AGRICULTURE Rob Johansson Acting Chief Economist 19 February 2015 - PowerPoint PPT Presentation

OUTLOOK FOR US AGRICULTURE Rob Johansson Acting Chief Economist 19 February 2015

Fig 1 Next boost to productivity: Big Data? Index: 1948 = 1.0 $million (2006 dollars) 3.0 $12,000 $R&D $10,000 2.5 Output $8,000 Input 2.0 $6,000 TFP 1.5 Weed and pest $4,000 resistant biotech 1.0 $2,000 # tractors > # No-till becomes starts Satellites used Big data horses + mules to become popular for precision ag applications? 0.5 $0 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 Source: USDA-ERS.

Fig 2 Record farm equity (net worth) in 2015 $billion $billion 3,000 3,000 2,500 2,500 2,000 2,000 Real 1,500 1,500 1,000 1,000 Nominal 500 500 0 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F Data: USDA-ERS. Data: USDA-ERS. Data: USDA-ERS.

Fig 3 Real commodity prices have been trending down for the past 60+ years 2005=100 2005=100 600 600 Corn 500 500 Soybeans 400 400 Rice Wheat 300 300 200 200 100 100 0 0 Source: USDA Agricultural Projections to 2024 and OCE, February 2015

Fig 4 Percent of income spent on food $14,000 30% Disposable personal income per capita $12,000 25% Food Share (right axis) $10,000 20% Food Share $8,000 ($2014) (%) 15% $6,000 per capita DPI (left axis) 10% $4,000 5% $2,000 $0 0% 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 Source: Schnepf (2013), BEA, USDA-ERS.

Fig 5 Recent declines in energy prices help bottom line Dollars per barrel ($2015) Dollars per Mcf ($2015) $120.00 $10.00 $9.00 $100.00 $8.00 Imported crude Natural gas wellhead oil price (left axis) price (right axis) $7.00 $80.00 $6.00 $60.00 $5.00 $4.00 $40.00 $3.00 $2.00 $20.00 $1.00 $0.00 $0.00 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: EIA.

Fig 6 Ethanol margin tightens but production high Ethanol Production 2 Ethanol Margin 1 annualized rate in billion gallons $ per gallon 1.60 16 1.40 15 1.20 1.00 14 0.80 0.60 13 0.40 12 0.20 RFS 0.00 11 -0.20 -0.40 10 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: 1 OCE calculations, AMS data for IA, NE, IL/eastern corn belt, 2 Energy Information Agency.

Fig 7 Rail transport costs return to normal levels in 2015 Average secondary railcar shuttle market bids per car $6,000 $6,000 $5,000 $5,000 $4,000 $4,000 UP $3,000 $3,000 BNSF $2,000 $2,000 $1,000 $1,000 $- $- $(1,000) $(1,000) Source: USDA Grain Transportation Report

Fig 8 The dollar strengthens, but trade still trends up 2000 = 100 Billion dollars (nominal) 120 $18 Monthly Agriculture Exports 115 $16 (right axis) 110 $14 105 Strength of US dollar $12 (left axis) 100 $10 95 $8 90 $6 85 $4 80 $2 75 70 $0 Source: InterContinental Exchange, USDA-ERS.

Fig 9 Drought outlook improves, but intensifies in Southwest • Area of California in Extreme to Exceptional drought (D3-D4) rose since last year (approximately 67% vs. 61% on Feb 11, 2014); • California statewide average snow water equivalent as of February 10, 2015 is 6” (27% of normal for this time of year and 19% of the April 1 end-of-season total. SOURCE: California Cooperative Snow Surveys).

Fig 10 Farm Bill implementation progressing Signups for Oct 2011-Dec 2014 First possible 2014 and 2015 livestock disaster 2014 ARC/PLC program year assistance PLC, ARC-CO, payments Base acre enrollment or ARC-Farm reallocation; election Program yield updates Apr-summer 2015 Oct 2015 Nov 2014-Mar 2015 Apr 2014-Jan 2015 Nov 2014-Feb 2015 Apr 2015 Spring 2016 Apr 2014 Sept 2014-Dec 2015 Jan-Mar 2015 MPP-dairy First possible registration for MPP payments Sept-Dec 2014 Purchase of 2015 First payments of 2015 and First payments crop insurance, crop insurance, SCO, calendar 2015 for 2011-2014 SCO, and STAX and STAX indemnities livestock disaster policies assistance

Ag Trade Outlook

Fig 11 Second highest year for exports expected; China remains top destination $billion 180 FY 2015 Ag Exports $141.5 billion 160 Imports $119.0 billion Balance $22.5 billion 140 120 100 China ROW 80 60 40 20 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: USDA (ERS-FAS) Outlook for U.S. Agricultural Trade

Source: Global Trade Information Services (GTIS) Million Metric Tons Monthly Chinese soybean imports - 1 2 3 4 5 6 7 8 9 01/2010 United States 03/2010 05/2010 07/2010 09/2010 11/2010 01/2011 03/2011 05/2011 07/2011 09/2011 11/2011 Argentina +Brazil 01/2012 03/2012 05/2012 07/2012 09/2012 11/2012 01/2013 03/2013 05/2013 07/2013 09/2013 11/2013 01/2014 ROW 03/2014 05/2014 07/2014 09/2014 Fig 12 11/2014

Fig 13 Monthly Chinese corn/barley/sorghum imports 2.5 2.0 Million Metric Tons 1.5 1.0 0.5 0.0 10/2010 12/2010 02/2011 04/2011 06/2011 08/2011 10/2011 12/2011 02/2012 04/2012 06/2012 08/2012 10/2012 12/2012 02/2013 04/2013 06/2013 08/2013 10/2013 12/2013 02/2014 04/2014 06/2014 08/2014 10/2014 12/2014 US-CORN US-SORGHUM US-DDG Ukraine-CORN Thailand/Burma/Laos-CORN Other-CORN BARLEY Other-SORGHUM Other-DDG Source: Global Trade Information Services (GTIS)

Fig 14 Projections down slightly for China imports, but still increasing 160 Last year's 140 projection 120 Million metric tons 100 This year's baseline 80 Imports of grains, oilseeds, projection cotton combined 60 40 20 0 2000… 90/91 95/96 05/06 15/16 Source: USDA Agricultural Projections to 2024

Fig 15 Global trade growth is expected to continue million metric tons 250 Soybeans and products 200 150 Wheat Coarse Grains 100 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: USDA Agricultural Projections to 2024

Fig 16 TPP* and TTIP*: Room to grow *TPP partners Exports $150.5 billion include *TTIP partner is Imports $111.9 billion Australia, EU-28. U.S. Ag Trade Brunei, Canada, Total $262.4 billion Chile, Japan, U.S. exports Malaysia, U.S exports $12.6 billion Mexico, $62.6 billion New Zealand, U.S. imports U.S. imports $57.2 billion $19.1 billion Peru, TTIP Ag Singapore, TPP Ag Trade Trade and Vietnam. Total $498.5 billion Total $222 billion Sources: Economic Research Service, Foreign Agriculture Service, USDA; World Trade Organization; European Commission

Outlook for Crops

Fig 17 Global grain ending stocks build strength Average Crop 2000-2003 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Days of use Wheat 112 97 113 111 104 93 98 101 Corn 82 69 65 56 57 58 67 71 Rice 115 77 79 82 86 86 82 75 Soybeans 74 71 93 103 77 80 89 113 Cotton 190 206 145 160 259 305 340 360 Numbers in red denote record levels. Source: USDA, PSD database

Fig 18 Corn, wheat, and soybean prices still historically strong, given record output 2000- 2003 average 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16F Wheat 3.09 6.78 4.87 5.70 7.24 6.87 6.00 5.10 7.77 Corn 2.14 4.06 3.55 5.18 6.22 6.89 4.46 3.65 3.50 Soybeans 5.45 9.97 9.59 11.30 12.50 14.40 13.00 10.20 9.00 Upland Cotton 46.48 47.80 62.90 81.50 88.30 72.50 77.90 61.00 60.00 All Rice 5.61 16.80 14.40 12.70 14.50 15.10 16.30 14.00 13.10 Wheat, corn and soybeans in dollars per bushel; rice in dollars per hundredweight; upland cotton in cents per pound. Numbers in red denote record levels. Source: USDA-NASS, Feb 2015 WASDE, and USDA-World Ag Outlook Board

Fig 19 Cropland area expected to remain high in 2015, but down from last year Crop Percent (mil. 2009 2010 2011 2012 2013 2014 2015F change acres) Corn 86.4 88.2 91.9 97.2 95.4 90.6 89.0 -1.8% Soybeans 77.5 77.4 75.0 77.2 76.8 83.7 83.5 -0.2% Wheat 59.0 52.6 54.3 55.3 56.2 56.8 55.5 -2.3% All cotton 1 9.1 11.0 14.7 12.3 10.4 11.0 9.7 -12.1% Minor feed grains 13.5 11.4 10.4 12.6 14.6 12.8 14.0 9.1% Rice 3.1 3.6 2.7 2.7 2.5 2.9 2.9 -1.3% Total 8 crops 1 248.7 244.2 249.0 257.4 255.9 257.9 254.6 -1.3% CRP 33.7 31.3 31.1 29.5 26.8 25.5 24.2 -5.1% 8 crops + CRP 1 282.4 275.5 280.2 286.9 282.8 283.5 278.8 -1.6% Source: USDA-World Ag Outlook Board 1 all cotton, includes both upland and ELS cotton

Fig 20 Specialty crop revenues expected to drop in 2015 Bil $ 60 Fruits and nuts Vegetables 50 40 30 20 10 0 2010 2011 2012 2013 2014F 2015F Source: USDA-ERS

Livestock outlook

Fig 21 Pork, dairy and poultry production higher in 2015 Animal 2010 2011 2012 2013 2014 2015F % products Change 2015/14 Billion Pounds Beef 26.30 26.20 25.91 25.72 24.25 24.22 -0.1% Pork 22.44 22.76 23.25 23.19 22.84 24.09 5.5% Broilers 36.91 37.20 37.04 37.83 38.55 39.95 3.6% Total Meat 92.10 92.75 92.96 93.33 92.17 95.13 3.2% Billion Pounds Milk 192.9 196.3 200.6 201.2 206.0 211.5 2.7% Prices in red denote record levels. Source: Office of the Chief Economist, February 2015