ag outlook webinar€¦ · ag outlook webinar, december 19, 2019 30% 44% 27% 0% 15% 30% 45% 60% 75%...

December 19, 2019

Ag Outlook Webinar

Michael Langemeier, Associate Director, Center for Commercial Agriculture

James Mintert, Director, Center for Commercial Agriculture

December 19, 2019

Purdue Top Farmer ConferenceJanuary 10, 2020

Pre-Conference, January 9Beck Agricultural Center, West Lafayette, IN

More info & register atpurdue.ag/topfarmer20

Ag Outlook Webinar, December 19, 2019

Ag Economy Barometer: January 2019


Ag Economy Barometer: November 2019


USDA Forecasts 3% Increase in Inflation Adjusted Net Farm Income

Purdue Center for Commercial Agriculture

78.385.5

92.5

$0

$20

$40

$60

$80

$100

$120

$140

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Billions

Year

U.S. Net Farm Income, 2000-2019Deflated, Expressed in 2019 $'s

Source: USDA, USDA, November Forecast for


12.0 12.210.6 11.6

13.812.0

13.9

22.4

$0

$5

$10

$15

$20

$25

12 13 14 15 16 17 18 19

Billions

Year

Federal Direct Farm Program Payments, 2012-2019Deflated, Expressed in 2019 $'s

Source: USDA, USDA’s November Estimate for 2019

But 2019 Income Would Decline Without An Increase in Government PaymentsInflation Adjusted Government Payments Up 61% in 2019



% of Farms in Financial Stress Climbing, But Remains Below Most of the Last 3 Decades

5

0

2

4

6

8

10

12

14

77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

% of Farms

Ending Year for 5-Year Period

% of Farms In Financial StressFive-Year Moving Average, 1977-2018

Source: Langemeier & Featherstone, Kansas Farm Management Association Databank Purdue Center for Commercial Agriculture

Early 2000’s

‘80’s Farm Crisis


17%

64%

19%

0%

15%

30%

45%

60%

75%

Smaller About the Same Larger

% o

f res

pond

ents

Compared to 2019, do you expect the size of your farm's operating loan to be larger, smaller, or about the same?

Source: Purdue Center for Commercial Agriculture, Producer Survey, November 2019


30%

44%

27%

0%

15%

30%

45%

60%

75%

Unpaid operating debt Increase in farm size Increase in input costs

% o

f res

pond

ents

What is the reason for your farm's larger operating loan in 2020?

Source: Purdue Center for Commercial Agriculture, Producer Survey, November 2019

About 6% of our sampleexpects to carryoverunpaid operating debt

Carrying Over Operating Debt Is A Sign of Financial Stress


Surprisingly Good Yields This Fall

708090

100110120130140150160170180190

96 98 00 02 04 06 08 10 12 14 16 18

Bu. per acre

Harvest Year

U.S. Corn Yield

Actual YieldTrend Yield

Source: USDA WASDE Report: Dec. 2019

2017 Yield = 177 bu./ac.2018 Yield = 176 bu./ac.2019 Yield = 167 bu/ac. (Dec. Estimate)



But Still Was 3rd Year in A Row for Corn Production Decline

15,148

14,609 14,420

13,661

10

11

12

13

14

15

16

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Billion Bu.

Harvest Year

Total U.S. Corn Production

Source: USDA WASDE, Dec. 2019


Ethanol Usage Has Plateaued

14%

39%

55%

39%

0%

10%

20%

30%

40%

50%

60%

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

% o

f C

orn

Pro

du

ctio

n

Harvest Year

Corn Used for Ethanol Production & Feed Consumption% of U.S. Corn Production

Ethanol Usage Feed & Residual Usage

Source: USDA-WASDE Purdue Center for Commercial Agriculture


Corn Acreage Expected to Rebound in 2020, But By How Much?

70

75

80

85

90

95

100

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Million Acres

Harvest Year

U.S. Corn Planted Acreage

Source: USDA Crop Production, August 2019 Purdue Center for Commercial Agriculture


Soybean Acreage Plummeted As Prevented Plantings SoaredAcreage Expected to Rebound in 2020, But By How Much?

60

65

70

75

80

85

90

95

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Million Acres

Harvest Year

U.S. Soybean Planted Acreage


USDA 2019 acreage estimate = 76.7 million acres,down 12.5 million acres from 2018


Lower Soybean Yields Than 2018…But Decline Was Smaller Than Most Expected Last Summer

52.0 50.6

46.9

20

25

30

35

40

45

50

55

00 02 04 06 08 10 12 14 16 18

(Bu/Acre)

Year

U.S. Soybean YieldsActual Yield

Trend Yield (1973-2019)



Result: U.S. Soybean Production Declined 20%

4,428

3,550

2.5

3.0

3.5

4.0

4.5

5.0

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Billion Bushels

Harvest Year

U.S. Soybean Production

Source: USDA, WASDE Purdue Center for Commercial Agriculture


U.S. Ending Stocks TighteningCould Tighten More If Actual Production Falls Below USDA’s Projections

15% 14%

23%

12%

0%

5%

10%

15%

20%

25%

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19Harvest Year

U.S. Ending Stocks as % of UsageCorn, Soybeans, 2005-2019

Corn

Soybeans



16%

33%

26%22%

32%

27%

10%

15%

20%

25%

30%

35%

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19Harvest Year

World Stocks-to-Use RatiosCorn & Soybeans, by Harvest Year .

Purdue Center for Commercial AgricultureSource: USDA-FAS, 2019 Forecast Purdue Center for Commercial Agriculture

World Stocks Are Tightening, But Remain Large

Corn

Soybeans


Price Recovery Since ‘16 & ‘17, But What About 2020?

$3.85

$1.50$2.00$2.50$3.00$3.50$4.00$4.50$5.00$5.50$6.00$6.50$7.00

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

$ per bushel

Harvest Year

U.S. National Average Cash Corn PricesBy Marketing Year .

Source: USDA WASDE ReportUSDA Forecast for 2019 Purdue Center for Commercial Agriculture


Surprisingly Strong Yields & Export Concerns Pressured PricesWhat Happens If Production Rebounds in 2020? China?

$8.85

$5

$7

$9

$11

$13

$15

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

$/Bu.

Year

U.S. National Average Soybean Price

Source: USDA ,WASDE report, USDA Forecast for 2019 Purdue Center for Commercial Agriculture


Corn Basis Has Been Very Strong…Less Than Normal Basis Improvement LikelyVery Little Carry in Futures Prices…Storage Returns Expected to Fall Below Average

Tool available at Purdue.edu/commercialag


Soybean Basis Also Stronger Than Average and StrengtheningMuch Greater Carry in the Futures Market Making Storage Returns More Attractive Than for Corn

Tool available at Purdue.edu/commercialag


Looking Ahead to the 2020 Corn CropDec. 2020 Corn Futures Settled @ $4.01/bu.

Late Sept. Southwest IN Basis Forecast =$-0.22/bu.

$4.01 + ($-0.22) = $3.79/bu. Expected Sale Price, if hedged

History suggests opportunity to roll this hedge forward at harvest time to take advantage of increase in futures market carry

May 2021 Corn Futures Settled @ $4.15/bu.

Late April Southwest IN Basis Forecast =$-0.01/bu.

$4.15 + ($-0.01) = $4.14 Expected Sale Price, if hedged


Looking Ahead to the 2020 Soybean Crop

Nov. 2020 Soybean Futures Settled @ $9.66/bu.

Late Sept. Southwest IN Basis Forecast =$-0.40/bu.

$9.66 + ($-0.40) = $9.26/bu. Expected Sale Price, if hedged

History suggests opportunity to roll this hedge forward at harvest time to take advantage of increase in futures market carry

Currently, soybean 2020 soybean futures for the 2020 crop are inverted, providing no storage incentive


Definitions

• Net Farm Income– Gross revenue minus cash expenses and depreciation;

excludes operator and family labor, and opportunity costs

• Net Return to Land– Gross revenue minus cash expenses (except rent),

depreciation, and opportunity costs (except opportunity cost on owned land)

• Earnings– Gross revenue minus cash expenses, depreciation, and

opportunity costs


-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

$300

07 08 09 10 11 12 13 14 15 16 17 18 19P 20P

Net Farm Income Sources, Corn/Soybean Rotation ($ per Acre)West Central Indiana Case Farm

Government Payments Crop Insurance Crop Net Returns Net Farm Income


-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019P 2020P

Difference in Earnings per AcreWest Central Indiana (Corn Minus Soybeans)


Corn Prices Required to Produce Per Acre Returns Equivalent to Soybeans

Soybean Price Low Productivity(C=133; SB=44)

Avg. Productivity(C=165; SB=54)

High Productivity(C=198; SB=65)

$7.50 $3.71 $3.63 $3.48

$8.00 $3.88 $3.79 $3.64

$8.50 $4.05 $3.96 $3.81

$9.00 $4.21 $4.12 $3.97

$9.50 $4.38 $4.28 $4.13

$10.00 $4.54 $4.45 $4.30

Current Prices Favor Soybeans Over Continuous Corn


Corn Prices Required to Produce Per Acre Returns Equivalent to Soybeans

Soybean Price Low Productivity(C=141; SB=44)

Avg. Productivity(C=176; SB=54)

High Productivity(C=211; SB=65)

$7.50 $3.40 $3.31 $3.19

$8.00 $3.55 $3.47 $3.34

$8.50 $3.71 $3.62 $3.50

$9.00 $3.87 $3.77 $3.65

$9.50 $4.02 $3.93 $3.80

$10.00 $4.18 $4.08 $3.96

Soybeans Versus Rotation Corn?


$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cash Rent and Net Return to Land, West Central IndianaNet Return to Land Cash Rents


Top Quality Farmland Values Down 24% Since 2013

But Dec. 2019 Was Up Less Than 1% Compared to Dec. 2018

$11,960

$9,078$9,627

$7,432

$1,000

$3,000

$5,000

$7,000

$9,000

$11,000

$13,000

74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

$ Per Acre

Year

Iowa Farmland ValuesInflation Adjusted, 2019 $’s, 1974-2019

ISU High Grade Farmland Value, Deflated

ISU Average Grade Farmland Value, Deflated

Source: Iowa State University Farmland Value Survey, December 2019 Purdue Center for Commercial Agriculture

December 19, 2019

Purdue Top Farmer ConferenceJanuary 10, 2020

Pre-Conference, January 9Beck Agricultural Center, West Lafayette, IN

More info & register atpurdue.ag/topfarmer20

ag outlook webinar€¦ · ag outlook webinar, december 19, 2019 30% 44% 27% 0% 15% 30% 45% 60% 75%...

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