Agricultural Outlook

Department of Economics

Agricultural Outlook

Iowa Chapter of the ASFMRA Annual MeetingAmes, Iowa

February 5, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


U.S. Corn Supply and Use

Source: USDA-WAOB, Jan. 2009

-50

$3.90-0.10$4.00

-100

+316

-50

+81


U.S. Soybean Supply and Use


-30

$9.00 $9.00

+50

+38

NC

Department of EconomicsSource: USDA-WAOB, Dec. 2008

Drought in South America

Department of EconomicsSource: Dow Jones Newswires

Argentine Drought Impacts (Early Reports)

2007 ProductionCorn 20.9 million tonsSoybeans 46.2 million tons

Current USDA EstimatesCorn 16.5 million tons -21%Soybeans 49.5 million tons +7%

Estimates from Buenos Aires Cereal ExchangeCorn 12.3 to 13.7 million tons -35 to -41%Soybeans 34.5 to 38.2 million tons -17 to -25%


Chinese Corn Production



Soybeans in China

Source: USDA-PSD, Jan. 2009

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mill

ion M

etr

ic T

on

s

Production Imports

Department of EconomicsSources: Various USDA-NASS reports

Livestock Adjustments

Sows farrowing: Sept-Nov 2008 2.99 million, down 6% from last yearDec-Feb 2009 2.97 million, down 3% from last yearMar-May 2009 3.01 million, down 2% from last year

Broiler-type eggs set: 203 million, down 7% from last yearBroiler chicks placed: 166 million, down 6% from last year

Feedlot placements: 2.02 million, down 5% from last year


Ethanol Margins

Source: ISU, CARD


Biodiesel Margins

Source: ISU, CARD


Renewable Fuels Standard (RFS)

0

2

4

6

8

10

12

14

16

2009 2010 2011

Bill

ion g

allo

ns

Additional Advanced Biofuels Biodiesel

Cellulosic Biofuels Conventional Biofuels

Calendar Year

Billion Bushels

2009 3.75

2010 4.29

2011 4.50

CropYear

Billion Bushels

2008 3.57

2009 4.11

2010 4.43


U.S. Blended Motor Gasoline Consumption

Source: Energy Information Administration

115

120

125

130

135

140

145

Bill

ion

Ga

llons

Actual Feb. Proj. July Proj. Dec. Proj.


Outside Influences (Jan. 2007 = 1)

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.51

/3/2

00

7

3/3

/200

7

5/3

/200

7

7/3

/200

7

9/3

/200

7

11/3

/20

07

1/3

/200

8

3/3

/200

8

5/3

/200

8

7/3

/200

8

9/3

/200

8

11/3

/20

08

1/3

/200

9

Dow Oil Corn Soybeans


Outside Influences (Sept. 2008 = 1)

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.009/2

/2008

9/9

/2008

9/1

6/2

008

9/2

3/2

008

9/3

0/2

008

10/7

/2008

10/1

4/2

008

10/2

1/2

008

10/2

8/2

008

11/4

/2008

11/1

1/2

008

11/1

8/2

008

11/2

5/2

008

12/2

/2008

12/9

/2008

12/1

6/2

008

12/2

3/2

008

12/3

0/2

008

1/6

/2009

1/1

3/2

009

1/2

0/2

009

Dow Oil Corn Soybeans


130

135

140

145

150

155

160

165

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Mill

ion

acr

es

Corn & Soybean AreaGrowth rate of 1.55 million acres per year


CRP Expiring Contracts

Source: USDA-FSA

0

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013

Mill

ion

acr

es


Input Costs

Source: USDA, Agricultural Prices, Dec. 2008


The Rise and Fall of Fertilizer Prices

Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf


Ammonia Prices

Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf


Iowa Corn Prices vs. Costs

Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

$ pe

r B

ushe

l

Season-average Price Cost


Iowa Soybean Prices vs. Costs

Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf

0.00

2.00

4.00

6.00

8.00

10.00

12.00

$ pe

r B

ushe

l

Season-average Price Cost


Estimates for 2009 Iowa Costs

Non-land

Cost

Land Cost

Total Cost

Expected Yield

Cost per Bushel

($/acre) (bu/acre) ($/bu)

Corn

486.61 205.00 691.61 160 4.32

Soybean

285.60 205.00 490.60 50 9.81

December 2009 Corn Futures = $4.16 (2/2/09)November 2009 Soy Futures = $9.25 (2/2/09)

Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf


Crop Exports

Source: USDA, PSD

0.0

0.5

1.0

1.5

2.0

2.5

Bill

ion

bush

els

Corn Soybeans


0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Canada Mexico Brazil EU

China South Korea Japan Australia

Exchange Rates (Jan. 2003 = 1)

Source: USDA, ERS


0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Canada Mexico Brazil EU

China South Korea Japan Australia

Exchange Rates (Jan. 2003 = 1)

Source: USDA, ERS


2007 World Corn Exports

Source: USDA, FAS

U.S.65%

Other12%

Argentina16%

Brazil7%

Drought issuesfor 2008 crops


2007 World Soybean Exports

Source: USDA, FAS

Other5%

U.S.40%

Paraguay6%

Brazil32%

Argentina17%

Drought issuesfor 2008 crops


0%

10%

20%

30%

40%

50%

60%

70%

80%

Week

2006 2007 2008

Pace of Corn Export Sales

Source: USDA, FAS


Japan40%

Other26%

Mexico19%

South Korea9%

Taiwan6%

2008 U.S. Corn Exports

Source: USDA, FAS


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Week

2006 2007 2008

Pace of Soybean Export Sales

Source: USDA, FAS


China60%

Other17%

EU10%

Mexico7%

Japan6%

2008 U.S. Soybean Exports

Source: USDA, FAS


U.S. Stocks-to-Use Ratios

0%

5%

10%

15%

20%

25%

30%

Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006


World Stocks-to-Use Ratios

0%

5%

10%

15%

20%

25%

Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006


Finishing Out the 2008 Crop YearGeneral economic conditions

A lot of recent market trade has been tied to reaction to the financial crisis and the world’s responseEconomic slowdown raises concern about export and energy demand

Most important ag. statistic: Exchange rates or South American production

Current futures are indicating 2008 season-average prices of $3.75-4.25 for corn and $9.25-9.75 for soybeans

Stress on South American crops has provided some support for prices


Thoughts for 2009 and BeyondMany of the storylines from 2008 will continue

Tight stocks for corn (worldwide) and soybeans (U.S.)The competition for acreageEthanol’s buildout & livestock’s adjustmentEnergy price & general economy concerns

Market volatility will remain highLink to the energy marketsMore market players with different trading objectives

Given current factors, the 2009 outlook is for crop prices around $4.00 for corn and $8.50-8.75 for soybeans

Key factor: Economic growth returns by early 2010


Hog and Cattle Outlook 2009 and Beyond

John D. Lawrence

Extension Livestock Economist

Iowa State University


Overview

• Total production and competing meats

• Hog liquidation underway, but slowing?

• Tighter beef supplies and contracting

• MCOOL

• Feed costs and risks


TOTAL RED MEAT & POULTRY PRODUCTIONQuarterly

19.0

20.0

21.0

22.0

23.0

24.0

JAN-MAR APR-JUN JUL-SEP OCT-DEC

Bil. Pounds

Avg.2003/07

2008

2009

2010


COMMERCIAL BEEF PRODUCTIONQuarterly

5.6

5.8

6.0

6.2

6.4

6.6

6.8

7.0

7.2


Bil. Pounds

Avg.2003/07

2008

2009

2010


COMMERCIAL PORK PRODUCTIONQuarterly

4.0

4.5

5.0

5.5

6.0

6.5


Bil. Pounds

Avg.2003/07

2008

2009

2010


RTC BROILER PRODUCTIONQuarterly

7.5

8.0

8.5

9.0

9.5


Bil. Pounds

Avg.2003/07

2008

2009

2010

RTC TURKEY PRODUCTIONQuarterly

1.20

1.30

1.40

1.50

1.60


Bil. Pounds

Avg.2003/07

2008

2009

2010

Year over year declines in chicken started in September


Hog Overview

• Supply side favorable– Reduction underway

• Demand side a concern– Smaller supplies of competing meats– Exports below 2008 record levels– Consumer income

• Breakeven year expected

• Liquidation slowing


Estimated Returns to Farrow to Finish Hog Production, $/Head, Iowa State University Extension

$(60)

$(40)

$(20)

$-

$20

$40

$60

Jan-0

1

Jul-0

1

Jan-0

2

Jul-0

2

Jan-0

3

Jul-0

3

Jan-0

4

Jul-0

4

Jan-0

5

Jul-0

5

Jan-0

6

Jul-0

6

Jan-0

7

Jul-0

7

Jan-0

8

Jul-0

8


U S PORK EXPORTS TO MAJOR MARKETSCarcass Weight, Monthly

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mil. Pounds

Japan

SouthKorea

HongKong

China-Mainland

Livestock Marketing Information Center


Dec Hogs and Pigs Report

Mil head % change

All Hogs 66.7 -2.2%

Breeding Herd 6.1 -2.4%

Market Hogs 60.6 -2.1%

Under 60 21.3 -5.5%

60 - 119 15.1 -0.5%

120 - 179 12.7 0.5%

180 & over 11.5 -0.4%


Dec Hogs and Pigs Report

Pig Crop Mil head % change

Jun - Aug 29.3 0.5%

Sep - Nov 28.4 -3.7%

Farrowing Intentions

Dec - Feb 2.97 -3.3%

Mar - May 3.01 -1.6%

Pigs per Litter

Sep - Nov 9.5 2.4%


Sow Slaughter in US

Total US Sow

Slaughter

Canadian Sows Slaughtered

in USUS Sows Slaughtered

January-December 15

1000 head 3368.3 561.5 2806.8

% Change 5.60% 35.80% 1.00%

September-December 15

1000 head 989.1 182.8 806.4

% Change -1.40% 45.30% -8.10%

November-December 15

1000 head 380.7 78.7 301.9

% Change -6.80% 49.80% -15.20%


ISU Estimated Costs and Selling Prices, Farrow to Finish ($/cwt Live Wt)

$-

$10

$20

$30

$40

$50

$60

$70

Jan-

06

May

-06

Sep-0

6

Jan-

07

May

-07

Sep-0

7

Jan-

08

May

-08

Sep-0

8

Jan-

09

May

-09

Sep-0

9

Jan-

10

May

-10

Feed Variable Total Hog Price

Jan 15 Futures prices and historic basis

ProjectedReported


Hog Summary

• Smaller supplies

• Exports below 2008, but second largest

• Domestic demand steady to weaker

• Watch feed costs

• Profitable summer, breakeven year

• Contraction slowing


Cattle Overview

• Demand concern looms

• Herd reduction underway

• Lower supplies of competing meats

• Feed cost implications


Demand Concerns

• Income!!!!– Mortgages and stock market– Unemployment growing

• Less spending at restaurants

• Value shopping for home consumption

• Stronger US$ slowing exports



WHOLESALE BEEF CHUCK PRICESBoneless 2 Piece, Weekly

115

125

135

145

155

165

175

185

195$ Per Cwt.

Avg.2002-06

2007

2008

WHOLESALE BEEF BOTTOM ROUND PRICES18-33 Pounds, Weekly

110

120

130

140

150

160

170

180

190$ Per Cwt.

Chuck and round prices above 2007 and 5 year average

Consumers eating out less often and spending less per trip.

They are trading down at the meat counter so less total dollars to the system.



U S BEEF AND VEAL EXPORTSCarcass Weight, Annual

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1985 1988 1991 1994 1997 2000 2003 2006 2009

Bil. Pounds


Beef Demand Summary

• Demand has weaken since Adkins

• Higher relative price and restaurant volume– Greater impact from weaker economy– Ground beef may benefit but not high value cuts

• Exports rebounding but stronger US$ will limit exports and favor imports


CATTLE ON FEEDUS Total, Monthly

9.5

10.0

10.5

11.0

11.5

12.0

12.5

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Mil. Head

Avg.2003-2007

2008

2009


Data Source: USDA/NASS

COF -7.1%

Steers -7.5%

Heifers -6.4%


Qtr LT700 GT700

1 7.6% -6.9%

2 -8.7% -7.5%

3 -14.8% 7.4%

4 -13.1% 2.5%

Feedlots placing heavier feeder cattle

Delays marketings and seasonal patterns

Heavier slaughter weights

CATTLE PLACED WEIGHINGMORE THAN 700 POUNDS

1,000 Plus Capacity Feedlots, U.S., Monthly

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5


Mil. Head

CATTLE PLACED WEIGHINGLESS THAN 700 POUNDS

1,000 Plus Capacity Feedlots, U.S., Monthly

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8


Mil. Head

Avg.2002-06

2007

2008


Beef Supply Summary

• Smaller beef supply– Reduced fed cattle slaughter currently and

through mid-year– Continued high cow slaughter

• Trend to heavier placement weights– Backgrounding opportunities?– Continued heavy carcasses


Feed Price Implications

Breakeven Purchase Price to Pay for 550# Steer Sold at 1200#

Corn Fed Cattle Selling Price

Price $80 $90 $100 $110 $120 $130

$3.00 $90 $111 $132 $153 $175 $196

$4.00 $82 $103 $124 $145 $167 $188

$5.00 $74 $95 $116 $137 $159 $180

$6.00 $66 $87 $108 $129 $151 $172

$7.00 $58 $79 $100 $121 $143 $164

$8.00 $50 $71 $92 $113 $135 $156

Cowherd Estimated Cost of Production

Variable Cost $120

Total Cost $150+


Year % Chg. % Chg. Live Str Southern Plains Str

Qrtr Produce Consume 5-Mkt Avg 7-800# 5-600#

09 1 -3.3 -2.2 91-93 98-101 106-109

09 2 -4.1 -3.6 94-97 105-109 110-115

09 3 1.5 1.1 91-95 109-114 114-120

09 4 -0.3 -1.5 95-100 108-115 112-119

Year -1.5 -1.4 93-96 105-110 110-117

10 1 1.0 -2.4 95-101 106-113 111-119

10 2 -3.1 -4.0 100-107 110-118 117-127

10 3 -0.2 -0.7 94-102 111-120 117-128

10 4 -1.6 -1.9 99-108 110-120 115-124

Year -1.0 -2.3 98-104 110-117 115-124

Production and Price Forecast, Jan 2009



Cattle Summary

• Weak economy and strong dollar bad for beef demand

• Near term smaller supplies of beef though mid ’09

• Herd reduction continues leading to smaller supplies into 2012 or later

• Near term pressure on cattle prices

• Stronger prices in 2009 and beyond


Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/faculty/hart/

Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/

Documents

Agricultural Outlook