Mid-term Outlook for World Agricultural Markets

Transcription

1 Mid-term Outlook for World Agricultural Markets Jacinto Fabiosa Co-Director, (515) Food and Agricultural Policy Research Institute

2 The Question of Interest? In 27 we asked, will high commodity prices continue in the mid-term? YES! s outlook showed strong prices. Collective market judgment showed strong CBOT futures price. In 28, why are current commodity prices showing some weakness? Resolution of temporary factors the case of food grains Widespread economic slowdown Weak energy prices Strengthening of the US dollar What are the key drivers in shaping market outcomes in the next decade? Economic recovery. Natural resource constraints. Impact of biofuel. Trading-up in consumption.

3 The Case of Food Grains Temporary area reduction in wheat has recovered. Temporary yield decline in wheat has recovered. Supply shock in a low stock regime can result to temporary sharp spikes in prices. Supply response to a supply shock under a growing biofuel sector has high opportunity cost leading to slower adjustment at high prices. Demand shift response to substitute products in response to a supply shock under a low stock regime propagates price spikes (the case of rice) more than price declines. Wheat Price USD per MT

4 Changes in Wheat Area Million Ha /6 to 6/7 6/7 to 7/8 7/8 to 8/9 AR_ AU_ CA_ EU_ R_ RU_ UK_ U9_ Total Changes in Wheat Yield MT per Ha 5/6 to 6/7 6/7 to 7/8 7/8 to 8/ AR_ AU_ CA_ EU_ R_ RU_ UK_ U9_ Ave

5 Wheat Price and Stock-to to-use Ratio USD per MT Percent Wheat U.S. FOB Gulf Stock-to-Use Ratio Rice Price USD per MT Wheat U.S. FOB Gulf Stock-to-Use Ratio Percent

6 Rice Price and Stock-to to-use Ratio USD per MT 7 Percent Thailand Price 1% long grain Stock-to-Use Ratio Growth in Real GDP - developing Percent Worl Bank

7 Growth in Real GDP - developed Percent World Bank Growth in Real GDP - world Percent World Bank

8 Selected Exchange Rate Changes in 29 Percent AU_ NZ_ EU_ CN_ TH_ CA_ AR_ BR_ Crude Oil Price USD per bar NX 27 NX 28-8 NX 28-12

9 Crude Oil Price USD per bar Stochastic Baseline: 5 Simulations USD per bar USD per bu Crude Price High Low Average Corn Price High Low Average

10 Population Growth Rates Percent Projection WRL EU LA FSU AF AS ME OC NA Market Outlook Highlight s 29 preliminary baseline Resolution of temporary factors and slower economic growth weakens energy and agricultural commodity prices in the short to medium term. Economic recovery and stronger energy prices provide longer term factors driving commodity prices to their historic high levels. The biofuels sector integrates the energy and agricultural commodity prices in both the supply and demand side exacerbating the impact of energy price changes on agricultural commodity prices. Collective judgment of the market? CBOT corn and soybean futures show prices weakening in the short-run but recovering in later contract periods.

11 What are the key drivers? Widespread softening of many economies in the short-run, but recovery in later periods Raising level of consumption Trading-up in consumption, that is, changing consumption basket away from main bulk staple commodities (e.g., grains) to protein-rich meat and dairy products which require more grains Low energy price in the short-run and recovery in later periods. Raising production cost (e.g., fertilizer, fuel) Increasing demand for biofuels What are the key drivers cont? Biofuels sector development Continuing and expanding government support to develop biofuel sector (e.g., mandates and policy instruments). Area re-allocation from soybeans to corn in the U.S. for ethanol from soybeans, cotton, etc., to sugarcane in Brazil for ethanol Brazil and Argentina primarily use soybean oil to meet their biodiesel mandate.

12 What are the key drivers cont? Meat and livestock sector development Growth in per capita consumption Recovery in consumption from SPS issues High feed cost Dairy sector development Rising dairy product consumption in Asia Lower availability of exportable surplus from Europe due to CAP reforms High feed cost What are the key drivers cont? Land constraint Land constraint raise prices of all commodities as prices of biofuel feedstocks rise Increasing use of marginal land lowers yield, makes supply more inelastic, and results to higher price adjustments Lower stocks Exert upward pressure on prices May increase price volatility

13 What are the key drivers cont? Growth in consumption in countries and regions with low to limited productive potential (e.g., wheat in the Middle East, Africa, Asia) directly translates to stronger import demand. Price adjustments are expected to be larger in many commodities with thin markets (e.g., rice). Corn Prices USD per MT Stock-Use-Ratio

14 Sorghum Prices USD per MT Barley Prices USD per MT

15 Soybean Prices USD per MT Stock-Use-Ratio Rapeseed Prices USD per MT

16 Sunflower Prices USD per MT Soybean Oil Price USD per MT 1,6 1, Stock-Use-Ratio

17 Rapeseed Oil Price USD per MT 1,8 1,5 1, Sunflower Oil Price USD per MT 1,8 1,5 1,

18 Soybean Meal Prices USD per MT Sunflower Meal Prices USD per MT

19 Rapeseed Meal Prices USD per MT Sugar Price USD per MT Stock-Use-Ratio

20 Cattle Price USD per MT 2,5 2, 1,5 1, Hog Price USD per MT 1,4 1,2 1,

21 Poultry Price USD per MT 2,5 2, 1,5 1, Butter Price USD per MT 5, 4, 3, 2, 1,

22 Cheese Price USD per MT 6, 5, 4, 3, 2, 1, NFD Price USD per MT 5, 4, 3, 2, 1,

23 Ethanol Price USD per gal Biodiesel Prices USD per gal

24 Corn CBOT Futures Price USD per bu :7 3:8 5:8 7:8 9:8 12:8 3:9 5:9 7: :9 12:9 3:1 5:1 7:1 9:1 12:1 7:11 12:11 Price Distribution Dec Corn Futures USD per bu Percent

25 Soybean CBOT Futures Price USD per bu :8 3:8 5:8 7:8 8:8 9:8 11:8 1:9 3:9 5:9 7:9 8:9 9: F(P<6.5)=65% 11:9 1:1 3:1 5:1 7:1 8:1 9:1 11:1 1:11 3:11 7:11 11:11 Price Distribution Nov Soybean Futures USD per bu 1.3 > < Percent

26 Focus on Impacts of Biofuels Energy and agricultural commodity market weakly linked through supply interaction (cost of production). Biofuel sector integrates the energy and agricultural commodity market through demand interaction Impact Both interaction raises prices of agricultural commodity with higher energy prices. Break-even floor price. Ethanol and biodiesel which affect both corn and soybean raises the opportunity cost of supply adjustments. Biofuel Mandate (target) Country Units Ethanol Biodiesel Combined EU % 4 (215) % 6 (22) Brazil % 25 (26) 2 (28) 1 (21) Argentina % 5 (21) Canada % 5 (21) India % 5 (27) 1 (212) China % 15 (22) US bg 35 (222) 1 (212)

27 EISA RFS Billion gal corn Total Advanced Cellulosic Biodiesel Biofuel Policy Instruments RFS Tax Credit and Import Duty Tax credit (federal motor tax) Ethanol of $.45/gallon Biodiesel of $1. per gallon Import duty to expire on % ad valorem $.54/gal specific TRQ for CBI At least 5% locally produced feedstock Maximum of 6 million gallons or 7% of consumption

28 Supply Side Link of Energy and Ag Commodity Markets S1 pc1>pc So p p1 po Do Demand Side Link of Energy and Ag Commodity Markets S1 pc1>pc So pc p2 p1 po D1 pc1>pc Do pc

29 Biofuel Sets a Lower Price Support USD per g/b 5. Gasoline 4. Price 3. Cost Ethanol Price Corn Price Ethanol price Crude price Gasoline price Ethanol price is 2/3 of gasoline price Fuel cost Other costs Fixed Cost 4.17 Feedstock (corn) price Excess revenue of $1.53 Yield per bushel is 2.72 Maximum feedstock price to break-even is $4.17 per bushel U.S. Corn Ethanol Production and Revenue USD per gal Billion gal Production Net Revenue Fixed Cost Mandate

30 US Ethanol Production by Source Billion gal Corn Non-corn Grain Cellulosic RFS US Ethanol S & U and Price Million gal 25 USD per gal Production Consumption Price Import Stock

31 U.S. Existing and Planned Ethanol Plants U.S. Existing and Planned Biodiesel Plants

32 U.S. Area Allocation Million Acres Corn Soybeans World Ethanol Price and Trade Million Gal 5, USD per Gal 2. 4, 3, 2, 1, Trade Ethanol Price

33 Brazil Sugar Cane Production and Use in Ethanol Thousand MT 1,, Percent 7 8, 6, 6 4, 2, Production Share 4 World Biodiesel Price and Trade USD per Gal Million Gal Net Trade World Biodiesel Price

34 Brazilian Biodiesel Supply and Utilization Million gal 1, Million gal Production Consumption Net Exports -4 Argentine Biodiesel Supply and Utilization Million gal Million gal Production Consumption Net Exports

35 EU27 Biodiesel Supply and Utilization Million gal 3,5 Million gal 6 3, 2,5 2, 1,5 1, Production Consumption Net Imports EU Biofuels share in transport sector Percent Biofuels in transport Biodiesel in diesel transport Target

36 US Biodiesel Supply and Utilization Million gal 1,5 1, Million gal Production Consumption Net Exports US Corn Utilization Share by End- use Percent 1. bb Feed Fuel Alcohol Export Others

37 US DDG Supply and Utilization Million tons Production Consumption Net Exports Million tons US Soybean Oil Utilization Share by End- use Percent Food Biodiesel Export

38 Biodiesel Feedstock Share Percent Other Fats and Oils Soybean Oil Income Elasticity and Income Income 8, 6, 4, 2, Elasticity

39 Change in per capita consumption Kilograms trading-up -5 Meat Dairy Vegetable Oil Food Grains Per Capita Meat Consumption Kg per person Beef Pork Poultry

40 Japan Beef Supply and Utilization Thousand MT 1,6 Thousand MT 12 1, Production Consumption Imports China Net Trade Thousand MT Beef Pork Broiler

41 World Meat Production and Trade Million MT Production Trade Dairy Product Consumption in Asia Thousand MT 3, 25, 2, 15, 1, 5, Percent Consumption China and India Share

42 EU-27 Dairy Net Exports Thousand MT Butter Cheese NFD WMP Before to 217 Meat Production and Feed Use Million MT Million MT Meat Production Grain Feed Use Oil Meal Feed Use

43 Per Capita Vegetable Oil Consumption Kg per person Soyoil Rapeseed Oil Sunflower Oil Peanut Oil Palm Oil World Wheat Area and Yield Million Ha MT per Ha Area Yield

44 World Rice Area and Yield Million Ha MT per Ha Area Yield World Soybean Area and Yield Million Ha MT per Ha Area Yield

45 World Corn Area and Yield Million Ha MT per Ha Area Yield Argentine Land Use Percent Ha per AU % of Agricultural Area Animal Stocking Rate

46 Brazil Land Use Percent 1 Ha per AU % of Agricultural Area Animal Stocking Rate Wheat Net Imports by Region Thousand MT 12, 1, 8, 6, 4, 2, Asia Latin America Middle East and Africa

47 What are the wild cards on energy situation? Improvement in efficiency of energy use in transport sector? Discovery of new energy reserves? Investment and technological development in energy extraction? What are the other wild cards? Technology (e.g., yield) development from GMO What are the impacts on agricultural markets if technologies for second generation feedstocks become commercially feasible? Will water supply become limiting? Will a multilateral trade agreement on agriculture be reached? When? How deep will the reforms be?

48 Thank You! EU Ethanol S & U Million gal 2,5 2, 1,5 1, 5 Million gal Production Consumption Net Imports

49 EU Sugar S & U Thousand MT 25, 2, 15, 1, 5, Thousand MT Production Consumption Net Exports -6 LC per USD Selected Exchange Rate Australia Argentina Brazil European Union Canada

50 Selected Exchange Rate LC per USD Japan China