Department of Economics Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2009 Chad Hart Assistant Professor/Grain Markets

Department of Economics

Risk Environment for Agriculture

Agricultural Credit SchoolAmes, Iowa

June 8, 2009

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


Brief List• General economic conditions

• Food, feed, and energy demand

• Agricultural, energy, and trade policy

• Input and output pricing

• Production / crop progress


Population2008 2020 2050

(billion) (billion) (billion)World 6.678 World 7.601 World 9.393

China 1.330

China 1.431

India 1.808

India 1.148

India 1.362

China 1.424

U.S. 0.304 U.S. 0.336 U.S. 0.420Indonesia 0.238

Indonesia 0.268

Nigeria 0.357

Brazil 0.192

Brazil 0.212

Indonesia 0.313

Pakistan 0.168

Pakistan 0.204

Bangladesh 0.280

Bangladesh 0.154

Bangladesh 0.190

Pakistan 0.278

Russia 0.141

Nigeria 0.184

Brazil 0.228

Nigeria 0.138

Russia 0.132 Congo 0.189

Japan 0.127

Mexico 0.125

Mexico 0.148

Source: U.S. Bureau of the Census,International Data Base


Real GDP, 2008 Projections

Sources: International Financial Statistics, Global Insight

-3

0

3

6

9

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Perc

en

t C

han

ge

World Developed Market Economies Developing Market Economies


Real GDP, 2009 Projections

Sources: International Financial Statistics, Global Insight

-3

0

3

6

9

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

Pe

rce

nt

Ch

an

ge

World Developed Market Economies Developing Market Economies


Per Capita Meat Consumption

Source: FAPRI

80

100

120

140

160

180

200

220

240

260

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Po

un

ds

China EU Mexico Russia South Africa South Korea U.S.


Government Deficits

Source: Congressional Budget Office, May 2009


Wheat Statistics

Sources: USDA, FAPRI

0

5

10

15

20

25

30

Bil

lio

n B

us

he

ls

Production Consumption Ending Stocks


Corn Statistics

Sources: USDA, FAPRI

0

5

10

15

20

25

30

35

40

Bil

lio

n B

us

he

ls

Production Consumption Ending Stocks


Liquid Fuel Usage2006 2010 2015 2020 2025 2030

(Million Barrels Oil Equivalent per

Day) (Percent of 2006 Value)

United States 20.7 95% 98% 98% 100% 105%

Canada 2.3 100% 100% 100% 104% 109%

Mexico 2.1 71% 81% 90% 95% 100%

Europe 15.7 92% 92% 95% 96% 96%

Japan 5.2 88% 92% 96% 92% 90%

China 7.2 118% 139% 168% 192% 213%

India 2.7 89% 115% 144% 159% 174%

Africa 3.0 117% 120% 123% 127% 130%

Central and South America 5.7 116% 116% 119% 125% 133%

World 85.0 102% 107% 113% 119% 125%

Source: Energy Information Administration


Crude Oil Prices

Source: Energy Information Administration

0

20

40

60

80

100

120

140

Jan-

86

Jan-

88

Jan-

90

Jan-

92

Jan-

94

Jan-

96

Jan-

98

Jan-

00

Jan-

02

Jan-

04

Jan-

06

Jan-

08

$ pe

r ba

rrel


Crude Oil Futures Prices

Source: NYMEX

60

70

80

90

100

110

120

130

140

July2008

Dec.2008

Dec.2009

Dec.2010

Dec.2011

Dec.2012

Dec.2013

Dec.2014

Dec.2015

Dec.2016

$ p

er

ba

rre

l

2008 2009


Price Movements Since 2007

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.51/3

/200

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

3/3

/200

9

5/3

/200

9

Dow Oil Corn Soybeans


Ethanol Margins

Source: ISU, CARD


0

5

10

15

20

25

30

35

40

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Bill

ion G

allo

ns

Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)


Draft Lifecycle GHG Reductions

Source: EPA, May 2009


CARB Fuel Carbon Values

Source: CA Air Resources Board, April 2009


Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico

ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina

IndiaMalaysiaAustraliaJapanEURussia

Not a complete list


Average Crop Revenue Election (ACRE)

• Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009

• Producers choose between the current stable of programs or ACRE

• Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates


ACRE• Program has state and farm trigger levels, both

must be met before payments are made

• Expected state and farm yield based on 5 year Olympic average yields per planted acre

• ACRE price guarantee is the 2 year average of the national season-average price


ACRE Structure• ACRE revenue guarantee = 90% of ACRE price

guarantee * Expected state yield

• ACRE actual revenue = Max(Season-average price, Loan rate) * Actual state yield per planted acre

• Farm revenue trigger = Expected farm yield * ACRE price guarantee + Producer-paid crop insurance premium


ACRE Payments• Payment rate = Min(ACRE revenue

guarantee – ACRE actual revenue, 25% * ACRE revenue guarantee)

• Payments made on 83.3% of planted acres in 2009-11, 85% in 2012 (up to total base)

• ACRE payment adjustment: Payment multiplied by ratio of Expected farm yield to Expected state yield


World Trade Organization• Ongoing negotiations for WTO agriculture

agreement

• Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies

• Both general and product-specific guidelines for agricultural policy changes


U.S. Corn Progress

Source: USDA, Crop Progress

0

20

40

60

80

100

4/1/06 4/8/06 4/15/06 4/22/06 4/29/06 5/6/06 5/13/06 5/20/06 5/27/06

% P

lant

ed

5-yr Average (2004-2008) Minimum since 2000Maximum since 2000 20082009


U.S. Soybean Progress

Source: USDA, Crop Progress

0

20

40

60

80

100

4/22/06 4/29/06 5/6/06 5/13/06 5/20/06 5/27/06

% P

lant

ed

5-yr Average (2004-2008) Minimum since 2000Maximum since 2000 20082009


Input Costs

Source: USDA, Agricultural Prices, May 29, 2009


Changing Basis Patterns


Basis Last Year


Basis This Year


Crop Price VariabilityPrice distributions for corn based on May prices for the following July futures

0%

5%

10%

15%

20%

25%

30%

Price

2006 2009


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

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

$ pe

r B

ushe

l

Season-average Price Cost

Preliminary estimates for 2009 costs are over $4 per bushel.

2009 Futures-based Season-average Price Estimate $4.35Latest USDA U.S. 2008 Season-average Price Estimate $4.20Latest USDA Iowa 2008 Season-average Price Estimate $3.95


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

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

$ pe

r B

ushe

l

Season-average Price Cost

Preliminary estimates for 2009 costs are nearly $10 per bushel.

2009 Futures-based Season-average Price Estimate $10.00Latest USDA U.S. 2008 Season-average Price Estimate $9.85 Latest USDA Iowa 2008 Season-average Price Estimate $9.65


Thank you for your time!

Any questions?

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

Documents

Department of Economics Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2009 Chad Hart Assistant Professor/Grain Markets