Office of the Chief Economist Office of the Chief Economist 1 2020 Agricultural Outlook USDA’s Office of the Chief Economist February 20, 2020 https://www.thedickinsonpress.com/business/agriculture/4730104-Snow-increases- harvest-worries-as-North-Dakota-considers-disaster-declarations
Office of the Chief Economist 2 Outline 1. Trade 2. Crops & Livestock (Moriah Ratner/Bloomberg News) 3. Farm Economy CREDIT MADELYN BECK / ILLINOIS NEWSROOM Photographer: Tiffany Hagler-Geard/Bloomberg via Getty Images
Office of the Chief Economist 3 World growth forecast down, led by weakening of emerging markets and developing countries (not including coronavirus) 5 5 Annual percent change Annual percent change 4 4 Emerging: Apr 2019 Emerging: Oct 2019 3 3 Emerging: Jan 2020 Advanced: Apr 2019 Apr 2019 Advanced: Oct 2019 Advanced: Jan 2020 2 2 Oct 2019 Jan 2020 1 1 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 Data: International Monetary Fund, World Economic Outlook. April 2019, October 2019, and January 2020.
Office of the Chief Economist Office of the Chief Economist 4 Coronavirus tops macro global economy concerns; markets expecting recovery S&P500 and Shanghai Index, Dec 1 2019=1 S&P 500 vs Shanghai Composite Index and Corona Infections 1.1 60000 # of Covid19 infections 50000 1.05 40000 1 30000 U.S. and China reach 0.95 Phase One agreement 20000 0.9 10000 0.85 0 # of Covid19 infections S&P500 Index Shanghai Composite Index Data: Refinitiv and China’s National Health Commission
Office of the Chief Economist 5 U.S. dollar appreciated early in the year before declining across many currencies US $ appreciation in 1st and 2nd half of 2019 Argentina peso Australian dollar Brazil real Canadian dollar Chinese renminbi yuan 1st half Euro 2nd half Japanese yen Mexican peso Russian rouble South Korean won UK pound -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% Data: Refinitiv
Office of the Chief Economist 6 U.S. agricultural exports by trade agreement status, size of trade South Canada IDN TWN China Hong $3B $3B Kong Korea USMCA signed Phase One $4.2B $6.9B into U.S. law entered into Jan. 29, 2020 force PHL THA TUR VNM $2B $2.6B $2B $2.5B CAFTA Colombia $2.5B Feb. 14, 2020 $4.3B Previous 2020 $20.6B FTAs: 14% Agreements: $19.5B Rest of World India 51% $1.6B $12.6B Japan SAU Mexico Australia, $1.5B Peru, Israel, Entered into UAE Panama, USMCA signed into force Jan. 1, $1B Singapore, U.S. law Jan. 29, PAK 2020 Chile-$5.6B $1B 2020 UK EU27 $11.9B $1.7B $9.7B $18.6B Kenya $0.1B No Agreement: 26% Source: USDA, 2017 data Notification of Intent: 8%
Office of the Chief Economist 7 U.S. agricultural exports in billion $ from 1990 to 2019 (FY) by income level Source: USDA using gapminder
Office of the Chief Economist 8 U.S. agricultural exports forecast to rise $4 bil. in FY2020 +$0.6B +$0.8B +$3.9B -$0.1B -$0.3B Source: USDA using gapminder
Office of the Chief Economist 9 And where do we expect the largest growth in import demand? Projected growth in global imports over the next ten years (2020-2029) Source: USDA
Office of the Chief Economist 10 U.S. Crop and Livestock sectors forecast to improve in 2020 Forum News Service/Agweek/Mikkel Pates
Office of the Chief Economist 11 A wet autumn further delayed an already slow U.S. harvest. June 11, 2019
Office of the Chief Economist 12 Source: USDA. First 2019 WASDE Acres = NASS Prospective 86 178 Plantings Yield = WAOB trend 176 85 174 Acres and Yield = NASS surveys 84 Acres, millions 172 Yield, Bu/acre 83 170 168 82 166 81 164 80 162 79 160 18-Nov- 22-Feb- 10-May- 11-Jun- 11-Jul-19 12-Aug- 12-Sep- 10-Oct- 8-Nov-19 10-Dec- 10-Jan- 18 19 20 19 19 19 19 19 20 acres harvested 84.6 84.6 85.4 82.4 83.6 82 82 81.8 81.8 81.8 81.5 Yield 176.5 176 176 166 166 169.5 168.2 168.4 167 167 168
Office of the Chief Economist 13 Figure 1. USDA Aug. corn production forecast minus average USDA August private trade expectations 800 corn Aug 2019 USDA production report 600 forecast minus 400 Million bushels average private trade 200 expectations - (200) (400) Source: Adjemian, Arita, Hungerford, Breneman, and Johansson (Illinois FarmDoc, October 2019)
Office of the Chief Economist 14 When USDA and the trade are on opposite pages, a price correction is usually coming 50 cent drop in futures price Reaction inline with relationship Figure 3. Average Corn Futures Reaction to August USDA Reports, Figure 2. Corn Dec19 Contract (cents/bu) against the Market Surprise in the Production Forecast 8% 440 USDA report 6% released Aug 420 12, 2019 y = -1.09x + 0.003 4% R² = 0.46 400 2% x-axis: % Difference between 380 USDA Prod. Forecast and Avg Trade Guess 0% 360 -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% -2% 340 y-axis: % Aug 12, change in Dec Corn -4% 320 futures on day of Aug -6% Report 300 -8% Source: Reuters, USDA; author Source: https://farmdocdaily.illinois.edu/2019/10/market-reaction-to-usda-august-corn-crop-reports.html
Office of the Chief Economist 15 Forecasts of final corn production have been getting more accurate Since 2010, August 25% 25% corn production 20% 20% estimates have been 15% 15% < 5% from final 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% USDA Trade Estimates -15% -15% 2019 2016 2013 2010 2007 2004 2001 1998 1995 1992 1989 1986 1983 1980 1977 1974 Data: USDA, Refinitiv
Office of the Chief Economist 16 16 million acre decline in 2019 --- where do they end up? Source: USDA-NASS.
Office of the Chief Economist 17 Global stocks in days of use: stocks are relatively high but expected to decline over the next few years (except rice) 160 140 Days of Use/ Consumption 120 100 80 60 Wheat 40 Corn Rice 20 Soybeans 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Data: USDA
Office of the Chief Economist 18 6,000 5,000 Continued expansion 4,000 expected in Million Bushels Brazil’s 3,000 soybean and corn 2,000 production 1,000 - 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 2nd Corn 1st Corn Soybeans Source: CONAB. 2 nd Corn assumed to be all corn minus 1 st crop.
Office of the Chief Economist 19 New crop futures soybean:corn price ratio for 2020 points to a large corn crop, with some basis effects Data: CME, Geograin.
Office of the Chief Economist 20 Corn and rice prices expected to edge down in 2020/21 %∆ Crop 2016 2017 2018 2019 2020F Wheat ($/bu) 3.89 4.72 5.16 4.55 4.90 8% 3.36 3.36 3.61 3.85 3.60 -6% Corn ($/bu) Soybeans ($/bu) 9.47 9.33 8.48 8.75 8.80 1% Cotton (cents/lb) 70.5 68.6 70.3 63.0 64.0 2% All Rice ($/cwt) 10.4 12.9 12.6 13.0 12.0 -8% Data: USDA-OCE.
Office of the Chief Economist 21 Cropland area mostly up from last year %∆ Crop (mil. acres) 2016 2017 2018 2019 2020F Corn 94.0 90.2 88.9 89.7 94.0 5% Soybeans 83.5 90.2 89.2 76.1 85.0 12% Wheat 50.1 46.1 47.8 45.2 45.0 0% Cotton 10.1 12.7 14.1 13.7 12.5 -9% 11.1 3% Other feedgrains 12.6 10.7 11.0 10.8 Rice 3.2 2.5 2.9 2.5 3.1 21% Total 8 crops 253.4 252.3 253.9 238.0 250.7 5% CRP 23.9 23.4 22.6 22.6 22.7 0% 272.7 5% 8 crops + CRP 277.3 275.7 276.5 260.6 Source: USDA-OCE. Area planted. Values in red denote record levels.
Office of the Chief Economist 22 Record production projected in 2020 Exports Exports Exports as a % of as a % of as a % of Item 2010 2019 2020F prod. prod. prod. Billion pounds Beef 26.3 8.7% 27.2 11.1% 27.5 12.0% Pork 22.4 18.8% 27.6 22.9% 28.9 25.5% Broilers 36.9 18.3% 43.9 16.2% 45.8 16.2% Total 1 92.1 15.2% 105.2 16.3% 108.8 17.3% Billion pounds Milk 2 192.9 15.8% 218.3 19.0% 222.0 19.6% Data in red denote record levels. 1 Total red meat and poultry. 2 Skim-solids basis Data: USDA-OCE. exports as a percent of total milk production
Office of the Chief Economist African Swine Fever shocks China and global pork supply China pork production, supply and demand China 2018 vs 2019 imports (mmts) MMTs 2018 2019 2020F 60 55 54 49 50 2020 Production 47 China 2020 down 18 mmts Consumption from 2018 40 down 15.8 40 36 mmts 30 Not enough global export supply to fill 2020 China China’s ASF 20 Imports shortfall projected up 2 mmts from 2018 10 7 7 7 4 3 2 - China Production World Exports to China Domestic World exports to China Consumption everyone but China Data: USDA and TDM
Office of the Chief Economist 24 Prices: hogs, milk up, broilers down; steers largely unchanged Item 2016 2017 2018 2019 2020F %∆ Dollars per cwt Steers 120.86 121.52 117.12 116.78 117.00 0.2% Hogs 46.16 50.48 45.93 47.95 49.00 2.2% Broilers 84.3 93.5 97.8 88.6 87.0 -1.8% Milk 16.30 17.65 16.27 18.60 18.85 1.3% Data: USDA-OCE.
Office of the Chief Economist 25 Recent milk production increases driven by cow numbers and milk per cow gains Milk/cow/day Cow numbers (pounds) (Thousands) 9,500 70.0 9,400 60.0 9,300 50.0 9,200 40.0 9,100 30.0 9,000 20.0 Dairy Cow Numbers (Left axis) 8,900 10.0 Milk per cow per day 8,800 0.0 Data: USDA
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