Main Outlook update results and drivers Wildcards and Emerging Issues

Transcription

1 The outlook for agricultural markets in the next decade: focus on price variability Jacinto Fabiosa Co-Director, FAPRI (515) FAPRI Food and Agricultural Policy Research Institute - ISU

2 Presentation Plan Characterize the Sources of Price Variability Weather and Yield variability New varieties and production systems Climate change and extreme weather events Crude oil price variability and volatility and spillover to agricultural sector Grains prices Feed costs Price volatility under a low stock regime Price volatility with policy induced demand inflexibility Main Outlook update results and drivers Wildcards and Emerging Issues

3 Corn Yields of Illinois County County Yield (bush hels per acre) Year

4 Drought Index and Yield Deviation Relative Yield Deviation Drought Index

5 Crop Losses and Drought Index Corn Bushels Loss Corn Percent Loss Soybean Bushels Loss Soybean Percent Loss

6 Drought Tolerance Results Regression results show that corn is becoming less susceptible to drought measured both by bushel loss and percentage loss. For soybeans, constant bushel loss is not rejected but the degree of drought tolerance measured in percentage term is decreasing over time. Reasons Focus on drought tolerance by seed companies is recent. The other large change common to both corn and soybeans is that a greater proportion of both crops is being managed by larger and perhaps more able managers. Better management leads to more timely field operations, which could result in increasing drought tolerance.

7 Drought Occurrence Intergovernmental Panel on Climate Change Fourth Assessment Report (IPCC, 2007), Since 1950, the number of heat waves has increased and widespread increases have occurred in the numbers of warm nights. The extent of regions affected by droughts has also increased as precipitation over land has marginally decreased while evaporation has increased due to warmer conditions.

8 Energy and Ag Commodity Market Integration Emergence and expansion of the ethanol sector was associated with a fundamental transformation of the integration of the energy and agricultural sectors. Correlation of energy and ag commodity prices Dramatic increase in correlation. Becoming statistically significant. Correcting anomalous correlation. Spillover of crude price volatility to the ag sector prices.

9 EISA RFS Billion gal corn Total Advanced Cellulosic Biodiesel

10 Biofuel Policy Instruments RFS Tax Credit and Import Duty Tax credit (federal motor tax) Ethanol of $0.45/gallon Biodiesel of $1.00 per gallon Import duty to expire on % ad valorem $0.54/gal specific TRQ for CBI At least 50% locally produced feedstock Maximum of 60 million gallons or 7% of consumption

11 U.S. Corn Ethanol Production and Revenue USD per gal 2.0 Billion gal Production Net Revenue FCU FCL Mandate 0

12 Biofuel Mandate (target) Country Units Ethanol Biodiesel Combined EU % 4 (2015) % 6 (2020) Brazil % 25 (2006) 2 (2008) 10 (2010) Argentina % 5 (2010) Canada % 5 (2010) India % 5 (2007) 10 (2012) China % 15 (2020) US bg 36 (2022) 1 (2012)

13 Crude Oil Corn and Wheat Prices

14 U.S. Area Allocation Million Acres Corn Soybeans

15 Energy and Ag Commodity Price Correlation Crude Corn Soymeal DDGS Crude Corn Soymeal

16 Significance of Energy and Ag Commodity Price Correlation Crude Corn Soymeal DDGS Pre-boom Rho S(rho) (0.149) (0.024) (0.002 Post-boom Rho S(rho) <.0001 <.0001 <.0001

17 Crude Oil Price Volatility 03/03 Iraq Invasion 12/08 Surge

18 Oil Price Volatility Scalping (SC) Quick change in contract position Oil Stock (OS) Speculation (SP) Non-commercial position Mean RMSE Scalping Oil Stock Speculation

19 Crude Oil Price Volatility Spillover Oil-Corn Oil-Wheat Corn-Wheat Spillover Parameter First (0.06) Second 0.13 (0.09) (0.05) 0.04 (0.05) 0.04 (0.05) 0.16 (0.17)

20 Crude Oil and Feed Cost Feed Cost ($/cwt) Feed Cost ($/cwt) Crude Price ($/barrel) Crude Price ($/barrel) First (rho=0.02) Second (rho=0.89)

21 Energy impacts via biofuels S1 So S1 So p1 po p2 p1 po Do Do D1

22 Inflexibility of biofuel demand and price volatility S 1 S 0 p 2 p 1 p 0 RFS D 0

23 Corn and Oil Price Variability Corn Coeff Var (%) Corn Crude Oil

24 Outlook Update Deeper recession. Continuing weakness of the US dollar. Higher crude oil price.

25 Growth in Real GDP - developing Percent

26 Growth in Real GDP - developed Percent

27 Growth in Real GDP - world Percent

28 Selected Exchange Rate LC per USD Australia Argentina Brazil European Union Canada

29 Selected Exchange Rate LC per USD Japan China

30 Crude Oil Price (WTI) USD per bar J 2009 N 2009 NX

31 US Corn Price 5.0 USD per bu Aug-09 Jan-09 CBOT

32 US Wheat Price 8.0 USD per bu Aug-09 Jan-09 CBOT

33 US Soybean Price 12.0 USD per bu Aug-09 Jan-09 CBOT

34 US Soybean Meal Price USD perton Aug-09 Jan-09

35 US Soybean Oil Price 60 USD percwt Aug-09 Jan-09

36 US Cattle Price 120 USD per cwt Aug-09 Jan-09

37 US Hog Price 80 USD per cwt Aug-09 Jan-09

38 US Poultry Price 100 USD per cwt Aug-09 Jan-09

39 US Biofuel Prices 5.0 USD per gal Ethanol Biodiesel

40 US Ethanol S & U and Price Million gal USD per gal Production Consumption Price Import Stock 0.0

41 US Biodiesel Supply and Utilization Million gal 1, Million gal Production Consumption Net Exports -100

42 US Corn Utilization Share by End- use Percent Feed Fuel Alcohol Export Others

43 US Soybean Oil Utilization Share by End- use Percent Biodiesel Food Exports

44 Crude Oil and Corn Prices 2016/2017 Corn Price (USD per bu) percentile 10 percentile Crude Price (USD per barrel)

45 Practical Application Cost of government program can give estimates of level of government costs and likelihood of occurrence. Counter cyclical payments Load deficiency payments WTO compliance can give estimates of likelihood of exceeding WTO amber cox domestic support commitment. Amber box

46 What are the wild cards? Will there be new developments GMO crops and their widespread acceptance? Will there be advances in second generation biofuel feedstocks technology and will they commercially feasible? What are the likely impacts of on-going climate change negotiations and legislations. Will a multilateral trade agreement on agriculture be reached? When? How deep will the reforms be?

47 Thank You!