Office of the Chief Economist ROOTS OF PROSPERITY OUTLOOK FOR 2018 Robert Johansson Chief Economist, USDA February 2018
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 2 Farmers’ sentiment is low compared to others, following corn prices down 2017 = 100 2017 = 100 140 140 130 120 120 110 100 100 90 80 80 Michigan Creighton Fed Reserve 70 Corn price NAHB Purdue 60 60 Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 3 Real prices trend down, as ag productivity outstrips population growth Real Commodity Prices 2005=100 World Production 2005=100 800 Corn price down 61%, Corn supply risen up 420%, 200 700 soybeans by 47%, rice by soybeans by 1,116%, rice by 65%, and wheat by 68%. 219%, and wheat by 222%. 600 150 500 400 100 300 Corn Corn 200 50 Soybeans Soybeans 100 Rice Rice Wheat Wheat 0 0 1960 1970 1980 1990 2000 2010 2020 1960 1970 1980 1990 2000 2010 2020 Data: USDA, BLS.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 4 Real net farm income falling 140 140 120 120 Nominal net farm income 100 100 Billion dollars Billion dollars 80 80 60 60 40 40 20 20 Real net farm income 0 0 Data: USDA
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 5 What might improve income? • Demand change: • Global GDP growth boosts demand • Dollar weakness boosts trade • Improved market access abroad • Supply change: • Weather events • Less distorting int’l farm policy • US Farm Policy • Current economic conditions • New farm bill—when?
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 6 IMF growth forecasts more optimistic World Emerging markets and Percent change Percent change developing countries 5.50 5.50 April 2017 forecast 5.00 5.00 October 2017 forecast 4.50 4.50 January 2018 update April 2017 forecast 4.00 4.00 October 2017 forecast 3.50 3.50 January 2018 update 3.00 3.00 2014 2015 2016 2017 2018 2019 2020 2021 2014 2015 2016 2017 2018 2019 2020 2021 Data: IMF.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 7 Income growth will drive increased global demand Households w/ Real PPP incomes greater than $20,000 (millions) 151 China India 150 28 Indonesia 7 Russia Mexico 6 6 Brazil 7 Egypt Turkey 5 2 South Korea 6 Thailand Philippines 7 2016 Proj. gains by 2026 1 Taiwan 42 Malaysia Vietnam 1 Colombia 0 100 200 300 400 Million Households Data: Global Insight’s Global Consumer Markets data.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 8 Dollar depreciating so far in 2018 versus customer currencies % change Y-O-Y Canadian dollar Korea won 25 Japan yen Mexico peso 20 15 Taiwan dollar China yuan 10 5 0 -5 -10 2015 2016 2017 2018 to date Data: Thomson Reuters Datastream
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 9 Down versus most competitor currencies too Argentina peso Australia dollar % change Y-O-Y Brazil real Canadian dollar 70 Eurozone euro Russia ruble 60 50 40 30 20 10 0 -10 -20 2015 2016 2017 2018 to date Data: Thomson Reuters Datastream
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 10 That should help maintain FY2018 ag exports 200 Billion dollars 150 100 50 0 Trade Surplus U.S. Agricultural Exports U.S. Agricultural imports Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 11 FTA’s account for large share of total U.S. ag exports 160 50% FTA Partner Non-FTA Partner FTA Share 140 Billion dollars 40% 120 Shares 100 30% 80 20% 60 40 10% 20 0 0% Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 12 U.S. crop forecast Photo source: www.farmanddairy.com/438028.html
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 13 Global ending stocks to continue relatively high, moderating price volatility Wheat Corn Ending stocks days of use 160 Rice Soybeans 120 80 40 2000 2002 2004 2006 2008 2010 2012 2014 2016 Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 14 Some prices expected to edge up into 2018/19 Crop 2014 2015 2016 2017 2018F �� Wheat ($/bu) 5.99 4.89 3.89 4.60 4.70 2.2 Corn ($/bu) 3.70 3.61 3.36 3.30 3.40 3.0 Soybeans ($/bu) 10.10 8.95 9.47 9.30 9.25 -0.5 Cotton (cents/lb) 61.30 61.20 68.00 69.00 63.00 -8.7 All Rice ($/cwt) 13.40 12.20 10.40 12.50 11.90 -4.8 Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 15 Corn prices rise slowly over next 10 years 8 2000 2001 7 2002 2003 6 Dollars per bushel 2004 2005 5 2006 2007 4 2008 2009 3 2010 2011 2 2012 2013 1 2014 2015 0 2016 2017 2018 Actual Data: USDA
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 16 Prices +/- will depend on weather and economy Corn Price Simulations Low High Projections 6 Corn Corn for 2020 Price Price 5 Dollars per bushel Corn price 2.02 5.56 4 95% ($/bu) 3 Yield 196 158 (bu/acre) 2 Ending stocks 4,477 1,699 1 (mils bu) 0 Soybean price 5.49 10.89 ($/bu) Data: USDA & FAPRI.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 17 …and on other countries farm and trade policies DDG/corn price ratio DDG exports mmt Biotech rejections 1.60 1.6 AD/CVDs 1.40 1.4 1.20 1.2 1.00 1.0 0.80 0.8 0.60 0.6 0.40 0.4 0.20 0.2 0.00 0.0 US DDG Exports to other US DDG Exports To China DDG/Corn Price (t-1) Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 18 … but farmers plant based on what they expect Evolution of New Crop U.S. Soybean to Corn Price Ratio for Selected Years 2.80 2.70 2.60 2.50 2.40 2.30 2.20 2.10 3-Sep 3-Oct 3-Nov 3-Dec 3-Jan 3-Feb 3-Mar 3-Apr 3-May 3-Jun 2014 2016 2017 2018
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 19 Corn and bean area at parity, wheat holding Crop (mil. acres) 2014 2015 2016 2017 2018F �� Corn 90.6 88.0 94.0 90.2 90.0 -0.2% Soybeans 83.3 82.7 83.4 90.1 90.0 -0.1% Wheat 56.8 55.0 50.1 46.0 46.5 1.1% All cotton 11.0 8.6 10.1 12.6 13.3 5.6% Other feedgrains 12.9 15.2 12.6 10.7 12.6 17.8% Rice 3.0 2.6 3.2 2.5 2.9 16% Total 8 crops 257.6 252.0 253.4 252.1 255.3 1.3% Data: USDA.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 20 Who’s buying now? Global Import Share (2017/18) Wheat Soybeans Coarse Grains Mexico 9% Sub- Rest of Saharan Rest of World China Afr World 36% Japan 8% 13% 21% 2% Rest of Mexico N. World N. 3% Afr/Mid 43% EU Afr/Mid- -East China 9% East 22% 65% 29% Brazil Japan EU 4% 9% FSU 9% SE Asia 4% 14% Data: USDA
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 21 Who will be buying? Global Import Share (2027/28) Coarse Grains Wheat Soybeans Mexico 10% China 10% Rest of Sub-Saharan Japan World Afr Rest of 2% Rest of 19% 16% World Mexico World 33% 2% 43% N. EU N. Afr/Mid 7% Afr/Mid- China -East East 70% 24% Brazil 29% EU Japan 4% 6% FSU 7% 4% SE Asia 14% Data: USDA
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 22 U.S. export share of global trade flattens Corn Soybean Wheat 90% 100% 80% 80% 70% 60% 60% 50% 40% 40% 30% 20% 20% 10% 0% 0% Data: USDA
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 23 Outlook for Livestock and Dairy
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 24 Meat and milk production to be record high in 2018 Item 2014 2015 2016 2017 2018F �� Billion Pounds Beef 24.3 23.7 25.2 26.2 27.7 5.9 Pork 22.8 24.5 24.9 25.6 26.9 5.1 Broilers 38.6 40.0 40.7 41.6 42.6 2.3 Total 1 92.2 94.6 97.6 100.1 103.9 3.8 Milk 206.1 208.6 212.4 215.4 218.7 1.5 Data in red denote record levels. 1 Total red meat and poultry Data: USDA-OCE.
Office of the Chief Economist Office of the Chief Economist Office of the Chief Economist 25 Beef production is projected to continue to rise 2000 30 2001 2002 2003 28 2004 Billion pounds 2005 2006 26 2007 2008 2009 24 2010 2011 2012 2013 22 2014 2015 2016 20 2017 2018 Actual Data: USDA
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