethanol ~ 38.5 lbs of corn equivalent = 17.5 lbs of DDGS A gallon of ethanol = 6.59 lbs From a bushel of corn (HFCS and starch sector) = 38.4 lbs of HFCS or Starch = 2.5 of corn gluten meal = 13.5 lbs of corn gluten feed = 1.6 lbs of corn oil informa economics, inc ix

11 1. Executive Summary Illinois Gross State Product The Gross State Product (GSP) of Illinois was $633.7 billion in 2008 according to the 2011 Statistical Abstract released by the US Census Bureau. Agriculture accounts for $6.3 billion or 1% of the total GSP. Illinois farm income is approximately $5.32 billion. Farm income is described as the value of production plus government payments less operating and overhead costs. Food manufacturing in Illinois was $36.96 billion in Grain and oilseed milling was $12 billion or 33%. Animal slaughtering and processing was valued at $7.8 billion. Global Agricultural Outlook World area cultivated for grain and oilseeds is forecast to increase from million hectares in 2010 to million hectares in 2015 an annual growth rate of 0.34%. World crop production of grain and oilseeds has grown from 2.1 billion MT in 1998 to 2.6 billion MT in At the same time, crop area has only increased from 845 million Ha to a peak of 890 Ha in The predominant growth in production has been from yield improvements and only slightly from increased acreage. Global soybean production is coming off of a record crop in Production increased from million MT in 2008 to a projected million MT in Global production was down in 2008 as compared to an average of almost 224 million MT from 2004 through Soybean production in Argentina was down from 46.2 million MT in 2007 to only 32.0 million MT in 2008 due to a major drought. Production rebounded in 2009 to 54.5 million MT. A key assumption is that the US and South America will be able to keep pace with Chinese demand for whole beans. China imports whole beans and soybean oil, but imports very little soybean meal. US and Illinois Outlook for Soybeans US area for all crops is projected to show a slight increase from 312 million acres in 2010 to 317 million acres in 2011 due to increased acres in corn, cotton and wheat. The increase is partially offset by a reduction in soybean informa economics, inc 1

12 acres. However, due to strong export demand for soybeans and growth in domestic use of both soybean meal and soybean oil, soybean plantings are forecast to increase in the coming years and reach 83.5 million acres by Soybean yields are forecast to increase from 43.5 bushels per acre in 2010 to 47.7 bushels per acre by Soybean futures are forecast to moderate toward $10 after 2011 as high prices bring an eventual expansion in plantings in the US and further increases in South America, while curbing growth in world demand. Exhibit 1: US Soybean Supply and Demand (million bushels) US SOYBEAN FUNDAMENTALS 2005/ / / / / / / / / / /16 Planted Area (mil. acres) Harvested Area Harvested Yield (bu/acre) Beginning Stocks (mil bu) Production 3,068 3,197 2,677 2,967 3,359 3,329 3,341 3,510 3,660 3,810 3,940 Imports Total Supply 3,327 3,656 3,261 3,185 3,512 3,495 3,462 3,616 3,869 4,157 4,305 Crush 1,739 1,808 1,803 1,662 1,752 1,675 1,700 1,855 1,905 1,920 1,945 Food/Seed/Residual Total Domestic Disappearance 1,938 1,966 1,897 1,768 1,860 1,789 1,816 1,977 2,032 2,052 2,082 Exports 940 1,116 1,159 1,279 1,501 1,600 1,475 1,440 1,500 1,750 1,875 Total Disappearance 2,878 3,082 3,056 3,047 3,361 3,389 3,291 3,417 3,532 3,802 3,957 Ending Stocks Stocks to Use 16% 19% 7% 5% 4% 3% 5% 6% 10% 9% 9% Futures Price (per bu) $5.82 $7.27 $12.57 $10.15 $9.76 $13.30 $13.90 $10.50 $9.90 $9.98 $10.07 Farm Price (per bu) $5.66 $6.43 $10.10 $9.97 $9.59 $11.65 $13.45 $10.00 $9.40 $9.48 $9.57 The Illinois soybean crush increased up until 2006/07 but declined in the last few years. It is expected that soybean crush will increase in the near future. The US and Illinois share of soybean crushing has increased. Soybean meal use in Illinois is expected to remain relatively flat with marginal declines in livestock feeding. informa economics, inc 2

13 Exhibit 2: Illinois Soybean Supply and Demand Trends and Baseline Outlook Summary SOYBEANS BALANCE TABLE 2004/ / / / / / / / / / /15 Units (Million Acres or Bushels) Beginning Stocks Mil bu Ending Stocks Mil bu Supply Side Area Planted Mil Ac Area Harvested Mil Ac Yield bu/ac Production Mil bu Demand Side Soybean Crushing Mil bu Seed Mil bu Out-of-State Exports (Surplus) Out-of-State Exports (w/o stocks) Mil bu Share of Production 44% 42% 31% 37% 43% 45% 48% 45% 44% 44% 45% Out-of-State Exports (Surplus) Foreign Exports Mil bu US Southeast Markets (Most) Mil bu Supply of Soybeans to Main Products Soybean Meal Mil bu Soybean Oil Mil bu Soybean Hulls Mil bu SOYBEAN MEAL (Million Short Tons of Product) Supply Production Mil S. Tons Demand Livestock Feeding Mil S. Tons Hogs Mil S. Tons Broilers Mil S. Tons Eggs (Hens & Pullets) Mil S. Tons Turkeys Mil S. Tons Dairy Cattle Mil S. Tons Cattle Mil S. Tons Out-of-State Exports (Surplus) Out-of-State Exports (w/o stocks) Mil S. Tons Share of Production 87% 87% 87% 86% 87% 87% 87% 87% 88% 88% 89% Out-of-State Exports (Surplus) Foreign Exports Mil S. Tons US Southeast and Northeast Markets (Most) Mil S. Tons SOYBEAN OIL (Million Pounds of Product) Supply Production Mil lbs 2,973 3,017 3,054 2,787 2,795 2,666 2,688 2,709 2,903 3,009 3,032 Demand Biodiesel Mil lbs Foreign Exports Mil lbs Food and Industrial (exp Biodiesel) - All US Mil lbs 2,478 2,769 2,806 2,399 2,310 2,260 2,286 2,119 2,248 2,333 2,356 Source: Informa Economics LIVESTOCK OUTLOOK 2004/ / / / / / / / / / /15 Cattle Inventory 1,000 Head 1,310 1,350 1,330 1,340 1,230 1,200 1,170 1,100 1,048 1,040 1,036 Cattle on Feed 1,000 Head Milk Cow Inventory 1,000 Head Hog Inventory 1,000 Head 4,000 4,100 4,200 4,350 4,350 4,250 4,300 4,228 4,298 4,450 4,608 Broilers Produced Mil. Pounds Eggs Produced Millions 1,044 1,210 1,307 1,357 1,453 1,253 1,409 1,402 1,396 1,403 1,417 Turkey Production Millions lbs Source: Informa Economics informa economics, inc 3

14 US Livestock Outlook From late 2007 to early 2010, cow/calf operators saw major input costs (feed, energy, fertilizer, labor, etc.) rising while their output prices declined, pushing their returns into negative territory. The recent economic recession negatively affected beef demand, further exacerbating the situation for cattle producers. Cattle feeding margins turned positive in late winter 2010 as fed cattle prices rose toward the $100/cwt level in the spring. Fed cattle prices have remained relatively strong and profits continued through the summer. Margins narrowed last fall toward breakeven or modest losses. With the long biological lags inherent in the beef industry, cattle inventory numbers are expected to continue declining at least into the early part of If beef demand continues to recover and cattle/beef prices rise sufficiently to incentivize farmers and ranchers to hold back heifers and replenish the cow herd, inventory increases from 2013 forward are expected to be modest at best. In mid-2010, a surge in global milk production was expected during the fourth quarter of 2010, which would have put pressure on US prices during the first half of Instead, too little rain in New Zealand and Argentina, and too much in Australia, has limited milk production growth in the Southern Hemisphere. US exports will likely remain strong and set new records in Exports are expected to absorb about 10.8% of US production in calendar year 2011, representing the production of about 900,000 dairy cows. High feed costs shifts some of the farm level cost advantages back toward the Upper Midwest from the West and Southwest. The herd in California will likely remain stagnant or decline, while the herds in Minnesota, Wisconsin, Michigan, Illinois, and Illinois should grow. US hog production margins experienced a 5-6 month period during the spring and summer of 2010 where producers were actually making moderate to strong profits on their operations. Losses developed during Q4 as hog prices eased back seasonally while feed costs appreciated sharply. The futures market is pricing hogs for the spring and summer at or above $100/cwt. which reflects record high (and sustainably high) hog prices. informa economics, inc 4

15 US hog inventory levels are projected to bottom out during 2011 and then show modest expansion into mid decade. The breeding herd should expand only slightly during the next 3-4 years with productivity gains accounting for much of the increase in the total hog inventory. Broiler production declined for the first time in over 30 years in 2009 but rebounded to increase 4% last year. Recent sharp increases in feed input costs, coupled with rising energy costs, threaten to slow down growth in this industry in the coming years. Margins were positive through much of 2010 but crashed late in the year because of escalating feed input costs. Broiler production is still running 3-4% above year-ago levels, which should hold up into spring, but there could be sharp cuts again by the second half of the year. Financial hardship for broiler market could carry over into 2012, but given the quick reaction time of the industry, necessary supply cuts should be made in a timely fashion and restore profitability to producers at some point next year. The turkey industry contracted for a second consecutive year in 2010 and is down nearly 10% from its 2008 peak. Production picked up by the end of last year and is on pace to increase 5-6% or more during the first few months of Cutbacks the past couple of years helped push prices to very high levels last year; whole bird prices reached record highs. Escalating feed and energy costs will slow down growth in the turkey industry by later this year, and that slow rate of growth should carry over into Competing meat supplies are under pressure because of high costs as well, and that should be supportive of turkey prices through at least the next 2-3 years. The egg industry was poised to start expanding again in early 2010, but the combination of a salmonella outbreak and skyrocketing feed input costs helped take several million laying hens out of production and halt growth in the industry. Shell egg production remains flat or down slightly from year-ago levels but egg breakings continue to run well ahead of last year s pace, contributing to the oversupply problem in the egg products segment. Shell egg production should remain flat or decline slightly from last year in With zero or even negative growth this year, prices across the board will likely trend higher this coming year, and that strength should carry over into With little relief expected with feed input costs for the next couple of years and possibly beyond, growth in the egg industry is likely to be minimal out through informa economics, inc 5

16 In Illinois, 78% of total cows are classified as beef cows while 22% are dairy cows. This compares to 77% of national cowherd comprised of beef cows. Illinois cattle numbers have declined by 15.2% since 2007 while the national herd has declined 4.1%. Farm level margins for dairies improved in 2010 from very low levels in Margins should continue to improve in 2011, but high feed costs will keep them below record highs in With feed costs expected to remain high in coming years, farmers in the state have a relative advantage to dairy farmers in other regions that do not grow their own feed. Illinois hog inventory numbers have shown a fair degree of stability over the past decade or more ranging from a low of 4.0 million head on December 1, 2004 to a high of 4.35 million head in both 2007 and The peak in numbers in 2007/08 coincided with the topping out of the total US hog inventory at that same point in time and followed an extended period of very positive margins for hog producers; no matter their geographic location. The Illinois hog industry did contract but not nearly to the extent that occurred on a national basis. It would appear as though the hog production sector in Illinois is a little more insulated from huge swings in hog production margins and this could very well be a function of a moderate to large portion of the industry existing as enterprises on grain farming operations that allows for some cross subsidization of margins given the very strong profitability that has existed in recent years for corn and soybean producers. Biofuels Outlook US ethanol production in 2010 was 13.2 billion gallons. Production increased by approximately 2.5 billion gallons in 2010 as plants that were idle in 2008 and 2009 were returned to production. In addition, seven ethanol facilities completed construction accounting for over 800 mmgy of capacity. Illinois will have 15 operating ethanol facilities with a total capacity of 1.4 billion gallons. The EPA announced in late 2010 an increase to 15% ethanol for vehicles produced in 2007 and later. In January 2011, the EPA announced an increase to 15% ethanol for vehicles produced in 2001 and later. The announcements are a move to increase the use of ethanol but that move will be delayed due to several factors. Until approved for vehicles produced before 2001, retail service stations will have to provide both E10 and E15. The cost of additional pumps will slow the sales of E15. In addition, the EPA will set labeling requirements in order to avoid misfueling of vehicles. Finally, state regulations will have to be adjusted to allow for E15. informa economics, inc 6

17 Additionally, it is possible that due to federal government policy, any additional growth in corn-based ethanol production will be constrained after The Renewable Fuel Standard (referred to as RFS2 ) specifies minimum usage levels of advanced biofuels and total renewable fuels through The difference between the total renewable fuels volume and the advanced biofuels volume effectively represents the amount of corn-based ethanol that can be used to meet RFS2. This difference is 12 billion gallons in 2010 and expands to 15 billion gallons by 2015, but the volume is capped at that level in subsequent years. The approach of the blend wall and the leveling off of the RFS2 requirement five years from now have contributed to a near stoppage in the investment in and commencement of construction of new ethanol facilities, as did the volatile financial performance of the industry in 2008 and 2009, when commodity prices peaked and then collapsed as the recession set in. The pullback in the availability of credit as a result of the banking crisis that accompanied the recession also made financing new ethanol facilities extremely challenging. These factors will constrain the ability of the ethanol industry to increase production as 2015 approaches. The 45-cent ethanol incentive payment, Volumetric Ethanol Excise Tax Credit (VEETC), and the 54-cent ethanol import tariff, were extended through the end of Extension of VEETC faces opposition from some outside the ethanol industry. Given this opposition and a lack of complete agreement within the ethanol industry on what is the best way to support the industry; alternatives to VEETC are being considered. These include producer credits, support for blender pumps and infrastructure funding. Imports of Brazilian sugar-based ethanol are forecast to increase as California s Low-Carbon Fuel Standard becomes effective. According to CARB (California Air Resources Board) standards, sugar-based ethanol has lower carbon intensity than corn-based ethanol. Cellulosic ethanol growth is expected to ultimately fulfill the lowcarbon fuel standards in California, toward the end of the decade. US Ethanol production is forecast to grow to 15.1 billion gallons per year by Ethanol growth is forecast to be the strongest in Corn Belt states. Illinois is forecast to add close to 400 million gallons per year by informa economics, inc 7

18 Exhibit 3: US Ethanol Supply and Demand (million gallons) Ethanol Balance 2005/ / / / / / / / / / /16 Beginning Inventories ,001 1,038 Production 4,500 5,883 8,367 10,218 12,443 13,309 13,470 13,770 14,300 14,830 15,080 Imports ,167 1,417 1,500 Total Supply 5,206 6,879 9,306 11,171 13,271 14,709 15,106 15,636 16,431 17,248 17,618 Domestic Usage 4,773 6,318 8,510 10,437 12,236 13,698 14,071 14,572 15,330 16,110 16,463 Exports Total Disappearance 4,822 6,417 8,685 10,541 12,396 13,803 14,171 14,672 15,430 16,210 16,563 Ending Inventories ,001 1,038 1,056 Biodiesel margins have been under pressure because of (i) high feedstock costs, (ii) significant overcapacity, (iii) a volatile relation between biodiesel and feedstock prices, (iv) and limited export potential after the EU imposed "antidumping" duties on US biodiesel companies. Although 20% of the capacity is already idle, significant over capacity still exists when compared to the targeted RFS mandated use of 1.0 bgy. The baseline outlook for biodiesel is for consumption and production to be around the RFS mandate for 1.0 bgy for the foreseeable future. Since the goal of ISA is to increase the demand for Illinois soybeans, resources allocated to biodiesel will be better invested on working with the existing soybean crushing industry to expand potentially their output and utilization of soybeans. Aquaculture In addition to the typical feed uses for soybean meal, a small percentage (less than 2% of domestic use) is consumed by the aquaculture industry. However, there is an opportunity to increase soybean utilization within aquaculture feeds as global fishmeal supplies (primary aquaculture protein feed) are constrained and global aquaculture production continues to grow. Illinois aquaculture is approximately 475 thousand pounds which roughly translates to 2 thousand bushels of soybeans. Development efforts could increase soybean utilization in this young industry. informa economics, inc 8

19 2. Structure of Illinois Agriculture and Food Industry 2.1 Profile of Illinois Gross State Product The Gross State Product (GSP) in Illinois was $633.7 billion in The leading industry was Real Estate, Rental and Leasing with over $79 billion or 15% of the total for the state. Manufacturing followed closely in second while agriculture represented $6.3 billion or 1% of the total GSP as shown in Exhibit 4. Manufacturing includes many different sectors. Amongst those is food manufacturing. If food is subtracted from manufacturing and added to agriculture, agriculture plus food makes up 3% of GSP for Illinois 2. Food manufacturing is over $11 billion 3. In 2008, amongst the large agricultural states in the Midwest, Illinois has the largest GSP followed by Ohio and Michigan as shown in Exhibit 5. The percentage of each GSP category by state is shown in Exhibit 6. According to USDA s Economic Research Service, the net farm income 4 of agriculture in Illinois was $5.3 billion. That is the fourth largest in the US behind California, Iowa and Minnesota as shown in Exhibit 7. Illinois has almost 76,800 farms with a total land in farms of almost 26.8 million acres for an average farm size of 348 acres. Over 13 million acres is devoted to corn production which is nearly 49% of the state farm acreage and nearly 8.3 million for soybeans or nearly 31% of state acreage. 1 GSP data is from The 2011 Statistical Abstract provided by the US Census Bureau but the most current data is The manufacturing sector with the food industry is nearly $78.8 billion while Agriculture is nearly $6.3 billion without food manufacturing. Agriculture is based on production of crops plus forestry, hunting and fishing. 3 Food manufacturing amount is based on the value of shipping data provided in the survey of manufacturers. A pro rated formula was then used to calculate the value of food manufacturing. 4 Net farm income equals value of production plus government payments minus operating costs and overhead costs. informa economics, inc 9

20 Exhibit 4: Illinois Gross State Product Ranking by Industry 1- Real Estate 2- Manufacturing minus Food 3- Government 4- Finance and Insurance 5- Professional Services 6- Wholesale Trade 7- Retail Trade 8- Construction 9- Information 10- Transportation and Warehousing 11- Agriculture plus Food 12- Management 13- Utilities 14- Mining 0% 3% 3% 3% 13% 12% 11% 11% 8% 7% 5% 4% 4% Agriculture is 36% and Food Manufacturing is 64% 15% $0 $10 $20 $30 $40 $50 $60 $70 $80 GSP Illinois - $Billion % = Share of Total GSP Illinois Source: US Census Bureau and Informa informa economics, inc 10

21 Exhibit 5: Gross State Product amongst Large Agricultural States Exhibit 6: Gross State Product by Industry $ % Million Dollars $600 $500 $400 $300 $200 $100 % of Major Agricultural States 80% 60% 40% 20% Wisconsin Ohio Missouri Missouri Minnesota Michigan Kansas Iowa Indiana Illinois $0 Illinois Ohio Michigan Minnesota Indiana Wisconsin Missouri Kentucky Iowa Kansas Arkansas Nebraska South Dakota North Dakota 0% Agriculture + Food Mining Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and Warehousing Information Finance and Insurance Real Estate, Rental, Leasing Professional Services Management Government informa economics, inc 11

22 Exhibit 7: Net Farm Income Ranking amongst States 1-California 2-Iowa 3-Minnesota 4-ILLINOIS 5-Nebraska 6-Kansas 7-Texas 8-Indiana 9-Arkansas 10-South Dakota 11-Missouri 12-North Carolina 3% 4% 4% 4% 3% 4% 4% 5% 6% 7% 8% 9% 13-Georgia 14-Wisconsin 15-North Dakota 3% 3% 3% $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Net Farm Income (million $) % = Share of US Source: USDA Notes: Net farm income includes farm output, income, and government payments by state. informa economics, inc 12

23 Food Manufacturing in Illinois has grown from $29.2 billion in 1997 to $36.9 billion in 2009 and was $38.6 billion in 2008 based on US Census Bureau data from the Economic Census and the Annual Survey of Manufactures. Grain and oilseed milling accounted for nearly 33% of Illinois food manufacturing and totaled $12 billion in Grain and oilseed milling was down from $13.5 billion in 2008 due to high corn and soybean prices in Animal Slaughtering and Processing was valued at nearly $7.8 billion, which was 21% of Illinois food manufacturing. Exhibit 8: Structure of Illinois Food Manufacturing Industry (Based on Industry 2009 Value of Shipments) Beverage & tobacco product mfg 6% Other food mfg 11% Animal food mfg 2% Grain & oilseed milling 30% Bakeries & tortilla mfg 9% Seafood product preparation & packaging 0% Animal slaughtering & processing 19% Dairy product mfg 7% Sugar & confectionery product mfg 9% Fruit & vegetable preserving & specialty food mfg 7% Source: US Census Bureau Notes: Beverage and tobacco product manufacturing is not included in food manufacturing; however, it was shown in this graph for comparative reasons. informa economics, inc 13

24 Exhibit 9: Market Value of State Agricultural Products Sold, 2007 Nursery, greenhouse, floriculture, and sod 3% Milk and other dairy products from cows 3% Cattle and calves 6% Poultry and eggs 1% All Other 4% Hogs and pigs 8% Corn 53% Soybeans 22% Source: USDA NASS Agricultural Census 2.2 Illinois Ranking in Agriculture The following exhibits illustrate Illinois s ranking among the top 15 states and its market share of the US. Ranking are market share information provided for the following: corn, soybeans, cattle, dairy, hogs, broiler, eggs, and turkey. informa economics, inc 14

25 Exhibit 10: Illinois s Ranking Soybeans Exhibit 11: Illinois s Ranking Corn 1 - Iowa 2 - Illinois 3 - Minnesota 4 - Nebraska 5 - Indiana 6 - Ohio 7 - Missouri 8 - South Dakota 9 - North Dakota 10 - Kansas 11 - Arkansas 12 - Michigan 13 - Wisconsin 14 - Mississippi 15 - Kentucky Source: USDA 1% 2% 2% 3% 3% 4% 4% 5% 7% 6% 8% 8% 10% 14% 15% Soybean Production - Million Bushels 2009/10 % = Share of US 1 - Iowa 2 - Illinois 3 - Nebraska 4 - Minnesota 5 - Indiana 6 - Kansas 7 - South Dakota 8 - Ohio 9 - Wisconsin 10 - Missouri 11 - Michigan 12 - Texas 13 - North Dakota 14 - Colorado 15 - Kentucky Source: USDA 1% 1% 2% 3% 2% 3% 4% 4% 5% 5% 7% 10% 12% 16% 17% ,000 1,500 2,000 2,500 Corn Production - Million Bushels 2009/10 % = Share of US informa economics, inc 15

26 Exhibit 12: Illinois s Ranking Cattle on Feed Exhibit 14: Illinois s Ranking Dairy Cows 1 - Texas 2 - Nebraska 3 - Kansas 4 - Iowa 5 - Colorado 6 - California 7 - South Dakota 8 - Oklahoma 9 - Minnesota 10 - Arizona 11 - Wisconsin 12 - Idaho 13 - Washington 14 - Michigan 16 - ILLINOIS 1 - Iowa 2 - Ohio 3 - Indiana 4 - Pennsylvania 5 - California 6 - Texas 7 - Georgia 8 - Arkansas 9 - North Carolina 10 - Nebraska 11 - Minnesota 12 - Florida 13 - Michigan 14 - Alabama 18 - ILLINOIS 1% 1% 2% 2% 2% 2% 3% 2% 3% 3% 8% 10% 17% 18% 20% - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 Cattle on Feed 1000 Head % = Share of US Exhibit 13: Illinois s Ranking Egg Production 1% 2% 3% 3% 3% 3% 3% 3% 5% 6% 6% 7% 7% 8% 16% - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Egg Production - Million Eggs % = Share of US 1 - California 2 - Wisconsin 3 - New York 4 - Idaho 5 - Pennsylvania 6 - Minnesota 7 - Texas 8 - Michigan 9 - New Mexico 10 - Ohio 11 - Washington 12 - Iowa 13 - Arizona 14 - Indiana 21 - ILLINOIS 1 - Georgia 2 - Arkansas 3 - Alabama 4 - North Carolina 5 - Mississippi 6 - Texas 7 - Kentucky 8 - Delaware 9 - South Carolina 10 - California 11 - Maryland 12 - Missouri 13 - Oklahoma 14 - Virginia 15 - Tennessee 1% 2% 2% 2% 3% 3% 4% 4% 5% 5% 6% 6% 7% 14% 19% ,000 1,200 1,400 1,600 1,800 Dairy Cow Inventory Head % = Share of US Exhibit 15: Illinois s Ranking Broiler 2% 3% 3% 3% 3% 3% 3% 3% 3% 8% 10% 11% 12% 12% 14% - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Broiler Production - Million Pounds % = Share of US informa economics, inc 16

27 Exhibit 16: Illinois s Ranking Turkey Production Exhibit 17: Illinois s Ranking Hogs 1 - Minnesota 2 - North Carolina 3 - Arkansas 4 - Missouri 5 - Indiana 6 - Virginia 7 - South Carolina 8 - California 9 - Iowa 10 - Ohio 11 - South Dakota 12 - Michigan 13 - Pennsylvania 14 - Utah 15 - ILLINOIS Source: USDA 1% 1% 3% 3% 3% 3% 5% 6% 5% 6% 8% 8% 9% 15% 18% - 200, , , ,000 1,000,000 1,200,000 1,400,000 Turkey Production - Million Pounds % = Share of US 1 - Iowa 2 - North Carolina 3 - Minnesota 4 - ILLINOIS 5 - Indiana 6 - Nebraska 7 - Missouri 8 - Oklahoma 9 - Ohio 10 - Kansas 11 - South Dakota 12 - Pennsylvania 13 - Michigan 14 - Utah 15 - Colorado Source: USDA 2% 2% 2% 1% 1% 4% 3% 3% 5% 5% 6% 7% 12% 14% 29% - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Hog Inventory 1000 Head % = Share of US informa economics, inc 17

28 Exhibit 18: Illinois s Ranking Ethanol Capacity Exhibit 19: Illinois s Ranking Biodiesel Capacity 1 - Iowa 2 - Nebraska 3 - Illinois 4 - Minnesota 5 - South Dakota 6 - INDIANA 7 - Ohio 8 - Kansas 9 - Wisconsin 10 - North Dakota 11 - Missouri 12 - Michigan 13 - Texas 14 - California 15 - Tennessee 2% 2% 2% 1% 1% 3% 4% 3% 3% 7% 7% 8% 10% 14% 27% ,000 1,500 2,000 2,500 3,000 3,500 Source: Informa, RFA Operating Construction Idle Ethanol Capacity Million Gallons - Feb % = Share of US Operating Capacity Expansion 1 - Texas 2 - Iowa 3 - Illinois 4 - Missouri 5 - Alabama 6 - Washington 7 - Indiana 8 - Ohio 9 - Georgia 10 - North Dakota 11 - New Jersey 12 - California 13 - Tennessee 14 - Florida 15 - Mississippi 2% 1% 2% 2% 3% 4% 4% 4% 5% 4% 6% 6% 9% 13% 13% Source: Informa, NBB Active Biodiesel Capacity Million Gallons % = Share of US Active Capacity Idle informa economics, inc 18

29 Exhibit 20: Illinois s Ranking Corn Processing Exhibit 24: Illinois s Ranking HFCS Capacity 1 - Iowa 2 - Nebraska 3 - ILLINOIS 4 - Indiana 5 - Minnesota 6 - South Dakota 7 - Ohio 8 - Wisconsin 9 - North Dakota 10 - Kansas 11 - Tennessee 12 - Texas 13 - Missouri 14 - Michigan 15 - Colorado 1% 2% 2% 2% 3% 3% 3% 3% 3% 6% 7% 7% 13% Exhibit 21: Illinois s Ranking Glucose and Dextrose 14% 26% ,000 1,200 1,400 1,600 1,800 Corn Processing - Million Bushels 2010 % = Share of US 1 - Iowa 2 - ILLINOIS 3 - Tennessee 4 - North Dakota 5 - Indiana 6 - Ohio 7 - Minnesota 8 - Nebraska 9 - Texas 10 - Alabama 11 - North Carolina 12 - California 13 - Colorado 1% 2% 2% 3% 3% 4% 3% 5% 7% 10% 12% 17% Exhibit 25: Illinois s Ranking Starch 23% - 20,000 40,000 60,000 80, , , ,000 High Fructose Corn Syrup - Million Pounds of HFSC, Dried Basis 2010 % = Share of US 1 - Iowa 26% 1 - Iowa 26% 2 - Nebraska 21% 2 - Nebraska 21% 3 - Illinois 21% 3 - Illinois 21% 4 - Indiana 14% 4 - Indiana 14% 5 - Tennessee 7% 5 - Tennessee 7% 6 - Ohio 6% 6 - Ohio 6% 7 - Missouri 2% 7 - Missouri 2% 8 - Alabama 2% 8 - Alabama 2% 9 - Texas 1% 9 - Texas 1% 10 - North Carolina 1% 10 - North Carolina 1% Glucose & Dextrose - Million Bushels 2010 % = Share of US Starch - Million Bushels 2010 % = Share of US informa economics, inc 19

30 1 - Illinois 2 - Alabama 3 - Nebraska 4 - Kansas 5 - Iowa 6 - Indiana 7 - Texas 8 - Wisconsin 9 - Kentucky 10 - Maryland Exhibit 22: Illinois s Ranking Cereal 4% 4% 3% 3% 3% 6% 6% 6% 12% Cereal - Million Bushels 2010 % = Share of US 46% Exhibit 23: Illinois s Ranking Land in Farm Exhibit 26: Illinois s Ranking Soybean Processing 1 - Iowa 2 - Illinois 3 - Indiana 4 - Minnesota 5 - Missouri 6 - Ohio 7 - Nebraska 8 - Alabama 9 - Kansas 10 - Georgia 11 - North Carolina 12 - Kentucky 13 - Louisiana 14 - South Carolina 15 - Arkansas 1% 1% 3% 3% 2% 2% 4% 3% 6% 6% 8% 9% 12% 15% 21% - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 Soybean Processing Capacity - Tons per Day 2011 % = Share of US 1 - Texas 2 - Montana 3 - Kansas 4 - Nebraska 5 - South Dakota 6 - New Mexico 7 - North Dakota 8 - Oklahoma 9 - Colorado 10 - Iowa 11 - Wyoming 12 - Missouri 13 - Minnesota 14 - ILLINOIS 15 - Arizona 5% 5% 5% 5% 4% 4% 3% 3% 3% 3% 3% 3% 3% 7% 14% - 20,000 40,000 60,000 80, , , ,000 Land in Farms - Thousand Acres informa economics, inc 20

31 Exhibit 27: Illinois s Ranking Rent Prices Exhibit 28: Illinois s Ranking Land Values 1 - Iowa 2 - Illinois 3 - Indiana 4 - Oregon 5 - Nebraska 6 - Idaho 7 - Minnesota 8 - Kentucky 9 - Ohio 10 - Wisconsin 11 - Mississippi 12 - Arkansas 13 - Michigan 14 - Georgia 15 - Tennessee Rent Prices - Dollars per Acre (June) 1 - Pennsylvania 2 - Illinois 3 - Iowa 4 - Indiana 5 - Ohio 6 - North Carolina 7 - Georgia 8 - Wisconsin 9 - Tennessee 10 - Michigan 11 - Kentucky 12 - Minnesota 13 - Missouri 14 - South Carolina 15 - Nebraska - 1,000 2,000 3,000 4,000 5,000 6,000 Cropland Prices - Dollars per Acre (June) informa economics, inc 21

32 2.3 Illinois Soybean Production Informa looks more at US and regional levels when forecasting on soybeans. The forecast takes into account respect for historical crop mixes at the state and regional levels. All states share similarly in changes. Informa expects regional states to move together. A large change in Illinois soybean production is not forecast because there is not a large change at the US level. Illinois soybean yields have historically been higher than US yields because of ideal soil and growing conditions. informa economics, inc 22

33 Soybean Production The main soybean production area in the US stretches from the eastern parts of the Dakotas and Nebraska, across Iowa and southern Minnesota, and over to the western half of Ohio. As a result, the US soybean crushing industry is concentrated in this region (see Exhibit 29 and Exhibit 31). Furthermore, soybean crush capacity is concentrated among two companies (ADM and Bunge) that represent more than 79% of open operations. Soybean crushing facilities are located primarily near the soybean supply, and hog and poultry operations. As animal populations shifted within the US, and South America became a major exporter of SBM and SBO, many of the US soybean-crushing facilities located away from the supply source became out of position. Furthermore, the rise of South America as an export competitor and corporate mergers within the world crushing industry severely hurt the competitiveness of US crushing facilities that were dependent on the export markets. For example, Cargill replaced an outdated crushing facility on the Mississippi River with a new extremely efficient crushing facility in Brazil that was built expressly for exporting SBM and SBO. Over the last 25 years, the only exception to this trend is a new Louisiana facility. informa economics, inc 23

34 Exhibit 29: US Soybean Production Soybean Production Density (Bushels per Sq. Mile) 10,000 or Greater 7,500 to 10,000 5,000 to 7,500 2,500 to 5,000 1,000 to 2,500 0 to 1, Informa Economics, Inc. informa economics, inc 24

35 Exhibit 30: Illinois Soybean Crushing Facilities Soybean Crushing Status Name City State Feedstock Capacity (sb tons/yr) Open ADM Decatur IL Soybean 1,575,000 Open ADM Galesburg IL Soybean 571,522 Open ADM Quincy IL Soybean 1,666,939 Open Bunge Cairo IL Soybean 1,047,790 Open Bunge Gibson City IL Soybean 571,522 Open Cargill Bloomington IL Soybean 571,522 Open CGB New Berlin IL Soybean 560,000 Open INCOBRASA Gilman IL Soybean 571,522 Exhibit 31: Regional Soybean Processing Emmetsburg Mason City Eagle Grove Manning Cedar Rapids East South Milford Des Moines Claypool Fort Wayne Decatur Soybean Capacity Creston (Tons per Day) 4,000 to 6,770 2,000 to 4,000 1,000 to 2, to 1,000 St. Joseph 60 to 100 Soybean Processor (Operational Status) closed construction Kansas City idle open proposed Keokuk Quincy Mexico Galesburg Gilman Remington Bloomington Gibson City Lafayette Frankfort Champaign Danville Indianapolis Decatur New Berlin Granite City Morristown Seymour Soybean Production Density (Bushels per Sq. Mile) 10,000 to 14,400 7,500 to 10,000 5,000 to 7,500 2,500 to 5,000 1,000 to 2,500 0 to 1,000 Mt. Vernon Owensboro 2011 Informa Economics, Inc. Cairo informa economics, inc 25

36 Illinois soybean basis has averaged approximately 1 cent/bushel over the last 10 years (see Exhibit 32). A slight weakening of the basis was experienced over this period mainly due to low prices during 2007 and During calendar year 2010, Illinois soybean basis averaged 7 cents/bushel. These two states have competitive basis points due to their proximity to delivery locations. Compared to the soybean basis in 2005, the 2010 basis across the Corn Belt is higher as shown in Exhibit 33 and Exhibit 34. Both exhibits are represented from the yearly average basis of 2005 and 2010 and demonstrate the relationship to other states. As seen in Exhibit 34, the soybean basis tends to be higher in Illinois and Indiana than other areas in the Corn Belt. Exhibit 35 shows the difference in soybean basis prices from 2005 to Basis differentials were caused by the increase in commodity prices during the last five years and the demand for soybean exports to China. Exhibit 36 is a regional soybean basis map with infrastructure and processing facilities identified in order to show the strength of Illinois s transportation system and its positive impact on basis. informa economics, inc 26

37 0.40 Exhibit 32: Historical Soybean Basis U.S. Farm Price Central IL Basis Iowa Basis Minnesota Basis Indiana Basis $/Bushel informa economics, inc 27

38 Exhibit 33: US Soybean Basis Map 2005 Soybean Basis 2005 (US Dollars per Bushel) 0.5 or Greater 0.25 to to to to to to Less than Informa Economics, Inc. informa economics, inc 28

39 Exhibit 34: US Soybean Basis Map 2010 Soybean Basis 2010 (US Dollars per Bushel) 0.5 or Greater 0.25 to to to to to to Less than Informa Economics, Inc. informa economics, inc 29

40 Exhibit 35: Change in US Soybean Basis, 2005 to 2010 Soybean Basis Differential (2005 less 2010 US$ per Bushel) 0.5 to to to to to to Informa Economics, Inc. informa economics, inc 30

41 Exhibit 36: Regional Soybean Basis Map with Infrastructure Sheldon Emmetsburg Mason City Zeeland Sioux City Galva Eagle Grove Manning Cedar Rapids East Fremont Council Bluffs Des Moines Galesburg Bloomington Gilman Gibson City Claypool Remington Frankfort Decatur Delphos Sidney Danville St. Joseph Quincy New Berlin Decatur Morristown Kansas City Mexico Seymour Emporia Soybean Basis 2010 (US Dollars per Bushel) 0.5 or Greater 0.25 to to to to to to Less than -1 Soybean Processing Mt. Vernon Cairo Owensboro informa economics, inc 31

42 3. Global Agricultural Outlook 3.1 Global Crop Area World area cultivated for grain and oilseeds is forecast to increase from million hectares in 2010 to million hectares in 2015 an annual growth rate of 0.34% (see Exhibit 37). World crop production of grain and oilseeds has grown from 2.1 billion MT in 1998 to 2.6 billion MT in 2010 as seen in Exhibit 38. At the same time, crop area has only increased from 845 million Ha to a peak of 890 Ha in 2010 as seen in Exhibit 39. The predominant growth in production has been from yield improvements and only slightly from increased acreage as seen in Exhibit 40. informa economics, inc 32