Fundamentals Driving U.S. Agricultural Prosperity Chris Hurt Purdue Extension Service March 2013, hurtc@purdue.edu
Economic Shock Transition to New-Equilibrium
250 Hypothetical 29 Year Cycle: Index Base Price = 100 Spike 200 Launch Landing New Base- Equilibrium 150 Base-Equilibrium 100 50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
Dollars Per Acre $1,300 $1,100 Real U.S. Corn Revenue Per Harvested Acre: 2012 = 100 1973 = $1,207 $1,203 2011 = $934 $900 $700 1946 = $672 $670 2013 = $834 $500 $300 $100 1986 = $380 2005 = $349 $348 -$100
What HAS BEEN Driving the Ag Economy???
$7.50 $8 $8.50 $4 $2 to $3 10 = 153 bu./ac 11 = 147 bu./ac 12 = 122 bu./ac
Picture: Michigan State University
July 24, 2012 64% in Drought Today: 52% in Drought
Million bu. 7,000 6,000 5,000 FSI-NonFuel Feed Exports Fuel Corn Use: USDA 4,000 3,000 2,000 1,000 0 81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13
1,000 900 800 700 600 500 400 300 200 100 0 Soybean Imports from the U.S.: 1990/91-2013/14 (Mill Bu.) 3/20/13 China Mexico 504 436 423 Japan 283 305 357 157 192 164 0 5 2 3 2 21 66 70 75 918 864 829 814 840 685
Million Acres Acres of U.S. Soybeans Exported to China; Acres of Corn to Ethanol(ddgs adjusted); Acres of Corn Exported to China 25 20 15 10 5 0 Bean Acres to China Corn Acres to Ethanol Corn Acres to China 10.3 9.9 9.0 8.3 7.4 7.8 5.0 5.6 5.9 6.0 4.1 3.3 3.7 26.4 23.8 24.6 22.6 21.1 20.0 20.6 20.5 20.7 18.8 17.3 17.3 14.5 12.1 10.3 1.4 0.3 0.5 Crop Year
Million Acres 50 45 U.S. Acres Required for Chinese Soybean Exports; Ethanol (ddgs adjusted); and Chinese Corn Purchases 1.1M acre/year 46.7 47.3 45.2 43.8 40 5.8M acre/year 39.3 35 34.6 30 25 20 15 1.5M acre/year 14.9 13.0 16.3 16.1 20.2 26.6 10 8.4 7.8 5 0 00/01 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
5.6 5.4 5.2 5.0 4.8 4.6 4.4 4.2 4.0 USDA Projected Corn Use for Ethanol (Billion Bushels) 10 11 12 13 14 15 16 17 18 19 20 21 22 U.S. harvest year
27.0 26.0 25.0 24.0 23.0 22.0 21.0 20.0 19.0 18.0 USDA Projected Corn Use for Ethanol (Million Acres DDG adjusted) 10 11 12 13 14 15 16 17 18 19 20 21 22 U.S. harvest year
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) 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87
7.0 USDA Projected Soy Oil Use for Biodiesel (Billion Pounds) 6.0 5.0 4.0 3.0 2.0 1.0 0.0 10 11 12 13 14 15 16 17 18 19 20 21 22 U.S. harvest year
14.0 USDA Projected Soy Oil Use for Biodiesel (Million Acres) 12.0 10.0 8.0 6.0 4.0 2.0 0.0 10 11 12 13 14 15 16 17 18 19 20 21 22 U.S. harvest year
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) 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87
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.
Million 2,300 2,200 2,100 Figure 6: World Harvested ACRES 13 Major Crops Total: (Millions) 1981/82= 2,115 1996/07= 2,104 2012/13= 2,248 2005/06= 2,144 2,000 1,900 1,800 1,700 1972/73= 1,872 243 million acres increase 2002/03= 2,033 104 Million acres added in 7 years 1,600
Million ACRES 80 70 72.2 Change in World Harvested Area 2012/13 vs. 2005/06 (Million Acres) 60 50 40 39.2 30 20 10 18.5 11.5 4.6 0-10 -20-1.4-2.0-3.4-6.9-4.6-4.5-8.1-11.2
Million Acres 40 34.8 Figure 8: Change in Area Harvested in 13 major World crops 2012/13 vs. 2005/06 (Million Acres)Total +107 million acres 30 20 20.7 17.6 15.7 104 Million new harvested acres 10 0 7.9 7.4 6.8 3.6 1.6 0.7-0.7-10 -9.5-20
Million Acres U.S. Acres: 17 Crops Since Freedom to Farm 275 271.9 270.6 269.1 270 267.5 270.6 265 260 255 265.1 y = -583.85x + 267988 R² = 0.2806 262.8 261.5 260.4 259.6 255.8 254.6 258.5 264.0 258.6 256.0 259.9 250 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Million Acres 15.4 17 Crops Plus Hay: Change in U.S. Acres 2012 Crops vs. 2005 Crops 14 9 4 5.2 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 -1-1.9-1.5-1.5-0.8-0.7-0.6-6 -5.5
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
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 2013 23.1% 18.9% 14.9% 14.6% 13.5%
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?
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 1,128 989 632 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 1,541 825 1,600 Total Use 13,083 13,054 12,525 11,262 12,865 Ending Stocks 1,708 1,128 989 632 2,328 US Farm Price $3.55 $5.18 $6.22 $6.75- $7.45 $4.50 - $6.00 $7.10 $5.25
$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
Soybeans:USDA 3/8/13 Hurt 09/10 10/11 11/12 12/13 13/14 Million Bushels Avg Price Carryin 138 151 215 169 125 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 108 132 91 119 120 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 151 215 169 125 209 Farm Price $9.59 $11.30 $12.50 $13.55- $14.80 $10.75 - $12.75 $14.30 $11.75
$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
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
Interest % $350 $300 $250 $200 $150 $100 $50 $0 Estimated Ownership Returns/Acre to Average Quality Indiana Land, March 25, 2013 $333 $357 5.11 5.10 $332 $272 $290 4.10 $254 $234 3.72 $231 $214 4.18 $156 $136 $113 3.20 3.00 2.90 2.62 Returns/Acre Discount Rate 10Yr Treasury 3.10 3.2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 3.5 6 5 4 3 2 1 0
Tea Leaves 2013-2016 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