Fundamentals Driving U.S. Agricultural Prosperity · Department of Agricultural Economics Purdue University Corn: USDA 3/8/13 HURT 09/10 10/11 11/12 12/13 13/14 Million Bushels Avg

Department of Agricultural Economics

Purdue University

Fundamentals Driving U.S.

Agricultural Prosperity Chris Hurt

Purdue Extension Service

March 2013, [email protected]

http://www.google.com/url?sa=i&rct=j&q=famr+scene&source=images&cd=&cad=rja&docid=dxpRBVgg99aI6M&tbnid=xJYx3Mr2jLWyCM:&ved=0CAUQjRw&url=http://www.flickr.com/photos/44592521@N02/4101824448/&ei=-41RUfL0KOOR2gWW3ICQAQ&bvm=bv.44158598,d.b2I&psig=AFQjCNGgVUR9zIyir9te2nnjovWuH3_4iQ&ust=1364385642764444


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Economic Shock

Transition to

New-Equilibrium


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50

100

150

200

250

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Hypothetical 29 Year Cycle: Index Base Price = 100

Base-Equilibrium

Landing New Base-Equilibrium

Spike

Launch


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2013 = $834

-$100

$100

$300

$500

$700

$900

$1,100

$1,300

Dolla

rs P

er

Acre

Real U.S. Corn Revenue Per Harvested Acre: 2012 = 100

2005 = $349

1973 = $1,207

1946 = $672

1986 = $380 2005 =

$348

1973 = $1,203

2011 = $934

1946 = $670

What HAS BEEN

Driving the Ag

Economy???


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$2 to $3

$4

$7.50 $8

$8.50

’10 = 153 bu./ac

‘11 = 147 bu./ac

‘12 = 122 bu./ac


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Purdue University


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Picture: Michigan State University


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July 24, 2012

64% in Drought Today:

52% in Drought


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0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

81 83 85 87 89 91 93 95 97 99 1 3 5 7 9 11 13

Millio

n b

u.

Corn Use: USDA

FSI-NonFuel

Feed

Exports

Fuel


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0 5 2 3 2 21 66 70 75

157 192 164

283 305

436

357 423

504

685

829

918 864

814 840

0

100

200

300

400

500

600

700

800

900

1,000

Soybean Imports from the U.S.: 1990/91-2013/14 (Mill Bu.) 3/20/13

China

Mexico

Japan

5.0 4.1

7.4

9.0 10.3

8.3

9.9

12.1

17.3

18.8

21.1 20.6 20.5 20.7

3.3 3.7

5.6 5.9 6.0

7.8

10.3

14.5

17.3

20.0

23.8 24.6

26.4

22.6

1.4 0.3 0.5

0

5

10

15

20

25

Mill

ion

Acr

es

Crop Year

Acres of U.S. Soybeans Exported to China; Acres of Corn to Ethanol(ddgs adjusted); Acres of Corn Exported to China

Bean Acres to China

Corn Acres to Ethanol

Corn Acres to China

8.4 7.8

13.0 14.9

16.3 16.1

20.2

26.6

34.6

39.3

45.2 46.7 47.3

43.8

0

5

10

15

20

25

30

35

40

45

50

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14

Mil

lio

n A

cre

s

U.S. Harvest Year

U.S. Acres Required for Chinese Soybean Exports; Ethanol (ddgs adjusted); and Chinese Corn Purchases


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1.5M acre/year

5.8M acre/year

1.1M acre/year


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4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

5.6

10 11 12 13 14 15 16 17 18 19 20 21 22

U.S. harvest year

USDA Projected Corn Use for Ethanol (Billion Bushels)


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18.0

19.0

20.0

21.0

22.0

23.0

24.0

25.0

26.0

27.0

10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year

USDA Projected Corn Use for Ethanol (Million Acres DDG adjusted)


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0%

5%

10%

15%

20%

25%

30%

35%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87

Exports and Ethanol as a % of Total Corn Use

Exports % of Use 1968 to 1987

% of corn use to ethanol (2003 to 2022)


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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year

USDA Projected Soy Oil Use for Biodiesel (Billion Pounds)


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0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

10 11 12 13 14 15 16 17 18 19 20 21 22U.S. harvest year

USDA Projected Soy Oil Use for Biodiesel (Million Acres)


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25%

30%

35%

40%

45%

03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87

Soybean Exports as a % of Total Use

% Of Use Exported (1968 to 1987 U.S. Crops)

% of corn use to ethanol (2003 to 2022 crops)

Supply Response to Meet New Demands

1. Substitution of area:

Shift from other crops into new demand crops

2. Extensification of area:

Bring new area into production World U.S. 3. Intensification of production/acre Enhanced input usage Improved drainage Irrigation, etc. etc. etc.


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1972/73= 1,872

1981/82= 2,115

1996/07= 2,104

2002/03= 2,033

2005/06= 2,144

2012/13= 2,248

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

Mill

ion

Figure 6: World Harvested ACRES 13 Major Crops Total: (Millions)

104 Million acres added in 7 years

243

million

acres

increase


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72.2

39.2

18.5

11.5

4.6

-1.4 -2.0

-3.4 -6.9 -4.6 -4.5 -8.1

-11.2

-20

-10

0

10

20

30

40

50

60

70

80

Millio

n A

CR

ES

Change in World Harvested Area 2012/13 vs. 2005/06 (Million Acres)


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34.8

20.7 17.6

15.7

7.9 7.4 6.8 3.6

1.6 0.7

-0.7

-9.5

-20

-10

0

10

20

30

40

Mill

ion

Acr

es

Figure 8: Change in Area Harvested in 13 major World crops 2012/13 vs. 2005/06 (Million Acres)Total +107 million acres

104 Million new

harvested acres


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271.9 270.6

269.1

265.1

267.5

260.4

262.8 261.5

259.6

255.8

254.6

258.5

264.0

258.6

256.0

259.9

270.6

y = -583.85x + 267988 R² = 0.2806

250

255

260

265

270

275

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Mill

ion

Acre

s

U.S. Acres: 17 Crops Since Freedom to Farm


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15.4

5.2

-5.5

-1.9 -1.5 -1.5 -0.8 -0.7 -0.6

-6

-1

4

9

14

Mill

ion

Acr

es

17 Crops Plus Hay: Change in U.S. Acres 2012 Crops vs. 2005 Crops

Corn Soybeans Up 20.6 million acres Substitute other crops 12.5 million acres New Lands CRP 5.3 million acres D.C. Beans 2.5 million acres Other sources 1.0 million acres


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1,800

1,900

2,000

2,100

2,200

2,300

2,400

Mill

ion

Met

ric

Ton

s World Total Grains Production and Use

Production

Use

23.1%

15.1%

14.6%

14.9%

18.9%

13.5%

10%

12%

14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

36%

World Stocks to Use %: USDA May/Oct 2012

Wheat

Rice

Soybeans

Corn


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May 2012

Mar 2013

Key Questions????

What will weather be in 2013?

How will weather

impact production and prices?

After 3 short production crops in the U.S.:

Where will crop prices

settle out with normal production?


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http://www.cpc.ncep.noaa.gov/products/expert_assessment/season_drought.gif


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Corn: USDA

3/8/13 HURT

09/10 10/11 11/12 12/13 13/14

Million Bushels Avg Price

Carryin 1,673 1,708 1,128 989 632

Production 13,110 12,447 12,358 10,780 14,536

Total Supply 14,791 14,182 13,514 11,894 15,193

Feed & Residual 5,166 4,792 4,547 4,550 4,900

FSI Non-Fuel 1,370 1,406 1,426 1,387 1,465

FSI Fuel

(Ethanol) 4,560 5,021 5,011 4,500 4,900

Export 1,987 1,835 1,541 825 1,600

Total Use 13,083 13,054 12,525 11,262 12,865

Ending Stocks 1,708 1,128 989 632 2,328

US Farm Price $3.55 $5.18 $6.22

$6.75-

$7.45

$4.50 -

$6.00

$7.10 $5.25

$7.60

$5.47 $5.36 $5.13 $4.94

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

Today Harvest 13 Harvest 14 Harvest 15 Harvest 16

Corn Cash Harvest Bids Based on Futures March 25, 2013


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Average 13 to 16 = $5.23


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Soybeans:USDA

3/8/13 Hurt

09/10 10/11 11/12 12/13 13/14

Million Bushels Avg Price

Carryin 138 151 215 169 125

Production 3,359 3,329 3,094 3,015 3,299

Total Supply 3,512 3,495 3,325 3,204 3,439

Seed & Residual 108 132 91 119 120

Crush 1,752 1,648 1,703 1,615 1,710

Exports 1,501 1,500 1,362 1,345 1,425

Total Use 3,361 3,280 3,156 3,079 3,230

Ending Stock 151 215 169 125 209

Farm Price $9.59 $11.30 $12.50

$13.55-

$14.80

$10.75 -

$12.75

$14.30 $11.75

$14.60

$12.39 $12.17 $11.70

$11.37

$7

$8

$9

$10

$11

$12

$13

$14

$15

Today Harvest 13 Harvest 14 Harvest 15 Harvest 16

Bean Cash Harvest Prices Based on Futures March 25, 2013


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Average 13 to 16 = $11.91

$7.30 $7.04

$7.28 $7.18

$4

$5

$6

$7

$8

Today Harvest 13 Harvest 14 Harvest 15

Wheat Cash Harvest Bids Based on Futures March 25, 2013


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Average 13 to 15 = $7.17


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$113

$156

$333

$234

$136

$332 $357

$272 $290

$254 $231 $214

4.18

5.11 5.10

4.10 3.72

3.20 3.00

2.62 2.90

3.10 3.2

3.5

0

1

2

3

4

5

6

$0

$50

$100

$150

$200

$250

$300

$350

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inte

rest

%

Estimated Ownership Returns/Acre to Average Quality Indiana Land, March 25, 2013

Returns/Acre

Discount Rate 10Yr Treasury


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-Slowing world demand growth

-Increased world grain supply

-Moderating crop prices

-Some upslope to interest rates

-Return of profitability to animal production

-Rate of Land Appreciation to moderate

-Moderating farm income

-Weather??????

-Overall a SOFT LANDING for Ag Economy

Next 4 Years

Tea Leaves 2013-2016 Moderation-with a Soft Landing??

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Fundamentals Driving U.S. Agricultural Prosperity · Department of Agricultural Economics Purdue University Corn: USDA 3/8/13 HURT 09/10 10/11 11/12 12/13 13/14 Million Bushels Avg