An Agricultural Update

An Agricultural Update May 22, 2018 Indianapolis, IN David Oppedahl Senior Business Economist 312-322-6122 david.oppedahl@chi.frb.org

Personal consumption shares 40% 30% 20% 10% 0% 1950 1960 1970 1980 1990 2000 2010 Food Health Care Source: Bureau of Economic Analysis

Total farm share of 17.2%

7th District Agriculture Products (as % of U.S. total, 2017) 50% 40% 30% 20% 10% 0% Grain Corn Soybeans Hogs Eggs Milk Production Cattle Source: Calculations based on data from USDA, National Agricultural Statistics Service

Real net farm income edged up in 2017, but is expected to be down in 2018 billion 2018$ 175 150 125 100 75 50 25 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 gov't payments 2018* *USDA forecast Source: USDA, Economic Research Service

Participating Banks Banks in 7th District Land Values and Credit Conditions Survey

Annual change in farmland values in 7th Federal Reserve District 30 20 Percent 10 0-10 -20-30 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago

Farmland Value Indexes for 7th District States (1981=100) 600 500 400 300 Wisconsin Indiana Illinois Iowa 200 100 0 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Federal Reserve Bank of Chicago

Index of Seventh District farmland values (1981=100) 500 400 300 Nominal 200 100 0 Inflation Adjusted 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago

Annual change in real farmland cash rents in 7th Federal Reserve District 20 10 Percent 0-10 -20 1981 1986 1991 1996 2001 2006 2011 2016 Source: Federal Reserve Bank of Chicago

Indexes of 7th District Farmland Values vs. Cash Rents (Inflation Adjusted, 1981=100) 200 150 Land values 100 50 Cash rents 0 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago

7th District Crop Yield Indexes (1964=100) 300 250 200 Corn 150 100 Soybeans 1964 1970 1976 1982 1988 1994 2000 2006 2012 2017 Source: USDA, National Agricultural Statistics Service

Real Cash Crop Prices 40 ($/bushel for Central IL, adjusted by CPI-U for January 2010) 30 20 10 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Corn Soybeans Sources: The Wall Street Journal and U.S. Bureau of Labor Statistics

Corn production down from record in 2016/17 18 15 13.8 14.2 13.615.1 14.614.0 billion bushels 12 9 6 7.5 9.5 6.3 10.1 7.4 9.2 9.2 9.8 9.4 10.0 9.5 9.0 10.1 13.1 12.4 11.8 13.012.0 12.3 11.110.5 10.8 3 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, National Agricultural Statistics Service

Growth in industrial demand (especially for ethanol production) surpassed feed demand for corn 8 Food, Seed & Industrial billion bushels 6 4 2 Residual & Feed Exports 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, World Agricultural Outlook Board

Corn prices expected to be higher in 2018/19 as stocks tighten $9 30% 25% Price per bushel $6 $3 14% 11% 17% 10% 15% 19% 20% 18% 16% 12% 9% 20% 18% 13%14% 13% 12% 9% 8% 7% 9% 13%13% 16% 15% 12% 20% 10% Stocks/use ratio 5% $0 1991/92 96/97 01/02 06/07 11/12 16/17 0% stks/use ratio price Source: USDA, World Agricultural Outlook Board

Soybean production expected to be down from records of two previous years 5 4.3 4.4 4.3 billion bushels 4 3 2 1 2.0 2.2 1.9 2.5 2.2 2.4 2.7 2.7 2.6 2.8 2.9 2.8 2.5 3.1 3.1 3.2 2.7 3.0 3.4 3.3 3.1 3.0 3.4 3.9 3.9 0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, National Agricultural Statistics Service

Soybean exports expected to be up, while crushing projections are flat 2.5 Exports billion bushels 2.0 1.5 1.0 0.5 Crush 0.0 1991/92 96/97 01/02 06/07 11/12 16/17 Source: USDA, World Agricultural Outlook Board

Soybean prices expected to rise as stocks dip in 2018/19 $16 19% 20% Price per bushel $12 $8 $4 16% 14% 14% 13% 13% 11% 11% 9% 9% 8% 8% 7% 6% 5% 4% 7% 7% 5% 5% 5% 5% 13% 9% 7% 5% 5% 15% 10% 5% Stocks/use ratio 3% $0 1991/92 96/97 01/02 06/07 11/12 16/17 stks/use ratio price 0% Source: USDA, World Agricultural Outlook Board

Real USDA Livestock Prices 250 ($/hundredweight, adjusted by CPI-U for January 2010) 200 150 100 50 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Hogs Cattle Sources: USDA, National Agricultural Statistics Service and U.S. Bureau of Labor Statistics

Dairy exports and milk prices $26 8 Price per cwt. $22 $18 $14 $10 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Exports Price 6 4 2 0 Billion dollars * 2018 USDA forecast Source: USDA, World Agricultural Outlook Board

IMF real GDP growth forecast for 2018

The dollar s exchange value has dipped since the start of 2017, boosting exports 120 (Real Broad Trade-Weighted Exchange Value of the US$) {March 1973=100} 110 100 90 80 1991 1996 2001 2006 2011 2016 Source: Board of Governors of the Federal Reserve System

Real U.S. exports rising again, but more slowly than imports 300 (billions of 2015 dollars, SA) 250 200 150 100 50 1992 1996 2000 2004 2008 2012 2016 Exports Imports Sources: Bureau of Economic Analysis and Census Bureau

Value of agricultural exports rose in 2017, but expected to be about the same in 2018 billion $ 160 140 120 100 80 60 40 20 0 Exports Imports Surplus FY1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2018* *USDA projection Source: USDA, Economic Research Service

High-value agricultural exports outpaced more variable bulk exports, but both slowed billion 2016$ 100 80 60 40 20 High-value Bulk 0 1976 1981 1986 1991 1996 2001 2006 2011 2016 Source: USDA, Economic Research Service

Growth in agricultural exports to NAFTA partners (billion $) 25 20 15 10 Canada Mexico 5 0 CY1990 '95 2000 '05 '10 '15

But agricultural exports to China caught up (billion $) 30 25 20 15 10 5 Canada China Mexico 0 CY1990 '95 2000 '05 '10 '15

Agricultural exports by regional states (2016 in million $) U.S. Iowa Illinois Indiana Michigan Wisc. Total (rank) 134,242 10,608 (#2) 8,345 (#3) 4,604 (#7) 2,044 (#20) 2,898 (#18) Soybeans 22,819 3,113 (#2) 3,205 (#1) 1,706 (#4) 564 (#13) 532 (#14) Corn 9,890 1,747 (#1) 1,558 (#2) 678 (#5) 229 (#13) 282 (#10) Pork 5,936 1,999 (#1) 382 (#4) 319 (#5) 97 (#12) 31 (#18) Dairy 4,703 113 (#12) 43 (#23) 91 (#14) 223 (#7) 683 (#2) Source: USDA, Economic Research Service

U.S. agricultural trade value forecast to 2027 Source: USDA, Interagency Agricultural Projections Committee

Source: USDA, Interagency Agricultural Projections Committee

Source: USDA, Interagency Agricultural Projections Committee

Real farm sector assets and equity still at levels above prior peak 3,500 billion 2018$ 3,000 2,500 2,000 1,500 1,000 Assets Equity 2018* 500 Debt 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA, Economic Research Service *USDA forecast

Farm loan volume with major or severe repayment problems in 7th Federal Reserve District (fourth quarter of year) 10 8 percent 6 4 2 0 1998 2001 2004 2007 2010 2013 2016 Source: Federal Reserve Bank of Chicago

Index of agricultural loan demand for the 7th Federal Reserve District (excluding real estate) 160 140 120 100 80 60 40 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Federal Reserve Bank of Chicago

Interest rates charged on new farm loans in the 7th Federal Reserve District 20 percent 15 10 5 Farm real estate Farm operating 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Federal Reserve Bank of Chicago

percent 9 8 7 6 5 4 3 2 1 0 The Federal Funds Rate is anticipated to be near the neutral rate by the end of 2019 Target Federal Funds Rate FOMC 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Source: Board of Governors of the Federal Reserve System

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