office of the chief economist roots of prosperity outlook ...thecottonschool.com/agricultural...

Office of the Chief Economist

Robert Johansson

Chief Economist, USDA February 2018

ROOTS OF PROSPERITYOUTLOOK FOR 2018

Office of the Chief EconomistOffice of the Chief EconomistOffice of the Chief Economist

60

80

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140

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100

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140

Michigan Creighton Fed Reserve

Corn price NAHB Purdue

2017 = 100

Farmers’ sentiment is low compared to others, following corn prices down

Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.

2

2017 = 100


Real prices trend down, as ag productivity outstrips population growth

0

100

200

300

400

500

600

700

800

1960 1970 1980 1990 2000 2010 2020

Real Commodity Prices

Corn

Soybeans

Rice

Wheat0

50

100

150

200

1960 1970 1980 1990 2000 2010 2020

World Production

Corn

Soybeans

Rice

Wheat

Data: USDA, BLS.

2005=100 2005=100

Corn price down 61%, soybeans by 47%, rice by 65%, and wheat by 68%.

Corn supply risen up 420%, soybeans by 1,116%, rice by 219%, and wheat by 222%.

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0

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140

Bil

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oll

ars

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Nominal net farm income

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Real net farm income falling

Data: USDA

Real net farm income


What might improve income?

• Demand change:

• Global GDP growth boosts demand

• Dollar weakness boosts trade

• Improved market access abroad

• Supply change:

• Weather events

• Less distorting int’l farm policy

• US Farm Policy

• Current economic conditions

• New farm bill—when?

5


IMF growth forecasts more optimistic

3.00

3.50

4.00

4.50

5.00

5.50

2014 2015 2016 2017 2018 2019 2020 2021

April 2017 forecast

October 2017 forecast

January 2018 update

Percent changeWorld

3.00

3.50

4.00

4.50

5.00

5.50

2014 2015 2016 2017 2018 2019 2020 2021

April 2017 forecast

October 2017 forecast

January 2018 update

Percent change

Emerging markets and developing countries

Data: IMF.

6


Income growth will drive increased global demand

142176

25766

728

150151

0 100 200 300 400

ColombiaVietnamMalaysia

TaiwanPhilippines

ThailandSouth Korea

TurkeyEgyptBrazil

MexicoRussia

IndonesiaIndia

ChinaHouseholds w/ Real PPP incomes greater than $20,000 (millions)

2016 Proj. gains by 2026

Million HouseholdsData: Global Insight’s Global Consumer Markets data.

7


Dollar depreciating so far in 2018 versus customer currencies

-10

-5

0

5

10

15

20

25

2015 2016 2017 2018 to date

Canadian dollar Korea won

Japan yen Mexico peso

Taiwan dollar China yuan

% change Y-O-Y

Data: Thomson Reuters Datastream

8


Down versus most competitor currencies too

-20

-10

0

10

20

30

40

50

60

70

2015 2016 2017 2018 to date

Argentina peso Australia dollar

Brazil real Canadian dollar

Eurozone euro Russia ruble

% change Y-O-Y

Data: Thomson Reuters Datastream

9


That should help maintain FY2018 ag exports

Data: USDA.

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100

150

200

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Trade Surplus U.S. Agricultural Exports

U.S. Agricultural imports

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FTA’s account for large share of total U.S. ag exports

0%

10%

20%

30%

40%

50%

0

20

40

60

80

100

120

140

160FTA Partner Non-FTA Partner FTA Share

Data: USDA.

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are

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U.S. crop forecast

Photo source: www.farmanddairy.com/438028.html

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Global ending stocks to continue relatively high, moderating price volatility

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80

120

160

2000 2002 2004 2006 2008 2010 2012 2014 2016

Wheat Corn

Rice Soybeans

Ending stocks days of use

Data: USDA.

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Some prices expected to edge up into 2018/19

2014 2015 2016 2017 2018F

Wheat ($/bu) 5.99 4.89 3.89 4.60 4.70 2.2

Corn ($/bu) 3.70 3.61 3.36 3.30 3.40 3.0

Soybeans ($/bu) 10.10 8.95 9.47 9.30 9.25 -0.5

Cotton (cents/lb) 61.30 61.20 68.00 69.00 63.00 -8.7

All Rice ($/cwt) 13.40 12.20 10.40 12.50 11.90 -4.8

Data: USDA.

Crop

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Corn prices rise slowly over next 10 years

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5

6

7

8

Do

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rs p

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bu

she

l

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Actual

Data: USDA

15


Prices +/- will depend on weather and economy

Projections for 2020

Low CornPrice

High CornPrice

Corn price ($/bu)

2.02 5.56

Yield (bu/acre)

196 158

Ending stocks(mils bu)

4,477 1,699

Soybean price ($/bu)

5.49 10.89

Data: USDA & FAPRI.

0

1

2

3

4

5

6

Do

llars

per

bu

sh

el

Corn Price Simulations

95%

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0.0

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1.6

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1.20

1.40

1.60

US DDG Exports to other US DDG Exports To China DDG/Corn Price (t-1)

Biotech rejectionsAD/CVDs

…and on other countries farm and trade policies

17

Data: USDA.

DDG/corn price ratio DDG exports mmt


2.10

2.20

2.30

2.40

2.50

2.60

2.70

2.80

3-Sep 3-Oct 3-Nov 3-Dec 3-Jan 3-Feb 3-Mar 3-Apr 3-May 3-Jun

Evolution of New Crop U.S. Soybean to Corn Price Ratio for Selected Years

2014 2016 2017 2018

… but farmers plant based on what they expect

18


Crop (mil. acres) 2014 2015 2016 2017 2018F

Corn 90.6 88.0 94.0 90.2 90.0 -0.2%

Soybeans 83.3 82.7 83.4 90.1 90.0 -0.1%

Wheat 56.8 55.0 50.1 46.0 46.5 1.1%

All cotton 11.0 8.6 10.1 12.6 13.3 5.6%

Other feedgrains 12.9 15.2 12.6 10.7 12.6 17.8%

Rice 3.0 2.6 3.2 2.5 2.9 16%

Total 8 crops 257.6 252.0 253.4 252.1 255.3 1.3%

Corn and bean area at parity, wheat holding

Data: USDA.

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Who’s buying now? Global Import Share (2017/18)

Data: USDA

Mexico9%

China8%

N. Afr/Mid-East22%

Japan9%

EU9%

Rest of World43%

Coarse Grains

China65%

EU9%

Mexico3%

Japan2%

Rest of World21%

Soybeans

Sub-Saharan

Afr13%

N. Afr/Mid-

East29%

SE Asia14%

FSU4%

Brazil4%

Rest of World36%

Wheat

20


Data: USDA

Mexico10%

China10%

N. Afr/Mid-East24%

Japan7%

EU6%

Rest of World43%

Coarse Grains

China70%

EU7%

Mexico2%

Japan2%

Rest of World19%

Soybeans

Sub-Saharan Afr16%

N. Afr/Mid-

East29%

SE Asia14%

FSU4%

Brazil4%

Rest of World33%

Wheat

Who will be buying? Global Import Share (2027/28)

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U.S. export share of global trade flattens

Data: USDA

0%

20%

40%

60%

80%

100%

0%10%20%30%40%50%60%70%80%90%

Corn Soybean Wheat

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Outlook for Livestock and Dairy

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Meat and milk production to be record high in 2018

Data in red denote record levels. 1 Total red meat and poultry

Item 2014 2015 2016 2017 2018F

Billion Pounds

Beef 24.3 23.7 25.2 26.2 27.7 5.9

Pork 22.8 24.5 24.9 25.6 26.9 5.1

Broilers 38.6 40.0 40.7 41.6 42.6 2.3

Total1 92.2 94.6 97.6 100.1 103.9 3.8

Milk 206.1 208.6 212.4 215.4 218.7 1.5

Data: USDA-OCE.

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Beef production is projected to continue to rise

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2000200120022003200420052006200720082009201020112012201320142015201620172018Actual

Data: USDA

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September 13, 2011Released Thursday, Sep. 15, 2011)

Valid 7 a.m. EST

Author

Mark SvobodaNational Drought Mitigation Center

February 13, 2018(Released Thursday, Feb. 15, 2018)

Valid 7 a.m. EST

Author

Eric LuebehusenU.S. Department of Agriculture

Percent of Southern Plains* In D3-D4 Drought

* Kansas, Oklahoma, and Texas

September 13, 2011:February 13, 2018:

83.3%16.5%

U.S. Drought Monitor, Sept 2013 and Feb 2018

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Livestock, poultry, and milk prices were higher in 2017, but will decline in 2018

Prices in red denote record levels.

Item 2014 2015 2016 2017 2018F

Dollars per cwt

Steers 154.56 148.12 120.86 121.52 119.25 -1.9

Hogs 76.03 50.23 46.16 50.48 48.00 -4.9

Broilers 104.9 90.5 84.3 93.5 90.8 -2.9

Milk 23.97 17.13 16.30 17.63 16.05 -9.0

Data: USDA.

27


Export volumes rise over time

Data: USDA.

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Beef Pork Chicken

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Dairy, Fat-Basis

Dairy, Skim Solids-Basis

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Status of the Farm Economy

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Data: USDA.

Working capital falling

$0

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$160

$180

$0

$500

$1,000

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2012 2013 2014 2015 2016 2017F 2018F

Assets (left axis)

Working Capital (right axis)

Debt (left axis)

Mil

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Millio

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rs

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Debt-to-asset ratios vary by sector

Data: USDA.

0%

5%

10%

15%

20%

25%

30%

35%

Cotton Wheat Corn Soybeans All othercrops

Cattleand

calves

Hogs Poultry Dairy Otherlivestock

Highly leveraged (0.41< dta > 0.70)

Very highly leveraged (dta > 0.71)

% of farm businesses

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F

Borrowing continuing to rise

Data: USDA.

Total debt

Real estate debt

Non-real estate debt

Billion dollars (2018$) Billion dollars (2018$)

32


Debt-to-assets remain low, but interest payments rising

Data: USDA.

0%

10%

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50%

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60%

70%

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81

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F

Int/(NFI+Int) Debt-To-Asset Ratio

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The share of non-performing loans is rising

0

0.25

0.5

0.75

1

1.25

1.5

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Ma

r-0

0

Sep

-01

Ma

r-0

3

Sep

-04

Ma

r-0

6

Sep

-07

Ma

r-0

9

Sep

-10

Ma

r-1

2

Sep

-13

Ma

r-1

5

Sep

-16

Non-real estate loans

Percent (lhs)

Billion dollars (rhs)

0

0.5

1

1.5

2

2.5

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

Ma

r-0

0

Sep

-01

Ma

r-0

3

Sep

-04

Ma

r-0

6

Sep

-07

Ma

r-0

9

Sep

-10

Ma

r-1

2

Sep

-13

Ma

r-1

5

Sep

-16

Real estate loans

Billion dollars (rhs)

Percent (lhs)

Data: Federal Reserve Board of Governors

34


Farm bankruptcy remains low

0

5

10

15

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25

0

1

2

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5

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7

8B

an

kru

ptc

ies / 1

0,0

00 fa

rms

Mil

lio

ns o

f fa

rms,

exclu

din

g

sh

aare

cro

pp

ers

Total farms

BankruptcyRate

Source: USDA-ERS.

35


Farm programs and changes

https://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2017/09/11/104702221-GettyImages-56058522.530x298.jpg?v=1505137319

36


Crop insurance increasing in importance

0

5

10

15

20

25

30

35

40

1985 1987 1989 1991 1993 1665 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Bil

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Crop insurance

Conservation

Emergency

Decoupled

Partially decoupled

Coupled

$15 billion per year$5.7 billion from crop ins

37

Source: USDA.


• 2017•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

Crop insurance indemnities reflects location of 2017 natural disasters

Source: USDA-RMA.

38


Source: CBO.

Projected Farm Bill spending by commodityB

illi

on

do

llars

0.0

1.0

2.0

3.0

4.0

5.0

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Corn Soybeans

Wheat Upland cotton

Rice Peanuts

Dairy net outlays

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80 percent generic base acres > 2009-2012 average for upland cotton planted acres

Data: USDA.

40

0

5

10

15

20

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F

Upland cotton, planted acres

80% Generic base, enrolled (2017)

Upland cotton, 2009-2012 average planted acres

Mil

lio

n a

cre

s


0.00

0.50

1.00

1.50

2.00

2.50

$0

$2

$4

$6

$8

$10

$12 Milk/feed margin (lhs)

BBA payments at $8 margin (rhs)

MPP payments at $8 margin (rhs)

Increased MPP payments to dairy producers

Note: Payments at $8 are annual payments/cwt to producers with margin coverage at $8.Data: USDA.

41

$US/cwt $US/cwt


Conclusion

1. Total meat and milk production reach record highs in 2018.

2. Strong global GDP and weak dollar maintains exports this year.

3. Parity between soybean and corn acreage in 2018.

4. Net farm income is forecast down and projected to fall in real terms.

5. The 2018 Bipartisan Budget Act will extend farm safety net programs for cotton and dairy and provide additional assistance to producers facing losses from 2017 disasters.

42

Office of the Chief EconomistOffice of the Chief EconomistOffice of the Chief Economist 43

Thank you!

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