Office of the Chief Economist http://www.reuters.com/article/us-usda-crops-idUSKBN134316 OUTLOOK FOR 2017 Robert Johansson Chief Economist US Department of Agriculture February 2017
Office of the Chief Economist Office of the Chief Economist 2 Sentiment diverges compared to 2016 80% 80% Purdue Creighton 60% 60% Fed Reserve Corn price 40% 40% NAHB Michigan 20% 20% 0% 0% -20% -20% -40% -40% Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.
Office of the Chief Economist Office of the Chief Economist 3 2017 ISSUES Current situation 1. • Flat farm income, but debt-to-asset remains low • Increasingly tight credit situation • Land price adjustments • Farm programs working with mixed results Outlook 2. • Prices flat • Production up • Trade up • Food prices down
Office of the Chief Economist Office of the Chief Economist 4 Real farm income down almost 30% since 2013 4-yr % change in real farm income 100% 100% 75% 75% 50% 50% 25% 25% 0% 0% -25% -25% -50% -50% 1933 1937 1941 1945 1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017F Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 5 Net farm income expected to remain flat 1997 Billion dollars Billion dollars 1998 1999 $140 $140 2000 2001 2002 $120 $120 2003 2004 $100 $100 2005 2006 2007 $80 $80 2008 2009 2010 $60 $60 2011 2012 $40 $40 2013 2014 2015 $20 $20 2016 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2017 Actual Data: USDA.
Office of the Chief Economist Office of the Chief Economist 6 Debt-to-asset ratio remains low vs. 22% in 1985 Percent Percent 24% 24% 22% 22% 20% 20% 18% 18% 16% 16% 14% 14% 12% 12% 10% 10% 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017F Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 7 About 1 in 5 wheat, cotton, hog, poultry businesses more vulnerable to low prices Highly leveraged Debt-to-Asset Very highly leveraged (0.41< dta > 0.70) 20% (dta > 0.71) 15% 10% 5% 0% Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 8 More than one-third of young farmers are highly or very highly leveraged Debt-to-Asset 25% 20% Highly leveraged (0.41< dta > 0.70) 15% Very highly leveraged (dta > 0.71) 10% 5% 0% Less than 35 35-54 55-64 65 and over Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 9 Debt approaching early 80’s peak Billion dollars ($2009) Billion dollars ($2009) $400 $400 $350 $350 $300 $300 Total debt $250 $250 $200 $200 $150 $150 Real estate debt $100 $100 $50 $50 Non-real estate debt 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017F Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 10 …but interest payments remain low Int:(NFI+Int) Int:(NFI+Int) 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017F Data: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 11 Loan repayment problems have begun to rise Percent $Billion Percent $Billion 4.50 3.00 4.50 2.50 4.00 4.00 % real estate loans 2.50 % non-real estate 2.00 3.50 non-performing 3.50 loans non-performing 3.00 2.00 3.00 1.50 2.50 2.50 1.50 2.00 2.00 1.00 1.50 1.00 1.50 1.00 1.00 0.50 0.50 $ non-real estate loans non- $ of real estate loans non- 0.50 0.50 performing performing 0.00 0.00 0.00 0.00 Dec-00 Jan-02 Feb-03 Mar-04 Apr-05 May-06 Jun-07 Jul-08 Aug-09 Sep-10 Oct-11 Nov-12 Dec-13 Jan-15 Feb-16 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Jun-08 Dec-09 Jun-11 Dec-12 Jun-14 Dec-15 Data: Federal Reserve Board of Governors.
Office of the Chief Economist Office of the Chief Economist 12 … but farm bankruptcy rates remain very low Bankruptcy Rate / 10,000 farms Millions of farms, excluiding 8 25 7 20 sharecroppers 6 Total 5 15 4 10 3 2 Bankruptcy rate 5 1 0 0 Source: USDA-ERS.
Office of the Chief Economist Office of the Chief Economist 13 Falling rents ahead of land values $/acre Cash Rent $/acre Land Value 300 8,000 Appalachian 7,000 250 Corn Belt 6,000 Delta States 200 5,000 Lake States Mountain 150 4,000 Northeast 3,000 100 Northern Plains 2,000 Pacific 50 1,000 Southeast Southern Plains 0 0 1990 2000 2010 2020 1990 2000 2010 2020 Data: USDA-NASS.
Office of the Chief Economist Office of the Chief Economist 14 Capitalized cash rent value < land value in 1980 $/acre $/acre $3,000 $3,000 $2,500 $2,500 Land Value (7 th District) $2,000 $2,000 $1,500 $1,500 $1,000 $1,000 $500 $500 Capitalized value (IL, IA) $0 $0 1965 1970 1975 1980 1985 1990 1995 2000 Data: USDA-NASS, Federal Reserve Board of Governors.
Office of the Chief Economist Office of the Chief Economist 15 Today, capitalized values > observed land values $/acre $14,000 $12,000 $10,000 Capitalized value (Iowa) $8,000 2017 Assume $6,000 Rent falls by 5% Values fall by 5% $4,000 10-yr rate = 2.5% $2,000 Land value (Iowa) $0 1995 2000 2005 2010 2015 2020 Data: USDA-NASS.
Office of the Chief Economist Office of the Chief Economist 16 Farm Bill programs are working with mixed results
Office of the Chief Economist Office of the Chief Economist 17 Revenue insurance now > 70% of liabilities Million Acres Insured 350 300 250 200 150 100 50 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Yield Revenue Group Index Other Source: USDA-ERS using RMA data.
Office of the Chief Economist Office of the Chief Economist 18
Office of the Chief Economist Office of the Chief Economist 19
Office of the Chief Economist Office of the Chief Economist 20 2015 example: Central Illinois farmer with corn base enrolled in ARC Rev guarantee Yield bu/acre Price $/bu Actual rev $/acre Payment $/acre Piatt $769 221 $3.61 $798 $0 McLean $787 199 $3.61 $718 $69 Data: USDA-FSA.
Office of the Chief Economist Office of the Chief Economist 21 Premiums for the dairy margin program > payments $US/cwt 18.00 estim. $878 mill in payments estim. $577 mill in payments 16.00 14.00 12.00 10.00 8.00 6.00 4.00 $11 mill in payments 2.00 ($20 mill in premiums) - Office of the Chief Economist Data: USDA.
Office of the Chief Economist Office of the Chief Economist 22 Outlook for Crops
Office of the Chief Economist Office of the Chief Economist 23 Global 2016/17 production and consumption at record highs MMT MMT MMT Soybeans Wheat Corn 350 800 1,100 1,000 300 700 900 250 800 600 200 700 Production 150 500 Consumption 600 100 500 400 50 400 0 300 300 Data: USDA-OCE, USDA-FAS, *FAPRI data used for 2017/18 global consumption.
Office of the Chief Economist Office of the Chief Economist 24 Global ending stocks remain above 2002/03, moderating price volatility Days of use 160 Wheat Corn 140 Rice Soybeans 120 100 80 60 40 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017* Data: USDA-OCE, USDA-FAS, *FAPRI data used for 2017/18 global consumption.
Office of the Chief Economist Office of the Chief Economist 25 Prices expected to edge up into 2017/18 Crop 2012 2013 2014 2015 2016 2017F % � Wheat ($/bu) 7.77 6.87 5.99 4.89 3.85 4.30 11.7 Corn ($/bu) 6.89 4.46 3.70 3.61 3.40 3.50 2.9 Soybeans ($/bu) 14.40 13.00 10.10 8.95 9.50 9.60 1.1 Cotton (cents/lb) 72.50 77.90 61.30 61.20 69.00 65.00 -5.8 All Rice ($/cwt) 15.10 16.30 13.40 12.20 10.50 10.70 1.9 Data: USDA-OCE. Red denotes record high.
Office of the Chief Economist Office of the Chief Economist 26 Data: USDA-OCE. 8-Crop Planting and Lagged Prices Lagged Real Price Million acres Index , 2004 = 100 Planted 200 270 175 265 Lagged 150 Prices 260 125 255 February AOF 100 250 Baseline 75 245 50 8-Crop Area 240 25 235 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Office of the Chief Economist Office of the Chief Economist 27 New Crop Soybean-to-Corn Ratio During February Data: USDA-OCE.
Office of the Chief Economist Office of the Chief Economist 28 Cropland area down again from last year Crop (mil. acres) 2012 2013 2014 2015 2016 2017F % � Corn 97.3 95.4 90.6 88.0 94.0 90.0 -4.3% Soybeans 77.2 76.8 83.3 82.7 83.4 88.0 5.5% Wheat 55.3 56.2 56.8 55.0 50.2 46.0 -8.3% All cotton 12.3 10.4 11.0 8.6 10.1 11.5 14.2% Other feedgrains 12.6 14.6 12.9 15.2 12.6 11.7 -7.1% Rice 2.7 2.5 3.0 2.6 3.2 2.6 -17.4% Total 8 crops 257.4 255.9 257.6 252.1 253.4 249.8 -1.4% CRP 29.5 26.8 25.5 24.2 23.8 23.5 -1.3% 8 crops + CRP 286.9 282.7 283.1 276.3 277.2 273.3 -1.7% Source: USDA-OCE. All cotton, includes both upland and ELS cotton.
Office of the Chief Economist Office of the Chief Economist 29 Outlook for Livestock and Dairy
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