Updated Assessment of the Drought's Impacts on Crop Prices and Biofuel Production
AbstractOn August 10th, USDA released updated estimates of the size of this yearâ€™s corn and soybean crops. Corn yields are now projected at 123.4 bushels per acre, which combined with a drop in projected harvested acres results in an estimated crop size of 10.8 billion bushelsâ€”down 17 percent from USDAâ€™s July estimates. Soybean production is now estimated at 2.7 billion bushelsâ€”down 11.7 percent from July projections. The sharply lowered production estimates suggest the preliminary assessment of the impact of the drought on crop prices and biofuel production that I conducted last month needs to be updated.1 In the preliminary July assessment, I estimated that a waiver of the conventional ethanol mandate would reduce corn prices by an average of 4.8 percent across the 500 model outcomes considered. The now lower estimates of corn production imply that this estimated impact of a mandate waiver is too low. However, corn and soybean production are not the only economic variables that have changed in the past month. The average gasoline price used in the July assessment was $2.50 per gallon, which was the average futures price for reformulated gasoline. The average price of the futures contracts from September 2012 to August 2013 is now $2.78 per gallonâ€”up 11 percent. Higher gasoline prices imply greater market demand for ethanol, which reduces a mandate waiverâ€™s impact on corn prices. The net effect of higher gasoline prices and lower crop size on crop prices, and the impact of the mandate waiver, can only be determined by re-running the model used in my July assessment. The results from these updated model runs are presented here.
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Bibliographic InfoPaper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 12-pb8.
Date of creation: Aug 2012
Date of revision:
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