The Changing Business Climate for Agriculture The Outlook for 2015 Chris Hurt, Professor of Ag. Economics & Extension Economist James Mintert, Director, Center for Commercial Agriculture Michael Langemeier, Assoc. Director, Center for Commercial Agriculture Michael Boehlje, DisGnguished Professor of Ag. Economics & Extension Economist
Crop Farm Incomes: --Down 30% in 2014 --Down another 35% in 2015 --At or below 2004 to 2006 Animal Farm Incomes: --Record High in 2014 --Near record in 2015 --But only 30% of total receipts
$1,300 $1,100 Real U.S. Corn Revenue (+Insurance) Per Harvested Acre (2014 $ s) 1973 = $1,252 2012 = $1024 Dollars Per Acre $900 $700 $500 $300 1946 = $697 1986 = $395 2005 = $373 2014-16= $631 $100 1921 = $172 1931 = $113 -$100
$1,000 $950 $900 $850 $800 $750 $700 $650 $600 $550 $500 $450 $400 Average Corn Revenue & Costs/Acre by Year in Indiana Crop prices RISE faster than costs adjust upward: PosiOve Margins Cost/Acre Revenue/Acre Crop prices Fall faster than costs adjust downward: NegaOve Margins 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% World Stocks to Use %: USDA, October 2014 Wheat Soybeans Corn 21.5% 18.9% 16.0% 15.1% 15.2% 15.0% 31.9% 27.0% 24.9% 19.6% 18.8%
5.75 World Corn Yields 2.70 World Soybean Yields 5.50 2.60 5.25 2.50 5.00 4.75 4.50 4.25 4.00 3.75 2.40 2.30 2.20 2.10 2.00 3.50 1.90
Corn: USDA 10/10/14 10/11 11/12 12/13 13/14 14/15 14/15 Million Bushels Purdue Carryin 1,708 1,128 989 821 1,236 1,181 Production 12,447 12,358 10,780 13,925 14,475 14,530 Total Supply 14,182 13,514 11,932 14,781 15,736 15,741 Feed & Residual 4,792 4,547 4,336 5,125 5,375 5,340 FSI Non-Fuel 1,406 1,426 1,396 1,375 1,405 1,410 FSI Fuel (Ethanol) 5,021 5,011 4,648 5,130 5,125 5,130 Export 1,835 1,541 731 1,917 1,750 1,775 Total Use 13,054 12,525 11,111 13,546 13,655 13,655 Ending Stocks 1,128 989 821 1,236 2,081 2,196 US Farm Price $5.18 $6.22 $6.89 $4.45 $3.40 $3.30 $3.10- $3.70
Soybeans:USDA 10/10/14 10/11 11/12 12/13 13/14 14/15 14/15 Million Bushels Purdue Carryin 151 215 169 141 92 92 Production 3,329 3,094 3,034 3,258 3,927 3,957 Total Supply 3,495 3,325 3,239 3,570 4,034 4,064 Seed & Residual 132 88 89 97 114 114 Crush 1,648 1,703 1,689 1,734 1,770 1775 Exports 1,500 1,365 1,320 1,647 1,700 1710 Total Use 3,280 3,156 3,098 3,478 3,584 3,599 Ending Stock 215 169 141 92 450 465 Farm Price $11.30 $12.50 $14.40 $13.00 $10.00 $9.75 $9.00-$11.00
But the picture is much brighter in animal agriculture Changing Business Climate for Agriculture Webinar October 31, 2014
Sharp Decline in DomesGc Meat Supplies Is Behind the Strength in Livestock & Poultry Prices L b s. p e r p e r s o n 225 220 215 210 205 200 195 Annual U.S. Red Meat & Poultry Consumption Per Capita 90 95 00 05 10 15 Source: USDA, LMIC Forecast for 2014-2016 Year
Hog Slaughter Will Start to Rebound in 15 120 Annual U.S. Commercial Hog Slaughter M i l l i o n H e a d 115 110 105 100 95 90 85 Slaughter in 2014 will fall 4 to 5% below 2013 s, but pork producoon will only decline about 1%. Slaughter will rebound in 2015 & 2016. 80 00 02 04 06 08 10 12 14 16 Source: USDA, LMIC forecasts for 2014-2016 Year
Record High Prices & Profitable Through 2015 $ p e r C w t. 110 100 90 80 70 National Base Hog Prices Annual Averages, 2010-2016. 60 10 11 12 13 14 15 16 Year. Source: USDA-AMS, LMIC Forecasts for 2014-2016
Slaughter Will Decline Sharply in 2014 & 2015 Annual U.S. Commercial Cattle Slaughter M i l l i o n H e a d 37 36 35 34 33 32 31 30 29 28 Slaughter in 2015 could fall 9% below 2013 s! 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Year Source: USDA, LMIC Forecasts for 2014-2016 Purdue Center for Commercial Agriculture
$ p e r c w t. 275 250 225 200 175 150 125 100 75 Cow- Calf OperaGons Expected To Be Profitable Through 2017 Kentucky 500-600 Lb. Steer Prices Annual Average, 2007-2016. Prices in 2014 up by 50% vs. 2013 50 07 08 09 10 11 12 13 14 15 16 Source: USDA, Agricultural Marketing Service Forecasts for 2014-2016 Year
Key Points Revenue, Variable Cost, & ContribuOon Margin Trends Earnings per Acre, 2005 to 2014 Cash Rents & Land Values Price/Rent RaOos Factors ImpacOng Land Values
$1,200 $1,000 RotaGon Corn in Indiana, $ s/acre Market Revenue Variable Cost ContribuGon Margin $800 $600 $400 $200 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$800 $700 RotaGon Soybeans in Indiana, $ s/acre Market Revenue Variable Cost ContribuGon Margin $600 $500 $400 $300 $200 $100 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$300 $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 -$200 Historical Earnings per Acre Corn & Soybeans in Indiana Corn Soybeans 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $300 $250 $200 $150 $100 $50 $0 -$50 -$100 -$150 -$200
$10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 West Central Indiana Cash Rents & Farmland Prices 2000 to 2014 Farmland (lec axis) Cash Rent (right axis) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $300 $275 $250 $225 $200 $175 $150 $125 $100
34 Farmland Price to Cash Rent MulGples West Central Indiana, 1960 to 2014 30 26 22 18 14 Actual P/rent Average P/rent 10 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Factors ImpacGng Land Values Cash Rent Previous Cash Rent Net Return to Land and Management CapitalizaOon Rate Interest Rate U.S. Treasury InflaOon Risk Premium Expected Growth Rate in Cash Rent
Strategies for Success During A Downturn ü Protect your working capital ü Hold on to cash & restructure debt ü Increase asset uolizaoon ü Buy right ü Emphasize befer execuoon