@FBMarketIntel@fbmarketintel a farm economic and policy update dr.bob young moderator dr.john newton farmb ureau chief economist veronica nigh f bureau economist michael nepveux arm

@FBMarketIntel A Farm Economic and Policy Update

DR. BOB YOUNG

MODERATOR

DR. JOHN NEWTON

FARM BUREAU

CHIEF ECONOMIST

VERONICA NIGH

FARM BUREAU

ECONOMIST

MICHAEL NEPVEUX

FARM BUREAU

ECONOMIST

MEGAN NELSON

FARM BUREAU

ECONOMIC ANALYST

KSTXMOKY

MO

Text Questions Anytime to:

(502) 255-2881

LIVESTOCK MARKET HIGHLIGHTSCATTLE, HOG, POULTRY & DAIRY

MICHAEL NEPVEUX

ECONOMIST

Domestic and Export Use of Animal Proteins

0

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Tho

usa

nd

s+68%

BEEF

Exports 10 YR

PORK CHICKEN

+3.5% Domestic 10 YR

+51% Exports 10 YR

+14% Domestic 10 YR

+5% Exports 10 YR

+28% Domestic 10 YR

Exports = 12% of Production Exports = 22% of Production Exports = 16% of Production

TEXT QUESTIONS TO: 502-255-2881

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Millio

n M

TExpansion in U.S. Meat Sector to Meet Demand

Animal Product Production10 Year Growth Forecast

BeefProduction

Beef, Pork, Dairy and Poultry Production in 2019 Expected to be Record-High

+6%

+9%

ChickenProduction+8%

PorkProduction


80

90

100

110

120

130

140

1960 1970 1980 1990 2000 2010 2020

Mill

ion

He

ad

Expansionary Cycle in Cattle Sector ModeratingDecember 2018

Cattle on Feed Head11,739,0001,000 Head of Cattle and YOY % Change

Cattle, Including Calves, U.S. InventoryBeginning of January

USDA JANUARY

2018

94.4MIL HEAD

USDA LONG-TERM

PROJECTION

COW HEARD GROWTH IS MODERATING


HogsDecember Hog

and Pig Inventory 74,600,000 Numbers in Million Head


6

10

14

18

RM

B/k

g

East South Central North

Source: Global AgriTrends, JCI

African Swine Fever is Spreading in China

Transport ban on provinces caused supply/demand imbalance


Regional Hog Prices in China

Poultry

U.S. Rebalancing

Needed in Oversupply

Market

Low Domestic Prices

with High Cold Storage

Levels

Chinese Market Likely

to Tighten Later in Year

Landscape in 2019

0

100

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600

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1,000

1/2

014

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014

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7/2

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018

4/2

018

7/2

018

10/2

018

Millio

n L

bs.

Pork Chicken Turkey Beef Lamb

Chicken Continues Upward Trajectory in Cold Storage Buildup


Increasing Production and Competition in the Dairy Case

U.S. Milk Production5%

10%

15%

85%

90%

95%

2015 2016 2017 2018

YTD

Ma

rke

t Sh

are

, P

lan

t-a

nd

Nu

t-B

ase

d S

ub

stitu

tes

Ma

rke

t Sh

are

, D

air

y

Market Share of Dairy and

Substitutes

MARKET SHARE DAIRY

MARKET SHARE NON

DAIRY0

50

100

150

200

250

19

64

19

68

19

72

19

76

19

80

19

84

19

88

19

92

19

96

20

00

20

04

20

08

20

12

20

16

Bil

lio

n P

ou

nd

s

U.S. Milk Production

Milk Production Has Broken Records for a Decade


0

5

10

15

20

25

30

35

40

45

50

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018F

2020F

2021F

2023F

2025F

2027F

Pe

rce

nt

of U

.S. M

ilk P

rod

uc

tio

n % Milk Used in Class I

% Milk Exported

2027 Trend

Export Market Trending to be Larger than Beverage Consumption in Next Decade

Substantial Improvements from MPP to DMC

U.S. Milk Production-$1.00

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2015 2016 2017 2018

Ne

t B

en

efit

$/h

un

dre

dw

eig

ht

DAIRY MARGIN COVERAGE

$9.50 COVERAGE

-$1.00

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2015 2016 2017 2018

Ne

t B

en

efit

$/h

un

dre

dw

eig

ht

MPP (BIPARTISAN BUDGET ACT)$8 COVERAGE

-$1.00

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

2015 2016 2017 2018

Ne

t B

en

efit

$/h

un

dre

dw

eig

ht

ORIGINAL MPP$8 COVERAGE

AVERAGE: -15¢AVERAGE: +20¢

AVERAGE: +$1.07


Where Are Farm Prices Headed Over The Next Five Years?

U.S. Milk Production


-10%

-5%

0%

5%

10%

15%

2018 2019 2020 2021 2022 2023

Red Meat

and Poultry

Consumption

Turkey

Cheese

All Milk

Broilers

Steers, 5-Area

Hogs, National

Base Price

Butter

USDA BASELINE PRICE CHANGES FROM 2018 FOR SELECT AGRICULTURAL COMMODITIES

LOWER PRICES EXPECTED FOR

BROILERS, STEERS, HOGS

HIGHER PRICES EXPECTED FOR

DAIRY, TURKEY

CROP MARKET HIGHLIGHTSSOYBEANS, CORN, WHEAT & COTTON

MEGAN NELSON

ECONOMIC ANALYST

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

50

100

150

200

250

300

350

Cu

mu

lativ

e %

Ex

po

rte

d

Millio

n B

ush

els

CUMULATIVE % SOYBEAN EXPORTED, 10 YR AVG

IN A NORMAL YEAR

77% OF SOYBEAN EXPORTS

OCCUR BY END OF JANUARY

U.S. Soybean Exports Down 42% YTD

Source: USDA FGIS, Farm Bureau Calculations TEXT QUESTIONS TO: 502-255-2881

16/17

17/18

18/19

787701

909

752

15

2013/14 2016/17 2018/19

Millio

n B

ush

els

Cumulative Soybean Exports to ChinaFirst 19 Weeks of Marketing Year

-98%

Historical Soybean Export Pace

Outlook for U.S. Soybeans

Source: USDA WASDE and OCE Long-Term Agricultural Projections for 2019/20TEXT QUESTIONS TO: 502-255-2881

China = Major Revisions to Global Corn Production & Inventories

Source: China National Bureau of Statistics and USDA

CHINESE CORN STOCK CHANGES AND STOCKS-TO-USE RATIO

0%

20%

40%

60%

80%

100%

120%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1990/1991 1995/1996 2000/2001 2005/2006 2010/2011 2015/2016

STO

CK

S-T

O-U

SE

RA

TIO

MIL

LIO

NB

USH

ELS

2018/19

8.2 Billion BushelsStocks-to-Use Ratio = 75%

China

67%

U.S.

15%

RoW

18%

Share of

Global Corn Inventory2018/19

China’s Revision Resulted in USDA Raising Global

Stockpiles 106% from 5.8 Billion to 12.2 Billion Bushels


Outlook for U.S. Corn

TEXT QUESTIONS TO: 502-255-2881Source: USDA WASDE and OCE Long-Term Agricultural Projections for 2019/20

-551-502

-73 -67

93145

-600

-500

-400

-300

-200

-100

0

100

200

RUSSIA EUROPEAN

UNION

UKRAINE CHINA CANADA U.S.

Mill

ion

s B

ush

els

-18%

-9%-7%

-1%

9% 8%

-20%

-15%

-10%

-5%

0%

5%

10%

RUSSIA EUROPEAN

UNION

UKRAINE CHINA CANADA U.S.

Global Wheat Production Drops 1 Billion Bushels, -4% YoY

TEXT QUESTIONS TO: 502-255-2881Source: FAS

YEAR OVER YEAR CHANGE IN WHEAT PRODUCTION 2017/18 TO 2018/19 FOR SELECT COUNTRIES

-1.05 BILLION BUSHEL DECLINE IN

RUSSIA AND EU COMBINED

Outlook for U.S. Wheat


Adverse Weather Leads to High Cotton Abandonment Rate

Source: USDA NASS, Farm Bureau CalculationsTEXT QUESTIONS TO: 502-255-2881

-32%

3.6 MILLION ACRES ABANDONED IN 201826% OF U.S. ACREAGE PLANTED

-42%

-27%

PERCENT CHANGE IN HARVESTED AND PLANTED COTTON ACRES IN 2018

FLORENCE AUG. 2018CATEGORY 4

MICHAEL OCT. 2018CATEGORY 4

ATLANTIC

HURRICANES

FLORENCE

MICHAEL

Outlook for U.S. Cotton


Soybeans – Lower soybean exports would further increase what is expected to be a record soybean carryout in 2018/19 – potentially pushing prices even

lower.

Crops: What to Watch For


Corn – Acreage shift from soybeans to corn in 2019 is expected. Consumption is expected to remain strong and offer support to prices.

Wheat – Adverse weather impacted European and Russian yields pushing global production back by 1 billion bushels. U.S. prices were higher and will

contribute to increased wheat acreage in 2019.

Cotton – Reduction in Chinese stocks contributed to lower global inventories, strong exports & adverse weather in U.S. reduced crop size relative to

expectation leading to higher prices for cotton. Low milk prices likely to weight

on cottonseed prices. Cotton is back in Farm Bill.

VERONICA NIGH

ECONOMIST

TRADE, LABOR AND TAX POLICY UPDATE

H-2A Program Certified Positions and National AEWR

Source: DOL TEXT QUESTIONS TO: 502-255-2881

10%

85,248

16%

98,813

18%

116,689

20%

139,832

19%

165,741

21%

200,320

21%

242,762

18%?

286,034

1%

$10.36

4%

$10.80

3%

$11.10

2%

$11.29

4%

$11.74

2%

$12.02

1%

$12.20

6%

$12.96

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

-

50,000

100,000

150,000

200,000

250,000

300,000

2012 2013 2014 2015 2016 2017 2018 2019

AEW

R $

/Hr

Ce

rtifie

d P

osi

tio

ns

H-2A Here to Stay

Source: Vegetable Grower Magazine TEXT QUESTIONS TO: 502-255-2881

4.7%

29.8%

43.3%

SMALL FARMS

LESS THAN 100 ACRES

MEDIUM FARMS

100 TO 1,000 ACRES

LARGE FARMS

MORE THAN 1,000 ACRES

UP

35%Number

of

Farms

Using

H-2A

Share of Farms By Size

Utilizing H-2AMore Farms Relying

on H-2A

12.4%

16.7%

2018

2019

Farms Not Currently Using

H-2A That Plan to Within the

Next Two Years

8.9%

21.1%

23.3%

SMALL FARMS

LESS THAN 100 ACRES

MEDIUM FARMS

100 TO 1,000 ACRES

LARGE FARMS

MORE THAN 1,000 ACRES

Tariffs Will Continue to have Varying Impact

Commodities for which U.S. exports to the retaliating countries represent 30% or more of its total exports include soybeans, sorghum, pork, cheese, apples, cherries, seafood, ginseng, whiskey, and some processed foods.

Source: USDA FAS GATS TEXT QUESTIONS TO: 502-255-2881

43.3%

16.7%

99%

10%

13%

8%

14% 46%

0

5

10

15

20

25

30

China Canada Mexico EU Turkey India

$ B

illio

n

Value and Share of Retaliatory Tariffs on U.S. Agricultural

Products, CY2017

Value of all other U.S. Agricultural Exports

Value of U.S. Agricultural Exports Subject to Retaliation

$26.9 Billion

18%

China Soybean Exports Down 98%, Impact on Gulf and PNW

Source: USDA FGIS, Farm Bureau Calculations

2017/18

396 mbu

2018/194.9 mbu

-99%

GULF PORTS

2017/18

264 mbu

PACIFIC

NORTH WEST

2018/199.0 mbu

-97%

2017/18

37 mbu

2018/190.1 mbu

-99.7%

OTHER PORTS

Tax Reform – the Corporate Story

• Four ways the corporate tax cut from 35% to 21%

could have increased economic growth

– Pay Workers More

– Increase dividends and/or buy back shares

– Boost capital expenditures

– Make more acquisitions

Tax Reform –the Corporate Story

• Corporations wrote down their deferred tax liabilities to reflect

the new U.S. corporate tax rates.

• The tax overhaul was a one-off boost to earnings, whereas

politicians were selling it as transformational.

• Companies have also been spending on buybacks

• The overall effect of companies protecting profits and doing

buybacks helped drive the S&P 500 to a record high in early

September, only for it to sell off amid trade tensions and recession worries.

Tax Reform – Our Story

• The farm average effective tax rate would have

been reduced by 3.3% in 2016.

Major Individual Provisions in TCJA

(Expire After 2025)

• Reduced Individual Tax Rates & Expanded Brackets

• New 20% Business Income Deduction (Sect. 199A)

• Unlimited Bonus Depreciation (Expensing)

• Doubled Estate Tax Exemption of $11 million person

• Increased AMT Threshold for Individuals

But, Can You Use It? For Many, Yes.

• Over 46% of farmers

would have been

able to take a

business income

deduction for a $9.6

billion tax savings in

2016.

• 2010- 2018 Average

Net Farm Income as a

Share of Gross Cash

Farm Income (GCFI):

27%

1040 - Example

Line 1 Wages -

Line 6

+ Income from Schedule 1, Line 22 (Additional Income and Adjustments to Income)

Net Farm Income (Schedule F) 430,000

Total Income 430,000

Line 7

- Schedule 1, Line 36 (Deductible part of self-employment tax) 5,000

AGI 425,000

Line 8 - Standard Deduction (married, filed jointly) 24,000

Line 9 - Qualified business income deduction 86,000

Line 10 Taxable Income! 315,000

FARM ECONOMY UPDATEDR. JOHN NEWTON, CHIEF ECONOMIST

U.S. Economy on High Octane

Source: Federal Reserve Economic Data, Farm Bureau Analysis

-8%

-4%

0%

4%

8%

12%

16%

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

36CONSECUTIVE QUARTERS

OF POSITIVE GDP GROWTH

U.S. Economy Grew 3.4% in 3Q 2018In Line With Analyst Expectations of 3.4%

YEAR-OVER-YEAR PERCENTAGE CHANGE IN QUARTERLY GDP


52%

54%

56%

58%

60%

62%

64%

66%

68%

1948 1958 1968 1978 1988 1998 2008 2018

LAB

OR

FO

RC

EP

AR

TIC

IPA

TIO

NR

ATE

0%

2%

4%

6%

8%

10%

12%

1948 1958 1968 1978 1988 1998 2008 2018

UN

EM

PLO

YM

EN

TR

ATE

U.S. Employment Situation

Source: Bureau of Labor Statistics, Farm Bureau Analysis

Dec 2018

3.9%Workforce Participation

at 40-Year Low

U.S. UNEMPLOYMENT SITUATION U.S. WORKFORCE PARTICIPATION RATE

Dec 2018

63%Unemployment Near

Historical Lows


Aggressive Interest Rate Actions by Federal Reserve

Source: Farm Bureau Compilation of Federal Reserve Open Market Operations

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2017: Three Open

Market Increases

2018: Four Open Market Increases

SINCE RECESSION THE FED HAS RAISED TARGET RATES 9 TIMES, LEADING TO HIGHER FARM INTEREST RATES

TARGET FEDERAL FUNDS RATE


0

50

100

150

1/1/2007 9/1/2009 5/1/2012 1/1/2015 9/1/20170

15

30

45

60

75

1/1/2007 9/1/2009 5/1/2012 1/1/2015 9/1/2017

Survey of U.S. Consumer & CEO Confidence

Source: Farm Bureau Compilation of The Conference Board Historical Data

DEC ‘18

CONSUMER CONFIDENCE INDEX (1985=100)

128.1

3Q ‘18

55

CEO CONFIDENCE INDEX +/- 50

CONSUMER AND CEO CONFIDENCE IN U.S. ECONOMY DECLINES

DUE TO INTEREST RATE INCREASES AND TRADE WAR CONCERNS


Where is Farm Country?

2014 2015 2016 2017 2018

Farm Cash Receipts Are Up on Higher Yields & WHIP/MFP Payments

Source: USDA ERS Farm Bureau Analysis

CROPS

$199.2 B, +1.5% YOY

LIVESTOCK

$175.6 B, -0.2% YOY

CASH INCOME

$34.6 B, +5.2% YOY

GOV'T PAYMENTS

$13.6 B, +18% YOY

GROSS CASH RECEIPTS, NOMINAL DOLLARS (1960 TO 2018F) Total $423 Billion,+1.5% YoY

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

1960 1970 1980 1990 2000 2010

BIL

LIO

ND

OLL

AR

S

GOVERNMENT PAYMENTS

CASH-RELATED FARM INCOME

CASH RECEIPTS, CROPS

CASH RECEIPTS, LIVESTOCK


$0

$100

$200

$300

$400

$500

Bill

ion

Do

llars

GROSS FARM INCOME

PRODUCTION EXPENSES, ALL

NET FARM INCOME

Increases in Expenses Outpacing Income & Pressuring Profitability

Source: USDA ERS, Farm Bureau Analysis

GROSS FARM INCOME

$435 B, +1.3% YOY

PRODUCTION

EXPENSES $369B,

+4.2% YOY

NET FARM INCOME

$66.3B, -12% YOY


$134

$64

$53

$0

$20

$40

$60

$80

$100

$120

$140

$160

2013 2011 2004 2012 2005 2014 2008 2010 2015 2007 2003 2017 2001 2009 2000 2006 1999 2018 2016 2002

BIL

LIO

ND

OLL

AR

S


Inflation Adjusted

Net Farm Income in 2018

is 3rd Lowest Over Last 20 Years

$66.3 Billion

HIGHEST LOWEST

20 YEAR AVERAGE, $86.6 BILLION

(RANK)


$0

$100

$200

$300

$400

$500

19

60

19

63

19

66

19

69

19

72

19

75

19

78

19

81

19

84

19

87

19

90

19

93

19

96

19

99

20

02

20

05

20

08

20

11

20

14

20

17

BIL

LIO

ND

OLL

AR

S

NON-REAL ESTATE REAL ESTATE DEBT, 2018 DOLLARS

10

12

14

16

18

20

22

24

1960 1970 1980 1990 2000 2010

Farm Debt Record-High & Debt-to-Asset Ratio Climbing


REAL ESTATE AND NON-REAL ESTATE FARM DEBT

2018 Forecast

13.5%Increased Six

Consecutive Years+$105B

LAST DECADE

$410 BILLION

U.S. AGRICULTURE DEBT-TO-ASSET RATIO


U.S. Agricultural Assets Valued at Over $3 Trillion

Source: USDA NASS Farm Bureau Calculations

PER ACRE AGRICULTURAL LAND VALUES (INC. BUILDINGS), U.S. AVERAGE $3,140 PER ACRE

Asset Value 2018

$3.04 TrillionAsset Value 1982

$775 Billion

NowThen


$51 $55

$39

$61

$87

$79

$57

$70 $

78

$62

$77

$114

$96

$124

$92

$81

$62

$75

$66

$0

$20

$40

$60

$80

$100

$120

$140

2000 2003 2006 2009 2012 2015 2018F 2021F

BIL

LIO

ND

OLL

AR

S

Where Is Net Farm Income Headed?

Source: USDA ERS, University of Missouri FAPRU-MU Baseline

U.S. NET FARM INCOME, IN NOMINAL DOLLARS, ACTUAL AND PROJECTED

*FAPRI-MU 2019 PROJECTION DOES NOT INCLUDE DISASTER/MFP PAYMENTS; $73B INCLUDES $4B IN MFP PAYMENTS

$69B-$73B*HIGHER CROP RECEIPTS, LOWER

LIVESTOCK RECEIPTS AND

HIGHER EXPENSES

20 YEAR AVERAGE,

$73.7 BILLION


-

5

10

15

20

25

0%

20%

40%

60%

80%

100%

120%

140%

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

De

bt-

to-A

sse

t R

atio

De

bt-

to-I

nc

om

e R

atio

DEBT-TO-ASSET RATIO DEBT-TO-INCOME RATIO

Farm Debt As A Portion of Income at 30-Year High

Source: USDA ERS, Farm Bureau Calculations

U.S. FARM FINANCIAL INDICATORS, DEBT-TO-INCOME AND DEBT-TO-ASSET

30-YEAR HIGH


97% FARM DEBT AS A PORTION OF

ANNUAL INCOME IN 2018

WWW.FB.ORG/MARKETINTEL

[email protected]

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Documents

@FBMarketIntel@fbmarketintel a farm economic and policy update dr.bob young moderator dr.john newton farmb ureau chief economist veronica nigh f bureau economist michael nepveux arm