AG OUTLOOK 2019: GROWING LOCALLY, SELLING GLOBALLY http://www.goldenrice.org/ Robert Johansson Chief Economist, USDA Feb 2019 Credit: COURTESY OF NIC BENNER University of Missouri
2 Outline https://finance.yahoo.com/chart 1. Farm economy 2. Crops & Livestock 3. Trade 4. Farm Bill https://www.cnbc.com/2018/06/07/
3 Growth forecasts less optimistic --- global purchasing power falls by $0.7 trillion (cumulative from 2019 2022) Percent change 5.50 5.00 4.50 World GDP April 2018 forecast October 2018 forecast January 2019 interim forecast Percent change 5.50 5.00 4.50 Emerging Markets and Developing Countries 4.00 3.50 3.00 2015 2016 2017 2018 2019 2020 2021 2022 Data: IMF 4.00 3.50 3.00 April 2018 forecast October 2018 forecast January 2019 interim forecast 2015 2016 2017 2018 2019 2020 2021 2022
4 Dollar up year-over-year, but mixed over the last few months US$ appreciation over last 12 months Argentina peso 95% Brazil real 18% Russia ruble 17% Australia dollar 14% Euroland euro 10% Canadian dollar 7% China yuan 7% Taiwan dollar 6% Korea won 5% Mexico peso 4% Japan yen 1% 0% 5% 10% 15% 20% Data: Thomson Reuters Datastream Last 6 months 36% -1% 4% 3% 2% 1% -1% 0% -1% 2% -2%
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F 5 Real farm income settles; equity shows slight decline Billion dollars ($2018) Billion dollars ($2018) $160 $140 $120 $100 $80 $60 $40 $20 $- $3,000 $2,500 $2,000 $1,500 $1,000 $500 $- Data: USDA-ERS Net farm income Equity
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 6 2016 2018F Borrowing against real estate equity fuels debt growth Billion dollars (2018$) Billion dollars (2018$) 450 450 400 400 350 Total debt 350 300 300 250 250 200 200 Real estate debt 150 150 100 100 50 Non-real estate debt 50 0 0 Data: USDA-ERS
Debt-to-assets remain low --- 13.5% but debt financing highest since 1988 7 70% 60% Debt financing Debt-to-Asset ratio 70% 60% 50% 50% 40% 40% 30% 20% 25% 30% 20% 10% 0% 13.5% 10% 0% Data: USDA-ERS
10-year average of bankruptcies per 10,000 farms 8 8 7 Nationally, 2.35 bankruptcies per 10,000 farms 10 x s lower than peak in 1987 GA ME 6 5 4 3 2 1 DE NV NJ NM RI WY FL AZ OR WA TN AL MS SC VAKY OK OH ILIA MO TX WV CT MI CO MT CA ID NC PA IN AR ND UT MN VT LA SD NH MD NE KS NY WI 0 0 1 2 3 4 5 6 7 8 Number of bankruptcies in 2018 per 10,000 farms Data: USDA-ERS, U.S. Courts
9 How optimistic are you about economic prospects over the next 6 months? Feb 2018 = 100 120 Feb 2018 = 100 120 110 100 90 80 70 60 Purdue Creighton Corn price NAHB Michigan 110 100 90 80 70 60 Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.
10 U.S. crop forecast https://www.agweek.com/business/agriculture/4512383-moisture-snow-has-really-hampered-harvest
Data: USDA, BLS 11 Real prices trend down, as crop production outstrips demand 2005=100 Real Crop Prices 2005=100 800 700 600 500 400 300 200 100 Corn price down 59% since 1960, soybeans by 52%, rice by 70%, and wheat by 65%. Corn Soybeans Rice Wheat 0 1960 1970 1980 1990 2000 2010 2020 240 210 180 150 120 90 60 30 World Crop Production Corn output has risen 435% since 1960, soybeans by 1,190%, rice by 225%, and wheat by 215%. Corn Soybeans Rice Wheat 0 1960 1970 1980 1990 2000 2010 2020
12 Global stocks in days of use: tightening market for corn and soybeans over next few years Days of use 140 120 Wheat Corn Rice Soybeans 100 80 60 40 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 Data: USDA
13 Data: IGC, FOB prices $/MT 450 430 410 390 U.S. soybeans prices fall under trade dispute 370 350 330 China retaliates against U.S. soybeans 310 290 270 U.S. & China 90 day truce, China pledges U.S. soybean purchases
Alternative markets for U.S. soybeans up, but not enough to recover exports to China 14 14 Year over Year Change (mmts) U.S. exports for 2018/19 are 13.5 mmts behind last year 22 13.5 1.2 0.4 0.3 3.4 Data: USDA *Marketing Year to Date (Sept to Feb) 1.1 1.9
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 15 Stocks overhang will take years to unwind U.S. Soybean Ending Stocks with USDA Baseline 10 year Projections Million MTs Stocks-to-use (%) 25% 25 20 15 Tariffs imposed July 2018 Soybean stocks Stocks-to-Use 20% 15% 10 5 0 10% 5% 0% Data: USDA
16 Some prices expected to edge up into 2019 Crop 2019F % (YoY) 5 year low 2019F 5 Year high Soybeans ($/bu) 8.80 +2.3% Corn ($/bu) 3.65 +1.4% All Rice ($/cwt) 12.20 +0.8% Wheat ($/bu) 5.20 +1.0% Cotton ($/lb) 0.67-6.9% Data: USDA
17 Corn and bean area at parity, wheat holding Crop 2019F (mil. acres) % (YoY) 5 year low 2019F 5 Year high Corn 92.0 +3.3% Soybeans 85.0-4.7% Wheat 47.0-1.7% All cotton 14.3 +1.1% Rice 2.7-9.8% Data: USDA
18 Photograph: Rachel Doyle Outlook for Livestock and Dairy
19 Real prices trend down, as U.S. livestock production outstrips demand 2005=100 Real U.S Livestock, Poultry, and Milk Prices 2005=100 U.S. Meat and Milk Production 400 150 Steer price down 44% Beef output has risen 87% since 350 since 1960, hogs by 68%, 1960, pork by 143%, milk by milk by 52%, and chicken 120 77%, and chicken by 1,050%. 300 by 56% (from 1964). 250 200 90 150 100 Steers Chicken 50 Milk 0 Hogs 1960 1970 1980 1990 2000 2010 2020 60 Beef 30 Chicken Pork 0 Milk 1960 1970 1980 1990 2000 2010 2020 Data: USDA, BLS
African Swine Fever (ASF) may affect global pork demand 20 Cents/lb 75 U.S. Hog Futures 70 65 60 55 China 232 retaliation 50 45 40 China 301 retaliation & Mexico 232 retaliation Aug 2018, China confirms first outbreak of ASF Source: USDA-APHIS Data: CME.
Low prices for steers and hogs in 2019 21 Livestock 2019F % (YoY) 5 year low 2019F 5 Year high Steers ($/cwt) 118.50 +1.2% Hogs ($/cwt) 42.50-7.5% Broilers ($/cwt) 97.00-0.8% Milk ($/cwt) 17.25 +6.5% Data: USDA
Meat and milk production to be record high in 2019 22 Item 2019F (billion lbs) % (YoY) 5 year low 2019F 5 Year high Beef 27.6 +2.7% Pork 27.3 +3.8% Broilers 43.1 +1.4% Total 1 104.7 +2.3% Milk 220.1 +1.1% Data: USDA 1 Total red meat and poultry
23 Trade Outlook
24 Agricultural export values expected to remain flat in 2019, China share down sharply Billion dollars 160 140 120 100 80 60 40 20-20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Data: USDA Canada Mexico China Other % of China Share
Billons of pounds 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Billions of pounds 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 25 Global demand drives growth in U.S. livestock and dairy exports 10 Beef Pork Chicken 60 Dairy, Fat-Basis Dairy, Skim Solids-Basis 8 50 6 4 2 0 40 30 20 10 0 Data: USDA
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 26 and drives growth in U.S. feed grain exports Million metric tons Million metric tons 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 - - Corn Wheat Soybeans Data: USDA
New FTAs may impact U.S. access into top export markets ROW $342 b Canada $34 b Mexico $27 b EU $130 b Top 5 U.S. Export Markets FTAs (excl. U.S.) Canada-EU (CETA) EU-Mexico EU-Japan CPTPP (TPP-11) Australia-China New Zealand-China 27 Canada $21 b Japan $52 b ROW $55 b Mexico $19 b Data: Global Trade Atlas China $118 b Global ag imports (2017) $703 billion (excl. U.S.) U.S.-FTAs with Top 5 Export Markets NAFTA (in effect) USMCA (signed) Proposed: U.S.-Japan, U.S.-EU, U.S.-UK China $20 b Japan $12 b EU $11 b Total U.S. ag exports (2017) $138 billion
28 USMCA strengthens North American market integration $ bil. U.S. share of Mexico s Ag Imports, 2017 $3.0 United States $2.5 Rest of World 120% 100% NEXT STEPS USITC report to Congress $2.0 $1.5 $1.0 $0.5 $0.0 84% 96% 65% 82% 87% 83% 77% 99% 91% 91% 68% 80% 60% 40% 20% 0% Administration submits implementing legislation package to Congress After bill is reported out of the Committees, the House and Senate vote on the bill Bill signed into law, agreement is implemented by proclamation Data: USDA-FAS
29 Farm Policy
30 2018 Farm Bill outlay = $428 billion over 5 years Commodity Programs (CCC) $31.4 b Conservation $29.3 b Other $3.5 b An increase of ~$400 mil. per year over the 2014 Farm Bill for FY2019 - FY2023 Crop Insurance $38.0 b Percent spent on Nutrition remains at 76% but with more funding for employment training Nutrition $326.0 b Increase in Research funding of $365 mil. over 5 years Data: CBO
Billion dollars Characteristics of US farm programs changing over time; crop insurance increasing in importance 31 45 40 35 30 25 20 Coupled Partially decoupled Decoupled Emergency Conservation Crop insurance 10-year average = $18.7 billion per year --- $6.2 billion from crop insurance 15 10 5 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019f Data: USDA, fiscal year. WHIP MFP
32 ARC/PLC payments per base acre expected to change under 2018 Farm Bill Farm 2014 Bill: June 2017 Baseline 2018 Farm Bill: January 2019 Baseline Corn $98.85 $106.93 Soybeans $34.16 $42.67 Wheat $75.10 $60.90 Seed Cotton* Not Applicable $172.59 Rice $440.78 $738.21 Peanuts $881.21 $713.11 Seed cotton became a covered commodity under the Bipartisan Budget Act of 2018 (BBA) Minor adjustments were made to Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) in the 2018 Farm Bill. Data: CBO *Uses 80% of generic base acres enrolled in 2015. Official estimates of seed cotton base acres are not yet available.
33 Dairy operations are decreasing in number, as herd sizes grow Licensed Operations Dairy Cattle (millions) Median dairy herd size 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Licensed Operations (Left axis) Total Inventory (Right axis) 9.5 9.4 9.3 9.2 9.1 9.0 8.9 2012 2007 2002 275 570 900 0 8.8 0 500 1000 Number of cattle Data: USDA-NASS
Net benefits for a median-sized dairy (900 cows 19.5M pounds) 34 5-year average MPP (2014 Farm Bill) 5-year average DMC (2018 Farm Bill) Premium for $8.00/cwt margin $230,184 $268,396 Premium for $9.50/cwt margin NA $7,500 (for first 5M lbs only) Average annual net payment $8.00/cwt margin coverage $9.50/cwt margin coverage -$172,119 NA -$218,076 $40,421 Data: USDA Note: Applies MPP and DMC provisions to 2014-2018 data.
Data: USDA 35 Conclusion ---- Growing Locally and Selling Globally U.S. Global Share of Production U.S. Global Share of Exports Pork 11% 3rd Pork 32% 2nd ($6B) Beef 20% 1st Beef 14% 1st ($7B) Cotton 16% 3rd Cotton 35% 1st ($6B) Soybeans 34% 1st Soybeans 33% 2nd ($22B) Wheat 7% 5th Wheat 15% 2nd ($6B) Corn 33% 1st Corn 37% 1st ($9B) 0% 20% 40% 60% 80% 100% United States ROW 0% 20% 40% 60% 80% 100% United States ROW
36 Growing economies, growing supplies, and falling real food prices improve food security 2018 = 21.1% food insecure 2028 = 10.4% food insecure Source: USDA-ERS.