Agriculture Outlook Rich Pottorff Doane Advisory Services
General Outline An overview of U.S. crop markets Corn, soybeans, wheat & cotton Some factors shaping the outlook World Ag Situation Conclusions
Let s Look at the Corn Sector
Corn Price dollars per bushel 8.5 8 7.5 7 6.5 2011 6 5.5 2012 5 1/6/2012 2/6/2012 3/6/2012 4/6/2012 5/6/2012 6/6/2012 7/6/2012 8/6/2012 9/6/2012 10/6/2012 11/6/2012 12/6/2012
Domestic Corn Use Billion Bushels 12 11 Including ethanol 10 9 8 7 6 Without ethanol 5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Corn Used for Ethanol Production Billion Bushels 6.0 5.0 4.0 3.0 2.0 1.0 0.0 8
Ethanol Demand Factors Mandate is for 13.8 billion gallons for 2013 Rises to 15 billion gallons in 2015 Gasoline consumption in 2011=134 billion gallons We are close to the blend wall Clean Air Act requires the use of an oxygenate About 5.5 billion gallons of ethanol Refiners/blenders use ethanol to boost octane Shifting from ethanol use would be expensive
Foreign Corn Deficit (prod-cons) million tonnes 80 70 60 50 40 30 20 10 0 We need to export about 50 mmt 10 yr average 5 yr average 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 The 10 yr avg is 1.75 billion bushels the 5-yr 1.42 billion
Corn Demand in China million tonnes 210 190 170 150 130 110 90 70 50 1995 1997 1999 2001 2003 2005 2007 2009 2011
Corn Demand in China million tonnes 250 230 210 190 170 150 130 110 90 70 50 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Demand is rising at nearly 5% per year Yields are rising at ~1.5% per year
Corn Area in China million tonnes 45 40 35 30 25 20 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 We added 4.8 mha over the last 5 years can we add 3.9 mha in the next 5? If area holds steady China has a 30 mmt deficit by 2017/18.
Corn Surplus million tonnes 20 18 16 14 12 10 8 6 4 2 0 Argentina Brazil Ukraine 2000/01 2005/06 2011/12 2012/13
Corn: U.S. Balance Sheet Sep/Aug Crop Year (million bushels) 2011/12 2012/13 2013/14 2014/15 Supply Planted Acres 91.9 96.9 96.5 93.0 Production 12358 10725 14500 14158 Exports 1543 1200 1800 2100 Total Disappearance 12526 11175 13410 13980 Ending Stocks 988 637 1752 1945 On-Farm Corn Price ($/bu) 6.22 7.65 4.75 4.30
Crop Budgets for 2013 dollars per acre Corn Soybeans Wheat Revenue 946 591 404 Operating Costs Net Returns 369 146 125 577 445 279
Let s Look at the Soybean Sector
Soybean Price dollars per bushel 19 18 17 16 2012 15 14 13 12 2011 11 1/6/2012 2/6/2012 3/6/2012 4/6/2012 5/6/2012 6/6/2012 7/6/2012 8/6/2012 9/6/2012 10/6/2012 11/6/2012 12/6/2012
China s Soybean Balance million tonnes 92 82 72 62 52 42 32 22 12 Production Consumption 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2015/16 Deficit in 2018/19 is about 86 mmt compared to 62 million this year We need to add about 4 million acres per year just for China 2018/19
Soybean Deficit million tonnes 70 60 China 50 40 Rest of the world 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Rest of the world excludes Argentina, Brazil, and the U.S.
Soybeans: U.S. Balance Sheet Sep/Aug Crop Year (billion bushels) 2011/12 2012/13 2013/14 2014/15 Supply Planted Acres 75.0 77.2 78.0 77.5 Production 3.09 2.97 3.35 3.38 Total Disappearance 3.16 3.01 3.28 3.36 Ending Stocks 0.17 0.15 0.24 0.28 On-Farm Soybean Price ($/bu) 12.50 14.75 12.00 12.00
Soybean Production (BZ, AR, US) million tonnes 240 220 200 180 160 140 850 mbu decline last year 120 100 2000/2001 2003/2004 2006/2007 2009/2010 2012/2013
Crop Budgets for 2013 dollars per acre Northern Plains Region Soybeans Wheat Revenue 434 396 Operating Costs Net Returns 126 118 308 278
Let s Look at the Wheat Sector
Kansas City Wheat Price dollars per bushel 11 10 9 2011 8 7 6 2012 5 1/6/2012 2/6/2012 3/6/2012 4/6/2012 5/6/2012 6/6/2012 7/6/2012 8/6/2012 9/6/2012 10/6/2012 11/6/2012 12/6/2012
Foreign Wheat Deficit (prod-cons) million tonnes 70 60 50 40 30 20 10 0-10 -20 27 mmt is 1 billion bushels 10 yr average 5 yr average 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 The 10 yr avg is 0.865 billion bushels the 5-yr 0.586 billion
Foreign Wheat Production million tonnes 700 650 600 550 500 1.9 bbu decline this year 450 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
Wheat Sector Outlook billion bushels 2012/13 2013/14 Planted Acres (mil) 55.7 58.9 57.8 Production 2.27 2.31 2.25 Exports 1.10 1.15 1.05 Total Use 2.45 2.38 2.27 Ending Stocks 0.69 0.74 0.82 Price ($/bushel) 7.81 7.30 6.57
Land with Expiring CRP Contracts thousand acres 2012 Chg 12-13 2013 Total U.S. 6,537-2,660 3,324 North Dakota 840-649 259 Texas 828-61 362 Montana 695-437 366 Colorado 573-90 233 Kansas 518-142 214 Missouri 377-146 184 Minnesota 292-193 130 Washington 275-51 254 Iowa 232-25 185 All others 1,907-866 1,137
Let s Look at the Cotton Sector
Cotton Price cents per pound 220 200 180 2011 160 140 120 100 80 2012 60 1/6/2012 2/6/2012 3/6/2012 4/6/2012 5/6/2012 6/6/2012 7/6/2012 8/6/2012 9/6/2012 10/6/2012 11/6/2012 12/6/2012
Cotton Sector Outlook million bales 2012/13 2013/14 2014/15 Planted Acres (mil) 12.36 10.90 11.50 Production 17.45 16.10 17.09 Domestic Use 3.40 3.70 3.70 Exports 11.60 13.00 13.20 Total Use 15.00 16.72 16.90 Ending Stocks 5.80 5.20 5.40 Price (cents/lb) 66.0 70.0 70.0
Crop Acreage million acres 2012 2013 2014 Corn 96.9 96.5 93.0 Soybeans 77.2 78.0 77.5 Wheat 55.7 58.9 57.8 Cotton 12.4 10.9 11.5
A Few Other Factors of Note
Farm Policy Outlook Current farm bill covers the 2012 crops But Congress needs to pass a new bill this year or early in 2013 Next farm bill will be less generous Proposed cuts range from $23 billion(senate) to $35 billion (House) over 10 years Direct payments will end CRP cap will be lowered to 25 million acres But shallow loss program augments crop insurance
Principal Crop Acreage million acres 330 328 326 324 322 320 318 316 314 312 310 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Net Cash Farm Income billion dollars 160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011* 2012* 2013*
A Few Comments on World Agriculture
World Grain Production and Use million tonnes 2,400 2,300 2,200 Production 2,100 2,000 1,900 1,800 1,700 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 Last 3 years = deficit of 70 million tonnes 46 million in 2012/13 Use 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012*
World Stock-to-Use Ratios percent Corn Rice Wheat 40 35 30 25 20 15 10 5 0 1995/1996 1996/1997 1997/1998 1998/1999 1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
Are We Running Out of Cropland?
World Major Crop Area million hectares 920 900 880 860 840 820 800 780 1980/1981 1982/1983 1984/1985 1986/1987 1988/1989 1990/1991 1992/1993 1994/1995 1996/1997 1998/1999 2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011 2012/2013
Where World Area is Increasing million hectares 2000 2010 2012 Chg 00-12 Million acres Brazil 33.4 45.5 50.2 16.8 41.5 Argentina 23.7 31.7 33.0 9.3 23.0 Ukraine 14.3 21.2 22.0 7.7 19.0 China 108.8 114.5 115.5 6.7 16.6 India 118.8 122.1 123.2 4.3 10.6 Kazakhstan 12.5 17.4 16.7 4.2 10.4 Iran 7.4 9.7 9.7 2.3 5.7 Tanzania 3.4 5.1 5.6 2.2 5.4 Paraguay 2.3 4.4 4.4 2.1 5.2
Is Yield Growth Slowing Down?
World grain Yields tonnes per hectare 3.6 3.4 3.2 3 2.8 2.6 2.4 2.2 2 1990 1992 90-98 trend 98-05 trend 05-12 trend Actual 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Yield rising at 1.3% per year Population rising at 1.12% per year
What About the Demand Side?
Per Capita Grain Consumption pounds 730 720 710 700 690 680 670 660 650 1995 1997 1999 2001 2003 2005 2007 2009 2011 Per capita consumption is up about 6% since the early 2000s Remember growth in the U.S. ethanol production was a big deal
Per Capita Grain Consumption pounds 760 740 720 World Average 700 680 660 640 Other developing countries 620 600 1995 1997 1999 2001 2003 2005 2007 2009 2011 Per capita consumption is up about 6% since the early 2000s Take out China and Developed countries and it is declining
Conclusions We need a new source of demand growth for corn China may be it (or not) Crop prices are good and 2013 acreage will be high Fertilizer demand should also be good Rebound in South American crops is needed for soybeans The future of the farm bill remains uncertain
170 165 160 155 150 145 140 135 130 125 120 U.S. Corn Yield Bushels per acre 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Let me leave you with the most critical but unanswered question Have underlying weather patterns changed?