department of economics risk environment for agriculture agricultural credit school ames, iowa june...
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Department of Economics
Risk Environment for Agriculture
Agricultural Credit SchoolAmes, Iowa
June 8, 2009
Chad HartAssistant Professor/Grain Markets Specialist
Department of Economics
Brief List• General economic conditions
• Food, feed, and energy demand
• Agricultural, energy, and trade policy
• Input and output pricing
• Production / crop progress
Department of Economics
Population2008 2020 2050
(billion) (billion) (billion)World 6.678 World 7.601 World 9.393
China 1.330
China 1.431
India 1.808
India 1.148
India 1.362
China 1.424
U.S. 0.304 U.S. 0.336 U.S. 0.420Indonesia 0.238
Indonesia 0.268
Nigeria 0.357
Brazil 0.192
Brazil 0.212
Indonesia 0.313
Pakistan 0.168
Pakistan 0.204
Bangladesh 0.280
Bangladesh 0.154
Bangladesh 0.190
Pakistan 0.278
Russia 0.141
Nigeria 0.184
Brazil 0.228
Nigeria 0.138
Russia 0.132 Congo 0.189
Japan 0.127
Mexico 0.125
Mexico 0.148
Source: U.S. Bureau of the Census,International Data Base
Department of Economics
Real GDP, 2008 Projections
Sources: International Financial Statistics, Global Insight
-3
0
3
6
9
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Perc
en
t C
han
ge
World Developed Market Economies Developing Market Economies
Department of Economics
Real GDP, 2009 Projections
Sources: International Financial Statistics, Global Insight
-3
0
3
6
9
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
Pe
rce
nt
Ch
an
ge
World Developed Market Economies Developing Market Economies
Department of Economics
Per Capita Meat Consumption
Source: FAPRI
80
100
120
140
160
180
200
220
240
260
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Po
un
ds
China EU Mexico Russia South Africa South Korea U.S.
Department of Economics
Government Deficits
Source: Congressional Budget Office, May 2009
Department of Economics
Wheat Statistics
Sources: USDA, FAPRI
0
5
10
15
20
25
30
Bil
lio
n B
us
he
ls
Production Consumption Ending Stocks
Department of Economics
Corn Statistics
Sources: USDA, FAPRI
0
5
10
15
20
25
30
35
40
Bil
lio
n B
us
he
ls
Production Consumption Ending Stocks
Department of Economics
Liquid Fuel Usage2006 2010 2015 2020 2025 2030
(Million Barrels Oil Equivalent per
Day) (Percent of 2006 Value)
United States 20.7 95% 98% 98% 100% 105%
Canada 2.3 100% 100% 100% 104% 109%
Mexico 2.1 71% 81% 90% 95% 100%
Europe 15.7 92% 92% 95% 96% 96%
Japan 5.2 88% 92% 96% 92% 90%
China 7.2 118% 139% 168% 192% 213%
India 2.7 89% 115% 144% 159% 174%
Africa 3.0 117% 120% 123% 127% 130%
Central and South America 5.7 116% 116% 119% 125% 133%
World 85.0 102% 107% 113% 119% 125%
Source: Energy Information Administration
Department of Economics
Crude Oil Prices
Source: Energy Information Administration
0
20
40
60
80
100
120
140
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
$ pe
r ba
rrel
Department of Economics
Crude Oil Futures Prices
Source: NYMEX
60
70
80
90
100
110
120
130
140
July2008
Dec.2008
Dec.2009
Dec.2010
Dec.2011
Dec.2012
Dec.2013
Dec.2014
Dec.2015
Dec.2016
$ p
er
ba
rre
l
2008 2009
Department of Economics
Price Movements Since 2007
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.51/3
/200
7
3/3
/200
7
5/3
/200
7
7/3
/200
7
9/3
/200
7
11/3
/20
07
1/3
/200
8
3/3
/200
8
5/3
/200
8
7/3
/200
8
9/3
/200
8
11/3
/20
08
1/3
/200
9
3/3
/200
9
5/3
/200
9
Dow Oil Corn Soybeans
Department of Economics
Ethanol Margins
Source: ISU, CARD
Department of Economics
0
5
10
15
20
25
30
35
40
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
Bill
ion G
allo
ns
Conventional Biofuels Cellulosic Biofuels
Biodiesel Additional Advanced Biofuels
Renewable Fuels Standard (RFS)
Department of Economics
Draft Lifecycle GHG Reductions
Source: EPA, May 2009
Department of Economics
CARB Fuel Carbon Values
Source: CA Air Resources Board, April 2009
Department of Economics
Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico
ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina
IndiaMalaysiaAustraliaJapanEURussia
Not a complete list
Department of Economics
Average Crop Revenue Election (ACRE)
• Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009
• Producers choose between the current stable of programs or ACRE
• Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates
Department of Economics
ACRE• Program has state and farm trigger levels, both
must be met before payments are made
• Expected state and farm yield based on 5 year Olympic average yields per planted acre
• ACRE price guarantee is the 2 year average of the national season-average price
Department of Economics
ACRE Structure• ACRE revenue guarantee = 90% of ACRE price
guarantee * Expected state yield
• ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre
• Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium
Department of Economics
ACRE Payments• Payment rate = Min(ACRE revenue
guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)
• Payments made on 83.3% of planted acres in 2009-11, 85% in 2012 (up to total base)
• ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield
Department of Economics
World Trade Organization• Ongoing negotiations for WTO agriculture
agreement
• Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies
• Both general and product-specific guidelines for agricultural policy changes
Department of Economics
U.S. Corn Progress
Source: USDA, Crop Progress
0
20
40
60
80
100
4/1/06 4/8/06 4/15/06 4/22/06 4/29/06 5/6/06 5/13/06 5/20/06 5/27/06
% P
lant
ed
5-yr Average (2004-2008) Minimum since 2000Maximum since 2000 20082009
Department of Economics
U.S. Soybean Progress
Source: USDA, Crop Progress
0
20
40
60
80
100
4/22/06 4/29/06 5/6/06 5/13/06 5/20/06 5/27/06
% P
lant
ed
5-yr Average (2004-2008) Minimum since 2000Maximum since 2000 20082009
Department of Economics
Input Costs
Source: USDA, Agricultural Prices, May 29, 2009
Department of Economics
Changing Basis Patterns
Department of Economics
Basis Last Year
Department of Economics
Basis This Year
Department of Economics
Crop Price VariabilityPrice distributions for corn based on May prices for the following July futures
0%
5%
10%
15%
20%
25%
30%
Price
2006 2009
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$ pe
r B
ushe
l
Season-average Price Cost
Preliminary estimates for 2009 costs are over $4 per bushel.
2009 Futures-based Season-average Price Estimate $4.35Latest USDA U.S. 2008 Season-average Price Estimate $4.20Latest USDA Iowa 2008 Season-average Price Estimate $3.95
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$ pe
r B
ushe
l
Season-average Price Cost
Preliminary estimates for 2009 costs are nearly $10 per bushel.
2009 Futures-based Season-average Price Estimate $10.00Latest USDA U.S. 2008 Season-average Price Estimate $9.85 Latest USDA Iowa 2008 Season-average Price Estimate $9.65
Department of Economics
Thank you for your time!
Any questions?
My web site:http://www.econ.iastate.edu/faculty/hart/