AGRICULTURE Rob Johansson Acting Chief Economist 19 February 2015 - - PowerPoint PPT Presentation

OUTLOOK FOR US AGRICULTURE

Rob Johansson Acting Chief Economist 19 February 2015

Next boost to productivity: Big Data?

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 0.5 1.0 1.5 2.0 2.5 3.0 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

$R&D Output Input TFP

Source: USDA-ERS. # tractors > # horses + mules No-till becomes starts to become popular Satellites used for precision ag Weed and pest resistant biotech Big data applications? Fig 1 Index: 1948 = 1.0 $million (2006 dollars)

Record farm equity (net worth) in 2015

500 1,000 1,500 2,000 2,500 3,000 500 1,000 1,500 2,000 2,500 3,000 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F

Data: USDA-ERS.

$billion $billion Real

Data: USDA-ERS. Data: USDA-ERS.

Nominal

Fig 2

Real commodity prices have been trending down for the past 60+ years

Fig 3 2005=100 2005=100

Source: USDA Agricultural Projections to 2024 and OCE, February 2015

100 200 300 400 500 600 100 200 300 400 500 600 Corn Soybeans Rice Wheat

Percent of income spent on food

Fig 4 0% 5% 10% 15% 20% 25% 30% $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Food Share (%) Disposable personal income per capita ($2014) Source: Schnepf (2013), BEA, USDA-ERS. Food Share (right axis) per capita DPI (left axis)

Recent declines in energy prices help bottom line

Fig 5 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 $10.00 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Dollars per barrel ($2015) Dollars per Mcf ($2015) Source: EIA. Natural gas wellhead price (right axis) Imported crude

• il price (left axis)

• 0.40
• 0.20

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Ethanol margin tightens but production high

Fig 6

Ethanol Margin1

Source: 1 OCE calculations, AMS data for IA, NE, IL/eastern corn belt, 2 Energy Information Agency.

10 11 12 13 14 15 16

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

RFS

$ per gallon annualized rate in billion gallons

Ethanol Production2

Rail transport costs return to normal levels in 2015

$(1,000) $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $(1,000) $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 Average secondary railcar shuttle market bids per car

UP BNSF

Source: USDA Grain Transportation Report Fig 7

The dollar strengthens, but trade still trends up

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 70 75 80 85 90 95 100 105 110 115 120 2000 = 100 Billion dollars (nominal) Source: InterContinental Exchange, USDA-ERS. Monthly Agriculture Exports (right axis) Strength of US dollar (left axis) Fig 8

Drought outlook improves, but intensifies in Southwest

Fig 9

• Area of California in Extreme to Exceptional drought (D3-D4) rose

since last year (approximately 67% vs. 61% on Feb 11, 2014);

• California statewide average snow water equivalent as of February

10, 2015 is 6” (27% of normal for this time of year and 19% of the April 1 end-of-season total. SOURCE: California Cooperative Snow Surveys).

Farm Bill implementation progressing

Fig 10

Base acre reallocation; Program yield updates PLC, ARC-CO,

• r ARC-Farm

election 2014 and 2015 program year enrollment First possible 2014 ARC/PLC payments MPP-dairy registration for Sept-Dec 2014 and calendar 2015 First possible MPP payments First payments for 2011-2014 livestock disaster assistance Signups for Oct 2011-Dec 2014 livestock disaster assistance

Apr 2014-Jan 2015 Nov 2014-Feb 2015 Nov 2014-Mar 2015 Apr-summer 2015 Oct 2015 Apr 2014 Sept 2014-Dec 2015 Apr 2015 Jan-Mar 2015

Purchase of 2015 crop insurance, SCO, and STAX policies

Spring 2016

First payments of 2015 crop insurance, SCO, and STAX indemnities

Ag Trade Outlook

Second highest year for exports expected; China remains top destination

20 40 60 80 100 120 140 160 180 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 China ROW

Fig 11

Source: USDA (ERS-FAS) Outlook for U.S. Agricultural Trade

FY 2015 Ag Exports $141.5 billion Imports $119.0 billion Balance $22.5 billion

$billion

Monthly Chinese soybean imports

Source: Global Trade Information Services (GTIS)

Fig 12

• 1

2 3 4 5 6 7 8 9

01/2010 03/2010 05/2010 07/2010 09/2010 11/2010 01/2011 03/2011 05/2011 07/2011 09/2011 11/2011 01/2012 03/2012 05/2012 07/2012 09/2012 11/2012 01/2013 03/2013 05/2013 07/2013 09/2013 11/2013 01/2014 03/2014 05/2014 07/2014 09/2014 11/2014

Million Metric Tons

United States Argentina +Brazil ROW

Monthly Chinese corn/barley/sorghum imports

Source: Global Trade Information Services (GTIS)

Fig 13 0.0 0.5 1.0 1.5 2.0 2.5 10/2010 12/2010 02/2011 04/2011 06/2011 08/2011 10/2011 12/2011 02/2012 04/2012 06/2012 08/2012 10/2012 12/2012 02/2013 04/2013 06/2013 08/2013 10/2013 12/2013 02/2014 04/2014 06/2014 08/2014 10/2014 12/2014 Million Metric Tons US-CORN US-SORGHUM US-DDG Ukraine-CORN Thailand/Burma/Laos-CORN Other-CORN BARLEY Other-SORGHUM Other-DDG

20 40 60 80 100 120 140 160 90/91 95/96 2000… 05/06 15/16 Million metric tons

Imports of grains, oilseeds, cotton combined

This year's baseline projection Last year's projection

Source: USDA Agricultural Projections to 2024

Fig 14

Projections down slightly for China imports, but still increasing

50 100 150 200 250 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Global trade growth is expected to continue

million metric tons

Source: USDA Agricultural Projections to 2024

Soybeans and products Wheat Coarse Grains

Fig 15

TPP* and TTIP*: Room to grow

U.S. Ag Trade TTIP Ag Trade TPP Ag Trade

Sources: Economic Research Service, Foreign Agriculture Service, USDA; World Trade Organization; European Commission Fig 16

*TPP partners include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Total $498.5 billion Total $222 billion Exports $150.5 billion Imports $111.9 billion U.S exports $62.6 billion U.S. imports $57.2 billion U.S. exports $12.6 billion U.S. imports $19.1 billion Total $262.4 billion

*TTIP partner is EU-28.

Outlook for Crops

Global grain ending stocks build strength

Crop

Average 2000-2003 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

Days of use Wheat

112 97 113 111 104 93 98 101

Corn

82 69 65 56 57 58 67 71

Rice

115 77 79 82 86 86 82 75

Soybeans

74 71 93 103 77 80 89 113

Cotton

190 206 145 160 259 305 340 360

Fig 17 Source: USDA, PSD database

Numbers in red denote record levels.

Corn, wheat, and soybean prices still historically strong, given record output

Wheat, corn and soybeans in dollars per bushel; rice in dollars per hundredweight; upland cotton in cents per pound. Numbers in red denote record levels.

Source: USDA-NASS, Feb 2015 WASDE, and USDA-World Ag Outlook Board Fig 18

2000- 2003 average 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16F Wheat 3.09 6.78 4.87 5.70 7.24 7.77 6.87 6.00 5.10 Corn 2.14 4.06 3.55 5.18 6.22 6.89 4.46 3.65 3.50 Soybeans 5.45 9.97 9.59 11.30 12.50 14.40 13.00 10.20 9.00 Upland Cotton 46.48 47.80 62.90 81.50 88.30 72.50 77.90 61.00 60.00 All Rice 5.61 16.80 14.40 12.70 14.50 15.10 16.30 14.00 13.10

Cropland area expected to remain high in 2015, but down from last year

Crop

(mil. acres)

2009 2010 2011 2012 2013 2014 2015F Percent change Corn 86.4 88.2 91.9 97.2 95.4 90.6 89.0

• 1.8%

Soybeans 77.5 77.4 75.0 77.2 76.8 83.7 83.5

• 0.2%

Wheat 59.0 52.6 54.3 55.3 56.2 56.8 55.5

• 2.3%

All cotton1 9.1 11.0 14.7 12.3 10.4 11.0 9.7

• 12.1%

Minor feed grains 13.5 11.4 10.4 12.6 14.6 12.8 14.0 9.1% Rice 3.1 3.6 2.7 2.7 2.5 2.9 2.9

• 1.3%

Total 8 crops1 248.7 244.2 249.0 257.4 255.9 257.9 254.6

• 1.3%

CRP 33.7 31.3 31.1 29.5 26.8 25.5 24.2

• 5.1%

8 crops + CRP1 282.4 275.5 280.2 286.9 282.8 283.5 278.8

• 1.6%

Source: USDA-World Ag Outlook Board 1all cotton, includes both upland and ELS cotton

Fig 19

Specialty crop revenues expected to drop in 2015

10 20 30 40 50 60 2010 2011 2012 2013 2014F 2015F Fruits and nuts Vegetables Bil $

Fig 20 Source: USDA-ERS

Livestock outlook

Pork, dairy and poultry production higher in 2015

Animal products 2010 2011 2012 2013 2014 2015F % Change 2015/14 Billion Pounds Beef 26.30 26.20 25.91 25.72 24.25 24.22

• 0.1%

Pork 22.44 22.76 23.25 23.19 22.84 24.09 5.5% Broilers 36.91 37.20 37.04 37.83 38.55 39.95 3.6% Total Meat 92.10 92.75 92.96 93.33 92.17 95.13 3.2% Billion Pounds Milk 192.9 196.3 200.6 201.2 206.0 211.5 2.7%

Source: Office of the Chief Economist, February 2015 Fig 21

Prices in red denote record levels.

Feed price ratios improved since 2013

1 2 3 4 5 6 7 8 9 10 10 20 30 40 50 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Hogs Steers Broilers (right axis)

Extended period of low price ratios

Source: USDA-NASS Fig 22

Cattle inventory up – January 2015

US: Jan 2014: 88,526 Jan 2015: 89,800 Change: 1,274 % Change: 1.4%

NC=No Change

Source: USDA-NASS Cattle report Fig 23

Year-over-year declines in PEDv

Fig 24 https://www.aasv.org/Resources/PEDv/PEDvWhatsNew.php

Meat exports expected to remain high

500 1,000 1,500 2,000 2,500 3,000 3,500 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F Beef and veal Pork Broilers 1000 MT

Source: USDA PSD database Fig 25

Dairy exports remain high, but down from 2014

100 200 300 400 500 600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Nonfat Dry Milk Butter Cheese Dry Whole Milk Powder 1000 MT

Source: USDA PSD database Fig 26

Hog, dairy, and broiler prices expected to come down from 2014; cattle prices rise

Source: Office of the Chief Economist, February 2014

Prices in red denote record levels.

Fig 27

Animal products 2010 2011 2012 2013 2014 2015F % Change 2015/14 Dollars per cwt Steers 95.38 114.73 122.86 125.89 154.56 162.00 4.8% Hogs 55.06 66.11 60.88 64.05 76.03 56.00

• 26.3%

Broilers 83.10 79.90 86.60 99.70 104.90 100.30

• 4.4%

Milk 16.26 20.14 18.52 20.05 23.98 17.75

• 26.0%

Dairy margins nearing $8 per cwt

Fig 28 Source: NASS and AMS data for history, forecast from FSA Margin Protection Program Decision Tool, Feb 13, 2015

$ per cwt

$0 $2 $4 $6 $8 $10 $12 $14 $16 $18 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Farm income and land values

Net farm income is down, but debt-to-assets remain historically low

Fig 29 5 10 15 20 25 20 40 60 80 100 120 140 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F Billion dollars Percent Data: USDA-ERS. Debt-to-Asset ratio (right axis) Net farm income (left axis)

500 1,000 1,500 2,000 2,500 3,000 50 100 150 200 250 300 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F Inventories Value of machinery and motor vehicles Real estate Billion dollars ($2009) Billion dollars ($2009) Data: USDA-ERS

High farm incomes in 2012-14 were used to purchase land, inventory, and machinery

Fig 30

Farmland values coming down in some areas

Fig 31

• 30
• 20
• 10

10 20 30 40 50

• 30
• 20
• 10

10 20 30 40 50 Illinois Indiana Wisconsin Iowa Percent Year-over-Year change in Q4 Percent Data: Federal Reserve Bank Chicago.

Outlook for Food Prices

Food CPI remains low

Fig 32

• 10.0
• 5.0

0.0 5.0 10.0 15.0

• 10.0
• 5.0

0.0 5.0 10.0 15.0 Year-over-Year Change (%) Year-over-Year Change (%) ERS forecast: 2.0-3.0% for 2015 ALL FOOD Source: BLS.

Retail meat price inflation is above 10% y-o-y

Fig 33

• 10.0
• 5.0

0.0 5.0 10.0 15.0

• 10.0
• 5.0

0.0 5.0 10.0 15.0 Year-over-Year Change (%) Year-over-Year Change (%) Source: BLS. Cereals and Baked Goods Meats