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Midwest Agriculture’s Ties to the Global Economy Federal Reserve Bank of ChicagoNovember 28, 2017 Chicago
Jim Hansen, Ph.D.USDA, Economic Research Service
Emerging Global Trade Patterns:
USDA’s Long-term Agricultural Projections
Disclaimer: The views expressed are those of the author and not USDA or Economic Research Service. Projections are from the United States Department of Agriculture, World Agricultural Outlook Board, Long-term Projections Report, OCE-2017-1, February 2017.
Presentation Outline
• Baseline process and model type
• Global macroeconomics, population, and exchange rates
• International trade - grains, soybeans, wheat and livestock
• Conclusion
USDA’s Agricultural Projections
• 10-year projection of major commodities- Supply, demand, trade, and prices. - Based on November 2016 market conditions. Released Feb 2017
• Assumptions: - Continuation of current U.S. law and international trade agreements- Population growth slows, strongest in developing countries- Macroeconomic growth – strongest in emerging markets
• Modeling system: dynamic partial equilibrium trade - 40 countries/regions, 24 commodity markets- Equilibrates: (Supply = Demand) & (Imports = Exports)
Solves for prices and trade, clear world and country markets - Excel and Fortran programs, elasticity based- policy instruments in Excel
• Analysts Judgment: Model + Delphi approach- Country modelers, Commodity analyst (ERS, WOAB, FAS, NASS, …) - Country specialist, Weather and geographic specialists
• Process: Macro, modelers, analysts meetings, trade-commodity spec, calibrate
Changes in Food Consumption:
• Greater consumption of:
- Fruits & Vegetables
- Vegetable Oils
- Processed Cereal Products
- Meats & Dairy Products (emerging markets)
Feed Demand Increases
Import demand for Feed grains
• Less consumption of:
- Staple grains - rice in Asia, corn in Indonesia and Mexico
- Low-quality grain varieties and switching to high-quality
(high-quality varieties may lower yields)
- Roots & tubers
Global Structural Changes• Shifting Economic Power – Emerging Markets
- Increasing per capita incomes
• Evolving Demographics:
- Declining population growth rates,
- Urbanization,
- Changing age structure, younger populations
• Infrastructure development in emerging markets
- Transportation, roads, (also increasing congestion)
- Market integration
• Food market development
- Increased access to larger variety of food, retail outlets
Macro Assumptions
-6
-4
-2
0
2
4
6
8
10
1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026
-6
-4
-2
0
2
4
6
8
10
GDP Growth for Major Regions:Developing Economies Exhibit Strongest Growth
Percent
China 5%
Developed Countries
Africa
South Asia 6.8%
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
US 2.1% EU 1.6%
Japan 0.9 %
Latin America
0
1
2
3
41981-1990 1991-2000 2001-2010 2017-2026
Population Growth Rates Decline (%)
Regional 10 Year Averages, 3 Decades and Projection
Percent
1/ Based on population projections from the Census Bureau, U.S. Dept. of Commerce.Source: USDA Agricultural Baseline Projections to 2026, February 2017.
World
Developed
United States
Developing
Africa
Middle East
Asia
LatinAmerica
Projection
Population Growth And Urbanization
In 5 Southeast Asian Countries Aggregate
Source: UN-FAO, FAOSTAT, http://faostat.fao.org
Total Population
Rural Population
Urban Population
60
80
100
120
140
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
60
80
100
120
140
U.S. Agricultural Trade-Weighted Dollar Exchange Rate Projected to Slightly Depreciate 1/
Index values, 2010=100
1/ Real U.S. agricultural trade-weighted dollar exchange rate, using U.S. agricultural export weights.Source: USDA Agricultural Baseline Projections to 2026, February 2017.
Dollar appreciates: U.S. commodities more expensive on international market
Dollar depreciates: U.S. commodities less expensive on international market, therefore more competitive
International Trade:
0%
20%
40%
60%
80%
100%
1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 2025
Corn
U.S. Export Share in World Market: CornPercent
Corn
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0%
20%
40%
60%
80%
100%
1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 2021 2025
Soybeans Wheat
U.S. Export Share in World Market: Soybeans and WheatPercent
Wheat
Soybeans
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
50
100
150
200
250
300
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Global Pork and Poultry Production 1970 - 2026 Million metric tons
Pork
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
From 1971 to 2016Poultry increases by 98 mmt, 5.3% per year Pork increases by 31 mmt, 1.4% per year
0
20
40
60
80
100
120
140
160
180
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
Global Corn Exports (mmt)
Million metric tons
United States
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
20
40
60
80
100
120
140
160
180
1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
Global Corn Imports (mmt)
Million metric tons
NAFTA countries
Japan, South Korea, Taiwan
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
5
10
15
20
25
30
35
40
45
50
1992 1996 2000 2004 2008 2012 2016 2020 2024
Soymeal Corn Soybeans
Southeast Asia: Corn, Soybeans & Meal Imports (Vietnam, Thailand, Philippines, Indonesia & Malaysia)
Million metric tons
Soybean meal
Corn
Soybeans
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
50
100
150
200
250
300
350
400
450
1991 1996 2001 2006 2011 2016 2021 2026
Global Soybean ProductionMillion metric tons
Brazil
United States
Argentina
Other
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
China (below)
0
20
40
60
80
100
120
140
160
180
200
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
Global Soybean Exports Million metric tons
Brazil
United States
Other
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
Global Soybean Imports Million metric tons
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
20
40
60
80
100
120
140
160
180
200
1990 1995 2000 2005 2010 2015 2020 2026
China Other N. Africa & Middle East Latin America East Asia EU
China
EU
0
50
100
150
200
250
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Global Soybean Meal Feed Demand: By Regions, 50 Years of Growth Million metric tons
EU
North America
Source: USDA FAS PS&D Data, 2017.
China
Indicator of 1. Growing global meat demand, increasing incomes2. Increasing global pork and poultry production3. Changing global feed rations,
a decrease in backyard production
Japan, S Korea, and Taiwan (below)
0
20
40
60
80
100
120
140
160
180
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Greater Detail - Soybean Meal Feed Demand: By Regions, 50 Years of Growth
Million metric tons
Source: USDA FAS PS&D Data, 2017.
China
Sub-Saharan AfricaNorth AfricaMiddle EastSouth Asia
Global minus EU, North America, and East Asia
0
10
20
30
40
50
60
70
80
90
1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Greater Detail - Soybean Meal Feed Demand: By Regions, 50 Years of Growth Million metric tons
Source: USDA FAS PS&D Data, 2017.
Sub-Saharan AfricaNorth AfricaMiddle EastSouth Asia
Global minus EU, North America, all East Asia
0
10
20
30
40
50
60
70
80
90
1991 1996 2001 2006 2011 2016 2021 2026
Global Soybean Meal ExportsMillion metric tons
Argentina
Brazil
US
Other
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
10
20
30
40
50
60
70
80
90
1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026
Global Soybean Meal Imports
Million metric tons
1/ Former Soviet Union and Other Europe; prior to 1999, includes Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. 2/ Includes Mexico.3/ EU-28 excludes intra-trade after 2002, EU-15 intra-trade before 2003, Slovenia before 1992.
European Union/3
North Africa & Mid-East
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
2
4
6
8
10
12
14
16
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026
Other
EU, FSU, & OE
China
India
Other Asia
N. Africa & Middle East
Latin America
Global Soybean Oil ImportsMillion metric tons
1/ European Union, former Soviet Union, and other Europe. 2/ Includes Mexico. 3/ Asia excluding India and China.
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
Latin America
0
20
40
60
80
100
120
140
160
180
200
220
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026
Global Wheat Imports
Million metric tons
1/ Former Soviet Union and other Europe; prior to 1999, includes Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia.2/ Excludes intra-EU trade.
Egypt
Latin America
East Asia
EU/2, FSU & OE/1
NAFTA
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
1
2
3
4
5
6
7
8
9
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026
U.S. Meat Exports
Million metric tons (2016 top 5 U.S. export markets)
Poultry
Pork
Beef
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
Beef: Japan, Mex, SKorea, Canada, HK
Poultry: Mexico, HK, Canada, Cuba, Taiwan
Pork: Mexico, Japan, China, Canada, HK
0
2
4
6
8
10
12
1998 2002 2006 2010 2014 2018 2022 2026
Poultry Imports (Major Regions and Selected Countries)
Million metric tons
1/ EU-28 excludes intra-trade after 2002, EU-15 intra-trade before 2003, Slovenia before 1992.
China & HongKong
Russia European Union/1
Japan, South Korea and Taiwan
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
0
2
4
6
8
10
12
14
16
1993 1997 2001 2005 2009 2013 2017 2021 2025
Poultry Exports(Major Regions and Selected Countries)
Million metric tons
1/ EU-28 excludes intra-trade after 2002, EU-15 intra-trade before 2003, Slovenia before 1992.
European Union/1
Source: USDA Agricultural Baseline Projections to 2026, February 2017.
Conclusions and Summary: • Continued global trade growth in agriculture commodities. Assumed normal weather
conditions. There are no significant increases in real world commodity prices. Prices are flat in early years.
• Strong income and population growth in many developing countries and urbanization lead to increased import demand for grains, soybeans and High Value Products. Countries have large income elasticities for food, elastic.
• Trade to remain very competitive -- Expanding production potential in Brazil & Argentina, FSU, India and EU
• Mature markets / developed economies are not expanding imports, but maintain stable consumption patterns, such as East Asia (Japan, S Korea, Taiwan) and EU
• United States Midwest is major producer of corn, soybeans and wheat, will be competitive in global markets, maintain and increase exports, but market share still declines.
• Uncertainty - Energy prices and costs of agriculture production- Policy changes by importers and exporters- Disease impacts, especially avian influenza- Weather impacts, increasing volatility in weather patterns
USDA Agricultural Projections to 2026
Search: USDA ERS Agriculture Projection Baseline
Search: USDA ERS International Baseline Data(This is detail projection data by country, complete balance sheets)
United States Department of Agriculture,
Economic Research Service
USDA-ERS