Global View of Grain Markets

James Dunn

Ag Economist

Pennsylvania State University

Issues for Ag Economy

• Bio-Fuel

• High crop prices

• Expensive inputs

• More debt

• Cheap dollar

• China and India

• Banking crisis

Bio-Fuel

• Ethanol

• Bio-diesel

• Farm bill – lowered ethanol subsidy slightly – extended tariff 2 years

• Corn and soybean prices down – fuel prices down more

• Opposition growing – Texas – animal people and consumer groups

7/3/2006 11/20/2006 4/9/2007 8/27/2007 1/14/2008 6/2/2008 10/20/080

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vsunqavrpeix

Ethanol Company Stock PricesJuly 06- Dec 08

Ethanol

• 170 plants operating

• 24 under construction - 7 expanding

• New plants much bigger

• Current 11.4 bil. gal/yr – 4.2 bil. bu.

• New 2.07 bil. gal/yr – 0.8 bil. bu.

• All of these plants cannot survive

Source: Renewable Fuels Association

Corn Supply Year Beg stocks Production Supply

Bil. Bu.

2002/03 1.60 9.01 10.62

2003/04 1.09 10.11 11.21

2004/05 0.96 11.81 13.15

2005/06 2.11 11.03 13.15

2006/07 1.97 10.54 12.51

2007/08 1.30 13.07 14.40

2008/09 1.62 12.10 13.74

Corn Usagebil. bu

Crop year feed food exports total2002 5.56 2.34 1.59 9.492003 5.80 2.54 1.90 10.232004 6.16 2.69 1.81 10.662005 6.16 2.98 2.13 11.272006 5.60 3.49 2.12 11.212007 5.90 4.36 2.44 12.742008 5.35 4.99 1.70 12.04

Source: USDA

Food and Industrial Corn Usemil. bu.

Crop

Year

HFCS Sucrose Starch Fuel Liquor Cereal

2004 520 222 279 1,323 133 189

2005 529 229 275 1,603 135 190

2006 510 239 272 2,117 136 190

2007 490 235 262 3,026 135 192

2008 470 237 235 3,700 134 193

Source: USDA

Corn Usage

2002 2007 2008

Feed 57.8% 46.6% 44.4%

Food 12.9% 10.3% 10.7%

Exports 19.1% 19.1% 14.2%

Ethanol 10.3% 23.7% 30.7%

US66%

Argentina16%

Brazil10%

Other8%

World Corn Exports2007 Crop Year

Source: National Corn Growers

May 2009 Corn Price (CBOT)

Soybean SupplyYear Carry-in Production Total

2003 178 2454 2638

2004 112 3124 3242

2005 256 3063 3322

2006 449 3188 3647

2007 574 2677 3261

2008 205 2959 3176

Soybean Usage

Year Crush Exports Seed Total

2003 1530 887 109 2525

2004 1696 1097 193 2986

2005 1739 940 194 2873

2006 1806 1118 148 3073

2007 1801 1160 93 3056

2008 1635 1210 166 3011

Soybean Carryout & Price

Year Carryout Price

2003 112 $7.34

2004 256 $5.74

2005 449 $5.66

2006 574 $6.43

2007 205 $10.40

2008 165 $9.65

Bio-Diesel

Crop Year

Methyl-Ester Production

2005/06 1,555

2006/07 2,761

2007/08 2,981

2008/09 2,200

• Rapid growth• Even data collection new• Production estimate

marked down considerably from earlier this year

• Unprofitable now• $2.50 worth of soybean

oil makes $1.50 worth of bio-diesel – plus expenses

March 2009 Bean Prices

Soybeans

• Very small Crop in 2007

• Very little carry-over

• More acreage in 2008

• 2008 crop will not cover usage

• Very low ending stocks in Sept. 2009

• Continuing high prices

• More acreage in 2009

Bio-diesel

• Vegetable oil– Soybean oil– Rapeseed oil– Waste oil from restaurants

• 17 edible oils– Very big market– Three or four are most of the supply– Bio-diesel production is affecting prices

Global vegetable oil ending stock

and biodiesel production

Exports

• Almost all corn and beans through Gulf via Mississippi River

• Ships were scarce and fuel was high• Neither is the case now• Global trade is down• Container ships from Europe back to

China going around Africa instead of through Suez Canal – toll - $600,000 – plus pirates

The Rest of the World

• Global economic problems hitting some hard

• Credit and input costs hitting world farmers hard

• Food grains still expensive

• Strong dollar makes imports more expensive

Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-080.5

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CanadaAustraliaNew ZealandCRB Index

Commodity Prices and Exchange Rates Relative to US Dollar

2006-09January 2006=1

Will production keep up with world population growth?

• 6.6 bil. July 2007, 1.16% in growth in 2007• Africa – about 1 bil. – very poor, AIDS,

wars, bad government –Zimbabwe • Latin America 570 mil. – very poor, bad

government• Asia – 4 bil. – mostly poor, bad

government• Europe – 730 mil. and losing population• North America – 440 mil. slow growth

Agriculture

• Productivity growing faster than population• Productivity growth spreading worldwide• Coelli and Rao estimate world annual growth in

agricultural productivity from 1980 to 2000 to be “2.1% , with efficiency change (or catch-up) contributing 0.9% per year and technical change providing the other 1.2%. (p. 133)”

• Food should be able to keep up• Four Horsemen of the Apocalypse – kill

population off – disease, war, famine, pestilence

Can third world afford to pay?

• No, probably not• Fastest growth in poorest countries• Generally countries with worst

governments – Myanmar!• Doubling of food prices increases the

share of food in income from 10% to 10.6% in rich countries- from 50% to 61% in poor countries (Ron Trostle, Economic Research Service, USDA)

Planting

• Corn down 1%

• Soybeans up 1%

• Fertilizer prices – same as last year

• Chemical prices – up from last year

• Seed prices

Concluding Questions

• How much will ethanol & bio-diesel production fall?

• How will consumers adjust consumption in weak economy?

• Will we really keep cutting per capita meat consumption?

• How about the dollar?• Agriculture is pretty independent of

economy!