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Pat Westhoff ([email protected])FAPRI at the University of Missouri
(www.fapri‐mu.org)
Project LINK meetingNew YorkOctober 24, 2011
Recent market developmentsPricesSupply and use
Outlook Market outlookPossible impact of policy developments
Source: U.S. Bureau of Labor Statistics, October 2011
Source: FAO, October 2011. For real prices index, deflator is World Bank manufactures unit value index
Source: USDA, October 2011
Wheat: No. 1 HRW, TX
GulfMaize: No. 2 yellow, Gulf
Source: USDA, October 2011
Rice: Thai 100% Grade B
Soybeans: Illinois processor
Recession helped drive down food and other commodity prices in 2008‐2009
Prices for many foods have increased since mid‐2010Weather ChinaOil prices Biofuels
8.0
8.5
9.0
9.5
10.0
10.5
2001
2003
2005
2007
2009
2011
Metric to
ns per hec
tare
U.S. maize yields
Source: USDA PSD Online, October 2011
0102030405060708090100
2001
2003
2005
2007
2009
2011
Million metric to
ns
Wheat production
Ukraine
RussiaBack‐to‐back yields below expectations
Reduced 2010 crop limited exports
0
10
20
30
40
50
60
70
80
90
2001
2003
2005
2007
2009
2011
Million metric ton
s
Meat production
Chicken
Beef
Pork
0
20
40
60
80
100
120
140
160
180
2001
2003
2005
2007
2009
2011
Million metric ton
s
Feed use
Soymeal
Corn
Source: USDA PSD Online, October 2011
Sources: USDA and EIA, Oct. 2011
Maize: U.S. No. 2 yellow, Gulf
Oil: U.S. refiner acquisition cost
0102030405060708090
00/01
02/03
04/05
06/07
08/09
10/11
Billion liters
Ethanol production
Brazil
U.S.
Sources: U.S. Energy Information Administration, USDA GAIN reports, State of Nebraska website. Data reported on a local marketing year (Sep‐Aug for U.S., May‐Apr for Brazil) basis.
0.000.100.200.300.400.500.600.700.80
00/01
02/03
04/05
06/07
08/09
10/11
Dollars per liter
Anhydrous ethanol prices
Omaha, U.S. Sao Paulo
0%5%10%15%20%25%30%35%40%
01/02
03/04
05/06
07/08
09/10
11/12
Ratio
World wheat and rice
Wheat Rice
Source: Author calculations based on USDA PSD Online data, October 2011
0%
5%
10%
15%
20%
25%
30%
01/02
03/04
05/06
07/08
09/10
11/12
Ratio
World and U.S. maize
World U.S.
Expect continued volatilityStocks (especially for maize) are lowIn short run, demand may be very inelastic
With “average” weather, continued economic growthContinued increases in livestock production, feed demand, especially in AsiaSlower growth in ethanol use of grainGrain, oilseed, sugar prices may retreat from 2011 peaks, but average prices likely to remain above previous levelsLivestock product prices likely to remain high
Source: FAPRI‐MU projections, August 2011
Source: FAPRI‐MU Aug. 2011 baseline update, updated for revised 2010/11 USDA estimates
Source: Author estimates
Wheat: No. 1 HRW, TX Gulf
Maize: No. 2 yellow, Gulf
U.S. budget deficit reduction effortsLikely to result in end of one ethanol subsidyCould result in changes in U.S. farm subsidiesBut these are unlikely to have large market impacts
EU policy reformsMay reorient support to farm sectorMany questions, but likely impacts on food prices small
Trade agreementsBilaterals (e.g., US‐Korea) can be important for some particular markets, but global effects generally smallWTO?
Sources: Production from US Department of Energy (author estimate for 2011); mandate based on the Energy Independence and Security Act of 2007
Currently, U.S. biofuel production is supported byTax credit (use subsidy)Tariff (reduces imports)Renewable Fuel Standard (RFS, use mandate)Oil prices (ethanol is substitute for gasoline/diesel fuel)
Removing tax credit and tariff does not eliminate use mandate orresult in lower oil prices
As a result, likely decline in biofuel production is smallMust still use biofuels as required by the RFSAnd if oil prices increase again, could result in further increases in biofuel use, even above mandated use levelsFAPRI‐MU estimated U.S. biofuel credit and tariff elimination would reduce average maize prices by less than 5%
Source: FAPRI‐MU baseline, August 2011. Payments include direct payments, marketing loan benefits, countercyclical payments and ACRE payments. Assumes one acre of base for each acre planted and harvested.
Higher prices have sharply increased returns to grain producers
In U.S., government payments are now much smaller share of farm income
Changes in farm policy unlikely to have large market impacts
“Direct payment”program makes $5 billion/year in payments
Could be reduced or eliminated as part of deficit reduction effort
Little impact on commodity prices
Larger impacts on farm income, land values
Average 2012‐20 impact compared to current law
Commodity prices <2% change
Farm program payments
‐$2.0 billion to ‐$4.6 billion
Net farm income ‐$1.9 billion to‐$3.2 billion
Farm real estate values
‐1.8% to ‐2.7%
Consumer food expenditures
<0.1% change
Source: FAPRI‐MU report 08‐11, available at http://www.fapri.missouri.edu/outreach/publications/2011/FAPRI_MU_Report_08_11.pdf.
FAPRI‐MU website: www.fapri‐mu.org
To contact me:573‐882‐4647 [email protected]
My 2010 book from FT Press:The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices(http://www.amazon.com/Economics‐Food‐Feeding‐Fueling‐Affects/dp/0137006101)
