COPING WITH LOWER PRICES · World GDP growth slows, compared to last year’s projections, most notably in China 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2011 2013 2015 2017 2019 2021

COPING WITH

LOWER PRICES

Robert Johansson

Chief Economist Int’l Grains Council

London, June 2016

http://www.startribune.

com//307422201/.

Photo: Bethany Hahn.

World GDP growth slows, compared to last year’s

projections, most notably in China

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2011 2013 2015 2017 2019 2021 2023 2025

% change

Actual

2016 projection

2015 projection

World

Source: USDA.

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

2011 2013 2015 2017 2019 2021 2023 2025

% change China

40

60

80

100

120

140

160

40

60

80

100

120

140

160

2009 2010 2011 2012 2013 2014 2015 2016

DAP Steel Lumber Crude Oil

Price declines for primary inputs could be ending

2007=100 2007=100

Source: Eikon/Datastream, USDA-OCE.

U.S. GDP growth and real ag trade-weighted

exchange rate up through 2017

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

20

11

20

12

20

13

20

14

20

15

2016

2017

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

85.00

90.00

95.00

100.00

105.00

110.00

115.00

% change

Exchange rate

(right axis) US GDP

(left axis)

2010 = 100

Data: USDA-OCE.

Ag Trade Outlook

Decline in agricultural exports expected in

2016 --- China share falls in value

0

2

4

6

8

10

12

14

16

18

20

0

20

40

60

80

100

120

140

160

2000 2003 2006 2009 2012 2015

Billion dollars China Percent

Source: USDA. Data are fiscal year.

0

50

100

150

200

250

300

1980

1982

1984

1986

1988

1990

19

92

1994

1996

1998

2000

2002

2004

20

06

2008

2010

2012

2014

2016

2018

2020

20

22

2024

Global trade growth is expected to continue

Million metric tons

Soybeans and products

Wheat Coarse Grains

Source: USDA.

Monthly Chinese soybean imports

-

1

2

3

4

5

6

7

8

9

10 0

1/2

01

0

04

/20

10

07

/20

10

10/2

010

01

/20

11

04

/20

11

07

/20

11

10/2

011

01

/20

12

04

/20

12

07

/20

12

10/2

012

01

/20

13

04

/20

13

07

/20

13

10/2

013

01

/20

14

04

/20

14

07

/20

14

10/2

014

1/2

01

5

4/2

01

5

7/2

01

5

10/2

015

01

/20

16

04

/20

16

Millio

n M

etr

ic T

on

s

United States Argentina +Brazil ROWSource: Global Trade Information Services (GTIS)

Monthly Chinese corn/barley/sorghum imports

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.01

0/2

01

0

01

/20

11

04/2

011

07

/20

11

10

/20

11

01

/20

12

04/2

012

07

/20

12

10

/20

12

01

/20

13

04

/20

13

07

/20

13

10

/20

13

01

/20

14

04

/20

14

07

/20

14

10

/20

14

1/2

01

5

4/2

01

5

7/2

01

5

10

/20

15

01/2

016

04

/20

16

Millio

n M

etr

ic T

on

s

US-CORN US-SORGHUM US-DDG

Ukraine-CORN Thailand/Burma/Laos-CORN Other-CORN

BARLEY Other-SORGHUM Other-DDG

Source: Global Trade Information Services (GTIS)

0

20

40

60

80

100

120

140

160

1990/91 1995/96 2000/01 2005/06 2010/11 2015/16 2020/21 2025/26

Million metric tons

Source: USDA.

This year's

projection

Last year's

projection

China imports to rise, but more slowly than last

year: soybeans up, grains down, cotton down

Combined imports of

grains, soybeans,

and cotton.

0

20

40

60

80

100

120

1990/91 1995/96 2000/01 2005/06 2010/11 2015/16 2020/21 2025/26

Million metric tons

This year's

projection

Last year's

projection

Projections for Brazil’s exports for corn and

soybeans both increase from last year

Exports of

soybeans and

corn

Fig 14

Source: USDA.

US Corn Export Sales

0

5

10

15

20

25

30

35

40

45

50

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Mil

lio

ns m

etr

ic t

on

s

Accumulated Exports 2014/15 Outstanding Sales 2014/15


USDA-FAS U.S. Export Sales Report June 9 2016

US Soybean Export Sales

0

10

20

30

40

50

60

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

Mil

lio

ns m

etr

ic t

on

s



USDA-FAS U.S. Export Sales Report June 9 2016

Expanding U.S. ag exports through FTAs

U.S. Ag Trade

TPP* Ag Trade

Source: USDA Global Agricultural Trade Statistics, UN Commodity Trade Statistics,

CY2014/2015 trade data.

*TPP

partners

include

Australia,

Brunei,

Canada,

Chile,

Japan,

Malaysia,

Mexico,

New

Zealand,

Peru,

Singapore,

and

Vietnam.

Exports $133 billion

Imports $113.5 billion Total $246.5 billion

U.S exports to TPP-11

$57.2 billion

U.S. imports from TPP-11

$58.1 billion

Total TPP-11 trade

$403 billion

0

50

100

150

200

250

300

350

400

450

500

House Trade Votes

TPA 2015 –AG Congressional Districts

Top 200 Congressional Districts ranked by value of ag production ($300 million or greater)

Yes on TPA 2015

No on TPA 2015

Did not vote

Voted no,

then yes.

resigned, no vote

Outlook for Crops

Global production stays high,

consumption catches up for corn and soybeans

300

400

500

600

700

800

MMT Wheat

Source: World Agricultural Supply and Demand Estimates, June 10, 2016.

300

400

500

600

700

800

900

1,000

1,100

MMT Corn

0

50

100

150

200

250

300

350

MMT Soybean

Global ending stocks edge up

Source: World Agricultural Supply and Demand Estimates, June 10, 2016. Foreign

Agricultural Service, PS&D database.

100

150

200

250

300

350

400

40

60

80

100

120

140

160

1990 1993 1996 1999 2002 2005 2008 2011 2014

Wheat Corn

Rice Soybeans

Cotton (right axis)

Days of use Days of use

China policies build stocks

Source: USDA, PSD database, World Agricultural Supply and Demand Estimates, June 10, 2016.

0

10

20

30

40

50

60

70

2000 2002 2004 2006 2008 2010 2012 2014 2016

Wheat

Corn

Rice

Soybeans

Cotton

Percent of global stocks

Prices soften, but still above 2000-2003 average

Ave 2000-

03 2011 2012 2013 2014 2015F 2016F

Dollars per metric ton

Wheat 113.5 266.0 285.5 252.4 220.1 180.0 147.0

Corn 84.2 244.9 271.2 175.6 145.7 145.7 137.8

Soybeans 200.2 459.3 529.1 477.7 371.1 332.5 349.1

Cotton 1,024.6 1,946.7 1,598.3 1,717.4 1,351.4 1,278.7 1,256.6

All Rice 123.6 319.7 332.9 359.4 295.4 271.2 266.8

Source: USDA-NASS, World Agricultural Supply and Demand Estimates, June 10, 2016.

Red denotes record high.

Crop

US Ethanol Export Destinations

by month

020

40

60

80

100

120140

160

180

Jan

-20

10

Ap

r-2

01

0Ju

l-20

10

Oct

-20

10

Jan

-20

11

Ap

r-2

01

1Ju

l-2

01

1O

ct-2

01

1Ja

n-2

01

2A

pr-

20

12

Jul-

20

12

Oct

-20

12

Jan

-20

13

Ap

r-2

01

3Ju

l-20

13

Oct

-20

13

Jan

-20

14

Ap

r-2

01

4Ju

l-2

01

4O

ct-2

01

4Ja

n-2

01

5A

pr-

20

15

Jul-

20

15

Oct

-20

15

Jan

-20

16

Total Exports Canada EU China Brazil

million gallons

US Energy Information Administration

US Ethanol Destinations March 2016

Canada

Brazil

China

India EU

ROW

95.3 million gallons

March 2016

US Energy Information Administration

Outlook for

Livestock and Dairy

Livestock and poultry inventories building

* Dec 1, prior year

Source: National Agricultural Statistics Service.

Animal

products

2011 2012 2013 2014 2015 2016 %

change

Million Head/Birds, Jan 1

Total Cattle 92.9 91.2 90.1 88.5 89.1 92.0 3.3

Dairy Cows 9.2 9.2 9.2 9.2 9.3 9.3 0.1

Hogs* 64.7 66.3 66.2 64.8 67.8 68.4 0.9

Broiler Layers 55.5 50.4 51.4 52.5 53.7 54.6 1.8

Beef, pork, and poultry production higher in 2017


Data in red denote record levels.

Animal

products

2012 2013 2014 2015 2016F 2017F %

change

Million Metric Tons

Beef 11.7 11.7 11.0 10.8 11.2 11.7 4.5

Pork 10.6 10.5 10.3 11.1 11.3 11.6 2.6

Broilers 16.8 17.1 17.5 18.1 18.6 19.1 2.5

Total 42.2 42.3 41.8 42.9 44.2 45.5 3.1

Million Metric Tons

Milk 91.0 91.3 93.5 94.6 96.4 97.7 1.3

Cattle, hog, and broiler prices expected to

come down from 2016, but dairy perks up


Prices in red denote record levels.

Item 2012 2013 2014 2015 2016F 2017F

%

change

Dollars per metric ton

Steers 2,709 2,776 3,408 3,265 2,802 2,717 -3.0

Hogs 1,343 1,413 1,676 1,107 1,070 964 -9.9

Broilers 1,909 2,198 2,313 1,995 1,980 1,962 -0.9

Milk 408 443 529 377 334 347 4.0

Outlook for the Farm

Sector

http://www.hoosieragtoday.com/indiana-cash-rent-up-3-per-acre-in-2014/

Net farm income is down, but debt-to-asset

ratio remains low

Data: USDA-ERS.

0

5

10

15

20

25

0

20

40

60

80

100

120

140

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F

Billion dollars Percent

Debt-to-Asset ratio

(right axis)

Net farm income

(left axis)

Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn

Fertilizers $309 $79 $125 $32 Seed $301 $188 $122 $76

Crop Insurance $59 $44 $24 $18 Other direct costs $217 $114 $88 $46

Machinery hire/lease, repair and depreciation $250 $230 $101 $93 Fuel and oil $42 $42 $17 $17

Other power costs $17 $17 $7 $7

Overhead costs $168 $153 $68 $62

Total non-land costs $1,364 $867 $552 $351

Yield (mt/ht) and (bu/ac) 12.62 3.90 201 58 Price (per mt) and (per bu) $159 $396 $4.03 $10.77

Crop Revenue $2,002 $1,544 $810 $625

ARC(PLC) $74 $74 $30 $30 Insurance Proceeds $0 $0 $0 $0

Operator and Land Returns (excludes ARC/PLC) $638 $676 $258 $274

Per Hectare Per Acre

Land Costs $278 $278 $687 $687 Cash rent

Central Illinois Production Budget 2016 (high productive land)

Source: Gary Schnitkey, University of Illinois, farmdoc http://www.farmdoc.illinois.edu/manage

Costs

Revenue

Breakeven rental rate

http://www.farmdoc.illinois.edu/manage




Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Costs

Land Costs $687 $687 $278 $278


Fertilizer prices

32

0

100

200

300

400

500

600

700Jan-1

1

Apr-

11

Ju

l-11

Oct-

11

Jan-1

2

Apr-

12

Ju

l-12

Oct-

12

Jan-1

3

Apr-

13

Ju

l-13

Oct-

13

Jan-1

4

Apr-

14

Jul-

14

Oct-

14

Jan-1

5

Apr-

15

Ju

l-15

Oct-

15

Jan-1

6

do

lla

rs p

er

me

tric

to

n

Phosphate Rock (Morocco) DAP (US Gulf)

Urea (Black Sea) Potash (Canada)

Source: World Bank



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Costs

Land Costs $687 $687 $278 $278


2004

20052006 2007

2008

2009

2010

2011

2012

2013

2014Aug-15

Sep-15Oct-15

Nov-15

0.260

0.270

0.280

0.290

0.300

0.310

0.320

0.330

0.340

0.350

0.360

25,000 25,500 26,000 26,500 27,000 27,500 28,000 28,500 29,000 29,500

Lbs/Ear

Ears Per Acre

Corn Objective Yield RegionEars Per Acre vs. Implied Ear Weight

Implied Ear Weight = (Published Yield * 56) / Ears

USDA-NASS

11-10-15

Corn Objective Yield (ears per acre vs. implied ear weight)

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

20142015

Jun-16

0.530

0.540

0.550

0.560

0.570

0.580

0.590

0.600

0.610

0.620

0.630

0.640

0.650

38 39 40 41 42 43 44 45 46 47 48 49

Grams/Head

Heads Per Square Foot

Wheat Objective Yield RegionHeads Per Square Foot vs. Implied Head Weight

Implied Head Weight= Published Yield / (Heads*1.6006)

USDA-

NASS 6-10-16

Wheat Objective Yield (heads per sq. foot vs. implied head weight)



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Costs

Land Costs $687 $687 $278 $278


US 4WD Tractor Sales

0

200

400

600

800

1000

1200

1400Jan-2

009

May-2

009

Sep-2

009

Jan-2

010

May-2

010

Sep-2

010

Jan-2

011

May-2

011

Sep-2

011

Jan-2

012

May-2

012

Sep-2

012

Jan-2

013

Ma

y-2

01

3

Sep-2

013

Jan-2

014

Ma

y-2

01

4

Sep-2

014

Jan-2

015

Ma

y-2

01

5

Sep-2

015

Jan-2

016

May-2

016

Sep-2

016

un

its s

old

prior 5 year range 4WD Farm Tractors

Source: American Equipment Manufacturers



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Costs

Land Costs $687 $687 $278 $278


Selected Energy Prices

Source: Thomson Reuters Datastream

0

2

4

6

8

10

12

14

16

0

20

40

60

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014 2016

Crude Oil (WTI) Cushing, Oklahoma

Natural Gas, Henry Hub, Louisiana (right axis)

$/Barrel $/Million BTU



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Costs

Land Costs $687 $687 $278 $278

Includes Interest


-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2009:Q4 2010:Q4 2011:Q4 2012:Q4 2013:Q4 2014:Q4 2015:Q4

Farm debt continues to increase at

commercial banks

Source: Federal Reserve Bank of Kansas City, Agricultural Finance Databook.

Percent change from previous year

Delinquency rates on farm loans up slightly

Source: Kauffman and Clark (2016), Ag Finance Databook.

Data: Federal Reserve Board of Governors.



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Land Costs $687 $687 $278 $278

Revenue


Source: USDA-NASS, World Agricultural Supply and Demand Estimates, June 10,

2016.

U.S. Maize Yield Weather-Adjusted Trend Yield vs. Actual

5

6

7

8

9

10

11

12

1988 1992 1996 2000 2004 2008 2012 2016

MT/hectare

Actual Yield

Weather-AdjustedTrend

February 2016 Ag Outlook Forum: 10.54

2016 May WASDE: 10.54



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Land Costs $687 $687 $278 $278

Revenue


Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Land Costs $278 $278 $687 $687



Breakeven rental rate



Corn After

Soybeans

Soybeans

After Corn

Corn After

Soybeans

Soybeans After Corn








Crop Revenue $2,002 $1,544 $810 $625




Land Costs $278 $278 $687 $687 Cash rent





Cash rental rates falling, but slowly

Illinois farmers scrutinize high cash rental rates

IFT photo by Phyllis Coulter January 07, 2016 5:03 am • By Phyllis Coulter, Illinois Farmer Today

CHAMPAIGN — Some of the rent Eastern Illinois farmer Keith Dalenberg pays is a little higher than he would like, but landowners aren’t willing to take less right now. Dalenberg, who grows corn and soybeans near Georgetown in Vermillion County, is carefully looking at rent and input costs as margins are tight. He attended the Eastern session of the 2015 Illinois Farm Economics Summit in Champaign in December where University of Illinois economists led the discussion about dealing with the current margin squeeze. “Everybody would like the rents they pay to be less,” he said. Dalenberg has different kinds of agreements with landowners, including some cash rent and some

flexible leases. Some of his landlords are retired farmers, some are widows and others have never farmed. He has been able to adjust some rental agreements to help him cope with the lower commodity prices, but not all.

Cash rental rates Whole State Average

0

100

200

300

400

500

600

700

$/hectare

IL IN IA KS GA

0%

50%

100%

150%

200%

250%

1998 = 100

GA IL IN IA KS

New Farm Bill

2014 Farm Bill elections and 2014 payments by

base commodity

Election ARC PLC ARC payments

to date (mill)

PLC payments

to date (mill)

Corn 93% 7% $3,711.511 $0

Soybeans 93% 7% $317.282 $0

Wheat 58% 42% $349.119 $0

Long-grain

rice

0% 100% $0.013 $399.491

Peanuts 0% 100% $0.096 $321.484

Source: USDA, Farm Service Agency. As of May 20, 2016

ARC-CO 2014 payment rates for corn minus 2008 Direct Payment rates reflect effects of yield variations on revenue

Source: USDA-FSA.

$dollars / acre (ARC-DP)

ARC-CO 2014 payment rates for soybeans minus 2008 Direct Payment rates reflect effects of yield variations on revenue

Source: USDA-FSA.


ARC-CO 2014 payment rates for wheat minus 2008 Direct Payment rates reflect effects of yield variations on revenue

Source: USDA-FSA.


Growth in the US crop insurance program

0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

160

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

1997

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

Source: USDA Risk Management Agency Summary of Business.

Mill hectares Bill $

1988 drought

1994 Reform Act

ARPA 2000

8-Crop Planting and Lag Prices

240

245

250

255

260

265

70

95

120

145

170

195

220

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

P

Price Index , 2004 = 100 Million Acres Planted

8-crop planted acres

(right axis)

8-crop index of lagged

real area-weighted

prices (left axis)

Source: NASS

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Soybean/Corn Harvest-Time Futures

Price Ratio

Release of Planting Intentions Survey

CME November Soybeans and December Corn

0.56

0.58

0.60

0.62

0.64

0.66

0.68

0.70

0.72

0.74

No

v-1

4

Dec

-14

Jan

-15

Feb

-15

Mar

-15

Ap

r-1

5

May

-15

Jun

-15

Jul-

15

Au

g-1

5

Sep

-15

Oct

-15

No

v-1

5

Dec

-15

Jan

-16

Feb

-16

Mar

-16

Ap

r-1

6

May

-16

Jun

-16

Meal Share of Soybean Value

(December Futures)

Release of Planting Intentions Survey

May 10 WASDE

CME December Soybean meal and oil

Conclusions

• Low price environment expected to continue at least in near

term.

• US plantings will be driven by producers decisions on which crop

will produce the best returns (or lowest losses).

• Borrowing is expected to increase; cash rents are expected to

fall. This points to continued use of risk management tools and

safety-net programs.

• Globally, we expect trade growth to continue, along with trade

discussions, which will look to open new markets (e.g., TPP) and

enforce existing rules (WTO).

• The most recent WASDE from last week shows record carry-out

for wheat, but opportunities for corn and soybean marketing due

to lower production in SA.

Thanks!

[email protected]

www.usda.gov/oce

http://www.usda.gov/oce/commodity/wasde/Secretary_Briefing.pdf

Upcoming reports

• June 23-25 --- AMIS

• June 30th --- Stocks and Acreage

• July 1 --- CAIR

http://www.usda.gov/oce






Documents

COPING WITH LOWER PRICES · World GDP growth slows, compared to last year’s projections, most notably in China 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2011 2013 2015 2017 2019 2021