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Department of Agricultural Economics
Purdue University
Fundamentals Driving U.S.
Agricultural Prosperity Chris Hurt
Purdue Extension Service
March 2013, hurtc@purdue.edu
Department of Agricultural Economics
Purdue University
Economic Shock
Transition to
New-Equilibrium
Department of Agricultural Economics
Purdue University
50
100
150
200
250
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Hypothetical 29 Year Cycle: Index Base Price = 100
Base-Equilibrium
Landing New Base-Equilibrium
Spike
Launch
Department of Agricultural Economics
Purdue University
2013 = $834
-$100
$100
$300
$500
$700
$900
$1,100
$1,300
Dolla
rs P
er
Acre
Real U.S. Corn Revenue Per Harvested Acre: 2012 = 100
2005 = $349
1973 = $1,207
1946 = $672
1986 = $380 2005 =
$348
1973 = $1,203
2011 = $934
1946 = $670
What HAS BEEN
Driving the Ag
Economy???
Department of Agricultural Economics
Purdue University
$2 to $3
$4
$7.50 $8
$8.50
’10 = 153 bu./ac
‘11 = 147 bu./ac
‘12 = 122 bu./ac
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
Picture: Michigan State University
Department of Agricultural Economics
Purdue University
July 24, 2012
64% in Drought Today:
52% in Drought
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13
Millio
n b
u.
Corn Use: USDA
FSI-NonFuel
Feed
Exports
Fuel
Department of Agricultural Economics
Purdue University
0 5 2 3 2 21 66 70 75
157 192 164
283 305
436
357 423
504
685
829
918 864
814 840
0
100
200
300
400
500
600
700
800
900
1,000
Soybean Imports from the U.S.: 1990/91-2013/14 (Mill Bu.) 3/20/13
China
Mexico
Japan
5.0 4.1
7.4
9.0 10.3
8.3
9.9
12.1
17.3
18.8
21.1 20.6 20.5 20.7
3.3 3.7
5.6 5.9 6.0
7.8
10.3
14.5
17.3
20.0
23.8 24.6
26.4
22.6
1.4 0.3 0.5
0
5
10
15
20
25
Mill
ion
Acr
es
Crop Year
Acres of U.S. Soybeans Exported to China; Acres of Corn to Ethanol(ddgs adjusted); Acres of Corn Exported to China
Bean Acres to China
Corn Acres to Ethanol
Corn Acres to China
8.4 7.8
13.0 14.9
16.3 16.1
20.2
26.6
34.6
39.3
45.2 46.7 47.3
43.8
0
5
10
15
20
25
30
35
40
45
50
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14
Mil
lio
n A
cre
s
U.S. Harvest Year
U.S. Acres Required for Chinese Soybean Exports; Ethanol (ddgs adjusted); and Chinese Corn Purchases
Department of Agricultural Economics
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1.5M acre/year
5.8M acre/year
1.1M acre/year
Department of Agricultural Economics
Purdue University
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
5.6
10 11 12 13 14 15 16 17 18 19 20 21 22
U.S. harvest year
USDA Projected Corn Use for Ethanol (Billion Bushels)
Department of Agricultural Economics
Purdue University
18.0
19.0
20.0
21.0
22.0
23.0
24.0
25.0
26.0
27.0
10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year
USDA Projected Corn Use for Ethanol (Million Acres DDG adjusted)
Department of Agricultural Economics
Purdue University
0%
5%
10%
15%
20%
25%
30%
35%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87
Exports and Ethanol as a % of Total Corn Use
Exports % of Use 1968 to 1987
% of corn use to ethanol (2003 to 2022)
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Purdue University
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year
USDA Projected Soy Oil Use for Biodiesel (Billion Pounds)
Department of Agricultural Economics
Purdue University
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year
USDA Projected Soy Oil Use for Biodiesel (Million Acres)
Department of Agricultural Economics
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25%
30%
35%
40%
45%
03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87
Soybean Exports as a % of Total Use
% Of Use Exported (1968 to 1987 U.S. Crops)
% of corn use to ethanol (2003 to 2022 crops)
Supply Response to Meet New Demands
1. Substitution of area:
Shift from other crops into new demand crops
2. Extensification of area:
Bring new area into production World U.S. 3. Intensification of production/acre Enhanced input usage Improved drainage Irrigation, etc. etc. etc.
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
1972/73= 1,872
1981/82= 2,115
1996/07= 2,104
2002/03= 2,033
2005/06= 2,144
2012/13= 2,248
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
Mill
ion
Figure 6: World Harvested ACRES 13 Major Crops Total: (Millions)
104 Million acres added in 7 years
243
million
acres
increase
Department of Agricultural Economics
Purdue University
72.2
39.2
18.5
11.5
4.6
-1.4 -2.0
-3.4 -6.9 -4.6 -4.5 -8.1
-11.2
-20
-10
0
10
20
30
40
50
60
70
80
Millio
n A
CR
ES
Change in World Harvested Area 2012/13 vs. 2005/06 (Million Acres)
Department of Agricultural Economics
Purdue University
34.8
20.7 17.6
15.7
7.9 7.4 6.8 3.6
1.6 0.7
-0.7
-9.5
-20
-10
0
10
20
30
40
Mill
ion
Acr
es
Figure 8: Change in Area Harvested in 13 major World crops 2012/13 vs. 2005/06 (Million Acres)Total +107 million acres
104 Million new
harvested acres
Department of Agricultural Economics
Purdue University
271.9 270.6
269.1
265.1
267.5
260.4
262.8 261.5
259.6
255.8
254.6
258.5
264.0
258.6
256.0
259.9
270.6
y = -583.85x + 267988 R² = 0.2806
250
255
260
265
270
275
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Mill
ion
Acre
s
U.S. Acres: 17 Crops Since Freedom to Farm
Department of Agricultural Economics
Purdue University
15.4
5.2
-5.5
-1.9 -1.5 -1.5 -0.8 -0.7 -0.6
-6
-1
4
9
14
Mill
ion
Acr
es
17 Crops Plus Hay: Change in U.S. Acres 2012 Crops vs. 2005 Crops
Corn Soybeans Up 20.6 million acres Substitute other crops 12.5 million acres New Lands CRP 5.3 million acres D.C. Beans 2.5 million acres Other sources 1.0 million acres
Department of Agricultural Economics
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1,800
1,900
2,000
2,100
2,200
2,300
2,400
Mill
ion
Met
ric
Ton
s World Total Grains Production and Use
Production
Use
23.1%
15.1%
14.6%
14.9%
18.9%
13.5%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
34%
36%
World Stocks to Use %: USDA May/Oct 2012
Wheat
Rice
Soybeans
Corn
Department of Agricultural Economics
Purdue University
May 2012
Mar 2013
Key Questions????
What will weather be in 2013?
How will weather
impact production and prices?
After 3 short production crops in the U.S.:
Where will crop prices
settle out with normal production?
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
Department of Agricultural Economics
Purdue University
Corn: USDA
3/8/13 HURT
09/10 10/11 11/12 12/13 13/14
Million Bushels Avg Price
Carryin 1,673 1,708 1,128 989 632
Production 13,110 12,447 12,358 10,780 14,536
Total Supply 14,791 14,182 13,514 11,894 15,193
Feed & Residual 5,166 4,792 4,547 4,550 4,900
FSI Non-Fuel 1,370 1,406 1,426 1,387 1,465
FSI Fuel
(Ethanol) 4,560 5,021 5,011 4,500 4,900
Export 1,987 1,835 1,541 825 1,600
Total Use 13,083 13,054 12,525 11,262 12,865
Ending Stocks 1,708 1,128 989 632 2,328
US Farm Price $3.55 $5.18 $6.22
$6.75-
$7.45
$4.50 -
$6.00
$7.10 $5.25
$7.60
$5.47 $5.36 $5.13 $4.94
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
Today Harvest 13 Harvest 14 Harvest 15 Harvest 16
Corn Cash Harvest Bids Based on Futures March 25, 2013
Department of Agricultural Economics
Purdue University
Average 13 to 16 = $5.23
Department of Agricultural Economics
Purdue University
Soybeans:USDA
3/8/13 Hurt
09/10 10/11 11/12 12/13 13/14
Million Bushels Avg Price
Carryin 138 151 215 169 125
Production 3,359 3,329 3,094 3,015 3,299
Total Supply 3,512 3,495 3,325 3,204 3,439
Seed & Residual 108 132 91 119 120
Crush 1,752 1,648 1,703 1,615 1,710
Exports 1,501 1,500 1,362 1,345 1,425
Total Use 3,361 3,280 3,156 3,079 3,230
Ending Stock 151 215 169 125 209
Farm Price $9.59 $11.30 $12.50
$13.55-
$14.80
$10.75 -
$12.75
$14.30 $11.75
$14.60
$12.39 $12.17 $11.70
$11.37
$7
$8
$9
$10
$11
$12
$13
$14
$15
Today Harvest 13 Harvest 14 Harvest 15 Harvest 16
Bean Cash Harvest Prices Based on Futures March 25, 2013
Department of Agricultural Economics
Purdue University
Average 13 to 16 = $11.91
$7.30 $7.04
$7.28 $7.18
$4
$5
$6
$7
$8
Today Harvest 13 Harvest 14 Harvest 15
Wheat Cash Harvest Bids Based on Futures March 25, 2013
Department of Agricultural Economics
Purdue University
Average 13 to 15 = $7.17
Department of Agricultural Economics
Purdue University
$113
$156
$333
$234
$136
$332 $357
$272 $290
$254 $231 $214
4.18
5.11 5.10
4.10 3.72
3.20 3.00
2.62 2.90
3.10 3.2
3.5
0
1
2
3
4
5
6
$0
$50
$100
$150
$200
$250
$300
$350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Inte
rest
%
Estimated Ownership Returns/Acre to Average Quality Indiana Land, March 25, 2013
Returns/Acre
Discount Rate 10Yr Treasury
Department of Agricultural Economics
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-Slowing world demand growth
-Increased world grain supply
-Moderating crop prices
-Some upslope to interest rates
-Return of profitability to animal production
-Rate of Land Appreciation to moderate
-Moderating farm income
-Weather??????
-Overall a SOFT LANDING for Ag Economy
Next 4 Years
Tea Leaves 2013-2016 Moderation-with a Soft Landing??
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