Fundamentals Driving U.S. Agricultural Prosperity

Transcription

1 Fundamentals Driving U.S. Agricultural Prosperity Chris Hurt Purdue Extension Service March 2013,

2 Economic Shock Transition to New-Equilibrium

3 250 Hypothetical 29 Year Cycle: Index Base Price = 100 Spike 200 Launch Landing New Base- Equilibrium 150 Base-Equilibrium

4 Dollars Per Acre $1,300 $1,100 Real U.S. Corn Revenue Per Harvested Acre: 2012 = = $1,207 $1, = $934 $900 $ = $672 $ = $834 $500 $300 $ = $ = $349 $348 -$100

5 What HAS BEEN Driving the Ag Economy???

6 $7.50 $8 $8.50 $4 $2 to $3 10 = 153 bu./ac 11 = 147 bu./ac 12 = 122 bu./ac

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9 Picture: Michigan State University

10 July 24, % in Drought Today: 52% in Drought

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12 Million bu. 7,000 6,000 5,000 FSI-NonFuel Feed Exports Fuel Corn Use: USDA 4,000 3,000 2,000 1,

13 1, Soybean Imports from the U.S.: 1990/ /14 (Mill Bu.) 3/20/13 China Mexico Japan

14 Million Acres Acres of U.S. Soybeans Exported to China; Acres of Corn to Ethanol(ddgs adjusted); Acres of Corn Exported to China Bean Acres to China Corn Acres to Ethanol Corn Acres to China Crop Year

15 Million Acres U.S. Acres Required for Chinese Soybean Exports; Ethanol (ddgs adjusted); and Chinese Corn Purchases 1.1M acre/year M acre/year M acre/year /01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 U.S. Harvest Year

16 USDA Projected Corn Use for Ethanol (Billion Bushels) U.S. harvest year

17 USDA Projected Corn Use for Ethanol (Million Acres DDG adjusted) U.S. harvest year

18 35% Exports and Ethanol as a % of Total Corn Use 30% 25% 20% 15% 10% 5% 0% Exports % of Use 1968 to 1987 % of corn use to ethanol (2003 to 2022)

19 7.0 USDA Projected Soy Oil Use for Biodiesel (Billion Pounds) U.S. harvest year

20 14.0 USDA Projected Soy Oil Use for Biodiesel (Million Acres) U.S. harvest year

21 Soybean Exports as a % of Total Use 45% 40% 35% 30% 25% % Of Use Exported (1968 to 1987 U.S. Crops) % of corn use to ethanol (2003 to 2022 crops)

22 Supply Response to Meet New Demands 1. Substitution of area: Shift from other crops into new demand crops 2. Extensification of area: Bring new area into production World U.S. 3. Intensification of production/acre Enhanced input usage Improved drainage Irrigation, etc. etc. etc.

23 Million 2,300 2,200 2,100 Figure 6: World Harvested ACRES 13 Major Crops Total: (Millions) 1981/82= 2, /07= 2, /13= 2, /06= 2,144 2,000 1,900 1,800 1, /73= 1, million acres increase 2002/03= 2, Million acres added in 7 years 1,600

24 Million ACRES Change in World Harvested Area 2012/13 vs. 2005/06 (Million Acres)

25 Million Acres Figure 8: Change in Area Harvested in 13 major World crops 2012/13 vs. 2005/06 (Million Acres)Total +107 million acres Million new harvested acres

26 Million Acres U.S. Acres: 17 Crops Since Freedom to Farm y = x R² =

27 Million Acres Crops Plus Hay: Change in U.S. Acres 2012 Crops vs Crops Corn Soybeans Up 20.6 million acres Substitute other crops 12.5 million acres New Lands CRP 5.3 million acres D.C. Beans 2.5 million acres Other sources 1.0 million acres

28 Million Metric Tons World Total Grains Production and Use 2,400 2,300 Production Use 2,200 2,100 2,000 1,900 1,800

29 36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% World Stocks to Use %: USDA May/Oct 2012 Wheat Rice Soybeans Corn 15.1% May 2012 Mar % 18.9% 14.9% 14.6% 13.5%

30 Key Questions???? What will weather be in 2013? How will weather impact production and prices? After 3 short production crops in the U.S.: Where will crop prices settle out with normal production?

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32 Corn: USDA 3/8/13 HURT 09/10 10/11 11/12 12/13 13/14 Million Bushels Avg Price Carryin 1,673 1,708 1, Production 13,110 12,447 12,358 10,780 14,536 Total Supply 14,791 14,182 13,514 11,894 15,193 Feed & Residual 5,166 4,792 4,547 4,550 4,900 FSI Non-Fuel 1,370 1,406 1,426 1,387 1,465 FSI Fuel (Ethanol) 4,560 5,021 5,011 4,500 4,900 Export 1,987 1,835 1, ,600 Total Use 13,083 13,054 12,525 11,262 12,865 Ending Stocks 1,708 1, ,328 US Farm Price $3.55 $5.18 $6.22 $6.75- $7.45 $ $6.00 $7.10 $5.25

33 $8.00 $7.00 Corn Cash Harvest Bids Based on Futures March 25, 2013 $7.60 Average 13 to 16 = $5.23 $6.00 $5.00 $5.47 $5.36 $5.13 $4.94 $4.00 $3.00 $2.00 Today Harvest 13 Harvest 14 Harvest 15 Harvest 16

34 Soybeans:USDA 3/8/13 Hurt 09/10 10/11 11/12 12/13 13/14 Million Bushels Avg Price Carryin Production 3,359 3,329 3,094 3,015 3,299 Total Supply 3,512 3,495 3,325 3,204 3,439 Seed & Residual Crush 1,752 1,648 1,703 1,615 1,710 Exports 1,501 1,500 1,362 1,345 1,425 Total Use 3,361 3,280 3,156 3,079 3,230 Ending Stock Farm Price $9.59 $11.30 $12.50 $ $14.80 $ $12.75 $14.30 $11.75

35 $15 $14 Bean Cash Harvest Prices Based on Futures March 25, 2013 $14.60 Average 13 to 16 = $11.91 $13 $12 $12.39 $12.17 $11.70 $11.37 $11 $10 $9 $8 $7 Today Harvest 13 Harvest 14 Harvest 15 Harvest 16

36 Wheat Cash Harvest Bids Based on Futures March 25, 2013 $8 $7 $7.30 Average 13 to 15 = $7.17 $7.04 $7.28 $7.18 $6 $5 $4 Today Harvest 13 Harvest 14 Harvest 15

37 Interest % $350 $300 $250 $200 $150 $100 $50 $0 Estimated Ownership Returns/Acre to Average Quality Indiana Land, March 25, 2013 $333 $ $332 $272 $ $254 $ $231 $ $156 $136 $ Returns/Acre Discount Rate 10Yr Treasury

38 Tea Leaves Moderation-with a Soft Landing?? Next 4 Years -Slowing world demand growth -Increased world grain supply -Moderating crop prices -Some upslope to interest rates -Return of profitability to animal production -Rate of Land Appreciation to moderate -Moderating farm income -Weather?????? -Overall a SOFT LANDING for Ag Economy