university extension/department of economics risk environment for agriculture agricultural credit...
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University Extension/Department of Economics
Risk Environment for Agriculture
Agricultural Credit SchoolAmes, Iowa
June 8, 2010
Chad HartAssistant Professor/Grain Markets Specialist
University Extension/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
University Extension/Department of Economics
World Real GDP, 2008 Projections
Sources: International Financial Statistics, Global Insight
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
% C
ha
ng
e fro
m P
revi
ou
s Y
ea
r
University Extension/Department of Economics
World Real GDP Projections
Sources: International Financial Statistics, Global Insight
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
% C
ha
nge
fro
m P
revi
ous
Year
World, Dec. 2007 World, Dec. 2008
University Extension/Department of Economics
World Real GDP Projections
Sources: International Financial Statistics, Global Insight
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
% C
ha
nge
fro
m P
revi
ous
Year
World, Dec. 2007 World, Dec. 2008 World, Dec. 2009
University Extension/Department of Economics
Government Deficits
Source: Congressional Budget Office, Mar. 2010
University Extension/Department of Economics
Government Debt
Source: Congressional Budget Office, Mar. 2010
University Extension/Department of EconomicsSource: Center for Budget and Policy Priorities
University Extension/Department of EconomicsSource: Congressional Budget Office, Jan. 2010
University Extension/Department of EconomicsSource: U.S. Census Bureau, 2009
University Extension/Department of Economics
Population2010 2020 2050
(billion) (billion) (billion)World 6.831 World 7.558 World 9.202
China 1.330
China 1.385
India 1.657
India 1.173
India 1.326
China 1.304
U.S. 0.310 U.S. 0.341 U.S. 0.439Indonesia 0.243
Indonesia 0.268
Indonesia 0.313
Brazil 0.201
Brazil 0.223 Ethiopia 0.278
Pakistan 0.177
Pakistan 0.204
Pakistan 0.276
Bangladesh 0.158 Nigeria 0.182 Nigeria 0.264
Nigeria 0.152Bangladesh 0.181
Brazil 0.260
Russia 0.139Russia 0.132
Bangladesh 0.234
Japan 0.127
Mexico 0.125 Congo 0.189
Source: U.S. Bureau of the Census,International Data Base
University Extension/Department of Economics
Change in Per Capita Meat Consumption
Source: FAPRI
-5%
0%
5%
10%
15%
20%
25%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
China Mexico Russia India Indonesia U.S.
University Extension/Department of Economics
In 2020, we will use 26 billion bushels of wheat, 36 billion bushels of corn, and 11 billion bushels of soybeans.
World Consumption Growth
Sources: USDA, FAPRI
0%
10%
20%
30%
40%
50%
60%
70%
80%
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
14
/15
15
/16
16
/17
17
/18
18
/19
19
/20
Wheat Corn Soybeans
In 2000, we used 21.5 billion bushels of wheat, 24 billion bushels of corn, and 6 billion bushels of soybeans.
University Extension/Department of Economics
Liquid Fuel Usage2007 2015 2020 2025 2030 2035
(Million Barrels Oil Equivalent per
Day) (Percent of 2007 Value)
United States 20.6 98% 100% 102% 104% 107%
Canada 2.3 96% 96% 96% 100% 104%
Mexico 2.1 105% 110% 129% 129% 138%
Europe 15.3 92% 88% 88% 89% 90%
Japan 5.0 84% 86% 86% 84% 82%
China 7.6 132% 153% 178% 201% 222%
India 2.8 114% 129% 139% 154% 168%
Africa 3.1 113% 116% 126% 135% 148%
Central and South America 6.0 110% 112% 117% 125% 133%
World 86.1 103% 107% 113% 121% 128%
Source: Energy Information Administration
University Extension/Department of Economics
Crude Oil Prices
Source: Energy Information Administration
0
20
40
60
80
100
120
140
Ja
n-8
6
Ja
n-8
8
Ja
n-9
0
Ja
n-9
2
Ja
n-9
4
Ja
n-9
6
Ja
n-9
8
Ja
n-0
0
Ja
n-0
2
Ja
n-0
4
Ja
n-0
6
Ja
n-0
8
Ja
n-1
0
Ja
n-1
2
Ja
n-1
4
Ja
n-1
6
Ja
n-1
8
$ p
er
ba
rre
l
University Extension/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
/3/2
00
7
3/3
/20
07
5/3
/20
07
7/3
/20
07
9/3
/20
07
11
/3/2
00
7
1/3
/20
08
3/3
/20
08
5/3
/20
08
7/3
/20
08
9/3
/20
08
11
/3/2
00
8
1/3
/20
09
3/3
/20
09
5/3
/20
09
7/3
/20
09
9/3
/20
09
11
/3/2
00
9
1/3
/20
10
3/3
/20
10
5/3
/20
10
Dow Oil Corn Soybeans
University Extension/Department of Economics
Price Movements in 2010
0.80
0.85
0.90
0.95
1.00
1.05
1.101/
4/20
10
1/11
/201
0
1/18
/201
0
1/25
/201
0
2/1/
2010
2/8/
2010
2/15
/201
0
2/22
/201
0
3/1/
2010
3/8/
2010
3/15
/201
0
3/22
/201
0
3/29
/201
0
4/5/
2010
4/12
/201
0
4/19
/201
0
4/26
/201
0
5/3/
2010
5/10
/201
0
5/17
/201
0
5/24
/201
0
5/31
/201
0
Dow Oil Corn Soybeans
University Extension/Department of Economics
Ethanol Margins
Source: ISU, CARD
University Extension/Department of Economics
Ethanol Blending Advantage
-0.04
-0.02
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
1/3
/20
07
4/3
/20
07
7/3
/20
07
10
/3/2
00
7
1/3
/20
08
4/3
/20
08
7/3
/20
08
10
/3/2
00
8
1/3
/20
09
4/3
/20
09
7/3
/20
09
10
/3/2
00
9
1/3
/20
10
4/3
/20
10
$ p
er
ga
llon
University Extension/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)
University Extension/Department of Economics
CARB Fuel Carbon Values
Source: CA Air Resources Board, April 2009
University Extension/Department of Economics
Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico
ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina
IndiaMalaysiaAustraliaJapanEURussia
Not a complete list
University Extension/Department of Economics
Farm Bill Titles
I. Commodities IX. EnergyII. Conservation X. Hort. & Organic Ag.III. Trade XI. LivestockIV. Nutrition XII. Crop InsuranceV. Credit XIII. Commodity
FuturesVI. Rural Development XIV. MiscellaneousVII. Research XV. Trade & TaxesVIII. Forestry
University Extension/Department of Economics
Farm Bill Projected Spending
14%
8%
66%
8%4%
Commodity Conservation Nutrition Crop Insurance Other
Projected Spending 2008-2013$297 Billion
University Extension/Department of Economics
World Trade Organization• Ongoing negotiations for WTO agriculture
agreement
• Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies
• Both general and product-specific guidelines for agricultural policy changes
University Extension/Department of Economics
U.S. Corn Emergence
Source: USDA, Crop Progress
0
20
40
60
80
100
4/15 4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10
% E
mer
ged
Maximum since 1999 Minimum since 19992010 20095-yr Average (2005-2009)
University Extension/Department of Economics
U.S. Soybean Planting
Source: USDA, Crop Progress
0
20
40
60
80
100
4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10 6/17 6/24 7/1
% P
lant
ed
Maximum since 1980 Minimum since 1980
2010 2009
5-yr Average (2005-2009)
University Extension/Department of Economics
Input Costs
Source: USDA, Agricultural Prices, May 28, 2010
University Extension/Department of Economics
Changing Basis Patterns
University Extension/Department of Economics
Basis Two Years Ago
University Extension/Department of Economics
Basis This Year
University Extension/Department of Economics
2007/082008/09
2009/102010/11
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0% 5% 10% 15% 20% 25% 30%
Stocks-to-use ratio
Pric
e ($
per
bus
hel)
Corn
University Extension/Department of Economics
2007/082008/09
2010/11
2009/10
4
5
6
7
8
9
10
11
0% 5% 10% 15% 20%
Stocks-to-use Ratio
Pric
e ($
per
bus
hel)
Soy
University Extension/Department of Economics
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
2010
$ pe
r B
ushe
l
Season-average Price Cost per Bushel
Iowa Corn Prices vs. Costs
Right now, about a nickel under breakeven with USDAabout 9 cents under breakeven with futures
University Extension/Department of Economics
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00$
per
Bus
hel
Season-average Price Cost per Bushel
Iowa Soybean Prices vs. Costs
Right now, 7 cents over breakeven with USDAat breakeven with futures
University Extension/Department of Economics
Thank you for your time!
Any questions?
My web site:http://www.econ.iastate.edu/faculty/hart/
Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/
Ag Decision Maker:http://www.extension.iastate.edu/agdm/