Office of the Chief Economist

Robert Johansson

Chief Economist

US Department of Agriculture

Beijing, China (April 2017)

U.S. AGRICULTURAL OUTLOOK 2017 AND LONGER-TERM PROJECTIONS

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The IMF’s growth forecasts stabilize

3.00

3.25

3.50

3.75

4.00

2013 2015 2017 2019

Lower Growth–World

October2015forecast

% change

3.75

4.00

4.25

4.50

4.75

5.00

5.25

5.50

2013 2015 2017 2019

Stabilizing Growth–Emerging markets and developing countries

October2015forecast

% change

Source: International Monetary Fund, World Economic Outlook forecast database.

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Agricultural trade balance and the dollar

-3.0

-2.4

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

3.0

-25

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-15

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0

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Weighted-Average Dollar…Trade Balance (right axis)

Percent change from previous year Change from previous year, billion dollars

Source: USDA-ERS.

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2014 2015 2016 2017 to date

Canadian dollar Korea wonJapan yen Mexico pesoTaiwan dollar China yuan

% change Y-O-Y

Source: Eikon/Datastream.

Dollar has appreciated against currencies of most its customers, into early 2017

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2014 2015 2016 2017 to date

Argentina peso Australia dollar Brazil real

Canadian dollar Eurozone euro Russia ruble% change Y-O-Y

Source: Eikon/Datastream.

Dollar has appreciated against competitor currencies, especially in 2014 and 2015

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Outlook and Challenges for World Agriculture

• USDA short term outlook for U.S. agriculture in 2017

• USDA long term agricultural projections to 2026

• Challenges facing U.S. agricultural trade and market outlook

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Short Term Outlook for U.S. Crops

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200

300

400

500

600

700

800

1960 1970 1980 1990 2000 2010 2020

Real Commodity Prices

CornSoybeansRiceWheat

2005=100

Between 1960 and 2015, the real price of corn has fallen by 55%, soybeans by 48%, rice by 67%, and wheat by 65%. The trend is projected to continue.

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1960 1970 1980 1990 2000 2010 2020

World Production

Corn

Soybeans

Rice

Wheat

2005=100

Between 1960 and 2015, production of corn has risen by 380%, soybeans by 990% (since 1964), rice by 213%, and wheat by 215%. The trend is projected to continue.

Data: USDA, BLS.

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Global 2016/17 production and consumption at record highs

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Producti…

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Data: USDA-OCE, USDA-FAS

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Global ending stocks remain above 2002/03, moderating price volatility

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60

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120

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160

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017*

WheatCornRiceSoybeans

Days of use

Data: USDA.

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China stocks, percent of world total

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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

WheatCornRiceSoybeansCotton

Percent

Data: USDA-FAS

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U.S. prices expected to remain flat into 2017/18

Crop 2012 2013 2014 2015 2016 2017* %∆

Wheat ($/ton) 285.5 252.4 220.1 179.7 141.5 158.0 11.7

Corn ($/ton) 271.2 175.6 145.7 142.1 133.9 137.8 2.9

Soybeans ($/ton) 529.1 477.7 371.1 328.9 352.7 352.7 0

Cotton (cents/ton) 1,598.3 1,717.4 1,351.4 1,349.2 1,510.2 1,433.0 -5.8

All Rice ($/ton) 332.9 359.4 295.4 269.0 231.5 235.9 1.9

Data: USDA. Red denotes record high. *Ag Outlook Forum, February 23-24, 2017

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Crop (mil. hectares) 2012 2013 2014 2015 2016 2017* %∆

Corn 39.4 38.6 36.7 35.6 38.0 36.4 -4.3%

Soybeans 31.2 31.1 33.7 33.5 33.8 36.2 7.3%

Wheat 22.4 22.7 23.0 22.3 20.3 18.7 -8.2%

All cotton 5.0 4.2 4.5 3.5 4.1 4.9 20.8%

Other feedgrains 5.1 5.9 5.2 6.2 5.1 4.5 -12.7%

Rice 1.1 1.0 1.2 1.1 1.3 1.1 -18.8%

Total 8 crops 104.2 103.6 104.2 102.0 102.5 101.7 -0.8%

CRP 11.9 10.8 10.3 9.8 9.6 9.5 -1.3%

8 crops + CRP 116.1 114.4 114.6 111.8 112.2 111.3 -0.8%

Cropland area down from last year

Source: USDA. All cotton, includes both upland and ELS cotton. *Prospective plantings, March 31, 2017

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New Crop Soybean-to-Corn Ratio During February

Data: USDA-OCE.

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Outlook for Livestock and Dairy

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U.S. beef, pork, poultry, and milk production higher in 2016 and 2017

Data in red denote record levels. 1 Total red meat and poultry

Item 2012 2013 2014 2015 2016 2017F

%∆

Million tons

Beef 11.7 11.7 11.0 10.8 11.4 11.9 4.4

Pork 10.6 10.5 10.3 11.1 11.3 11.8 4.8

Broilers 16.8 17.1 17.5 18.1 18.5 18.8 2.0

Total1 42.2 42.3 41.8 42.9 44.3 45.7 3.2

Million tons

Milk 91.0 91.3 93.5 94.6 96.4 98.6 2.3

Source: USDA.

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U.S. cattle and hog prices to come down in 2016 and 2017, but broilers and dairy turn up in 2017

Prices in red denote record levels.

Item 2012 2013 2014 2015 2016 2017F

%∆

Dollars per ton

Steers 2,709 2,775 3,407 3,265 2,665 2,599 -2.5

Hogs 1,342 1,412 1,676 1,107 1,018 984 -3.3

Broilers 1,909 2,198 2,313 1,995 1,858 1,894 1.9

Milk 408 442 528 377 358 400 11.8

Source: USDA.

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Prices in red denote record levels.

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Long Term Outlook

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Destinations of U.S. exports has shifted

$0

$20

$40

$60

$80

$100

$120

$140

1975 1980 1985 1990 1995 2000 2005 2010 2015

World total

1982-85: Dollar strengthens

Europe and Japan

Canada, Mexico, and China

1970-81: EU and USSR are fastest growth markets

1996-2001: Dollar strengthens; Global growth slows

1986-95: Dollar weakens

2002-13: Dollar weakens; Developing country demand strengthens

2014-16: Dollar strengthens; Global growth slows

Data: USDA.

2001: China joins WTO

1994: NAFTA enters into force

Billion dollars

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Agricultural exports to rebound in 2017

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Horticultural and tropicalproducts

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Source: USDA. Data are fiscal year.

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Global trade of soybeans and products exceeds grains

020406080

100120140160180200220240260280300

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Soybeans and products

Coarse grains

Wheat

Million tons

Data: USDA. Note: Soybeans and products is the sum of soybeans, soybean oil, and soybean meal.

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20

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60

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100

120

140

160

1990/91 1995/96 2000/01 2005/06 2010/11 2015/16 2020/21 2025/26

2015 projection

Million metric tons

Data: USDA.

2016 projection

2017 projection

China imports to rise boosted by soybeans

Combined imports of grains, soybeans, and cotton.

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Continued growth in China soybean imports expected

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

ChinaOtherSouth AmericaJapanMexicoEU

Million tons

Data: USDA. Note: Soybeans and products is the sum of soybeans, soybean oil, and soybean meal.

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China’s import demand for soybeans

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20

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140

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140

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2002200320042005200620072008200920102011201220132014201520162017Actual

Million Metric Tons

Data: USDA.

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Growth in soybean trade last decade/next decade

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Growth from 2005/06 to 2015/16 Growth from 2016/17 to 2026/27

*ID+VN+TH = Indonesia + Vietnam + Thailand Data: USDA.

MMT

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Office of the Chief Economist Office of the Chief Economist 26

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Million Metric Tons 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Actual

China’s pork production

Data: USDA.

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China’s demand for pork

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2002200320042005200620072008200920102011201220132014201520162017Actual

Thousand Metric Tons

Data: USDA.

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China’s import demand for corn

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Actual

Million Metric Tons

Data: USDA.

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2015/16 2016/17 2015/16 2016/17

Planted area 38,117 36,026 Harvested area 38,117 36,021 38119 36760

Yield 5,892 5,978 5890 5970

Production 224.58 215.33 224.63 219.55 Beginning Stocks 100.47 110.77 Imports 3.20 0.80 3.17 3.00 Dom, Consumption 194.09 211.22 217.50 231.00 --Feed 121.01 133.53 153.50 161.00 --FSI 63.48 67.68 64.00 70.00 ----Food 7.65 7.82 ----Industrial use 54.17 58.25 ----Seed 1.66 1.61 Loss and other 9.56 10.01 Exports 0.01 0.50 0.00 0.02 Ending Stocks 110.77 102.31 Stock Change 33.73 4.41 10.30 -8.46

CASDE WASDE/PSD

(1000 ha)

(Kg/ha)

(MMT)

Stock Holding, Market is sensitive to more than just change…

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Data: USDA, MOA.

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1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

6 8 10 12 14 16 18 20 22

Stocks-to-Use, Percent

US Corn Price vs. US Stocks to Use 2000 to 2015

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$/bu

Data: USDA.

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1 1 2

2 3

3 3

5 5

5 7

7 27

149 154

0 50 100 150 200 250

Taiwan

Colombia

Malayasia

South Korea

Thailand

Vietnam

Russia

Turkey

Philippines

Mexico

Brazil

Egypt

Indonesia

India

China

Million Households w/ Real PPP incomes > than $20,000

2014 Proj. gains by 2024

Source: Global Insight’s Global Consumer Markets data as analyzed by USDA-FAS.

“Middle Class” grows 119% From 2014 Levels

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2001 2003 2005 2007 2009 2011 2013 2015 2017F

0

4

8

12

16

20

24

28

China India

Fiscal year

U.S. Ag Exports to China and India

Data Source: USDA GATS, CY basis Source: USDA-FAS.

Billion dollars

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Growth in consumption drives global meat trade

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2

4

6

8

10

12

14

16

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026

Poultry

Beef and Veal

Pork

Million tons

Data: USDA. Note: Soybeans and products is the sum of soybeans, soybean oil, and soybean meal.

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Farm outlook

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Net farm income expected to remain flat

Data: USDA.

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$140

$20

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$120

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199719981999200020012002200320042005200620072008200920102011201220132014201520162017Actual

Billion dollars Billion dollars

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$/acre Cash Rent $/acre Land Value

Falling rents ahead of land values

0

50

100

150

200

250

300

1990 2000 2010 2020

Appalachian

Corn Belt

Delta States

Lake States

Mountain

Northeast

Northern Plains

Pacific

Southeast

Southern Plains 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1990 2000 2010 2020

Data: USDA-NASS.

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…as well as average farm size and farm/rural population

050100150200250300350400450500

0

1000

2000

3000

4000

5000

6000

7000

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

number of farms average farm size

number acres per farm

As number of farms declined, average size increased

Data: USDA.

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U.S. farms still family owned, but vary widely by size and role in farm economy

Data: USDA.

0

10

20

30

40

50

60

70

80

90

100

Small family farms Midsize family farms Large-scale family farms Nonfamily farms

Share of farms Share of land owned Share of land operated Share of value of production

percent

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Median household income growth rises more rapidly for farm households

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015F

Recession

U.S. household income

Farm household income

Data: USDA.

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On smaller scale farms, off-farm income provides the bulk of household income

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Small family farms

Midsize family farms

Large-scale family farms

Income from farming Off-farm income

Data: USDA.

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Conclusion 1. Record production has built stocks and brought down prices.

2. Overall planted area is likely down by about 2 mil. acres.

3. Record meat, poultry and dairy production will look to export markets.

4. Conditions leading into the US farm bill different than in 2012-2013. Will we get a different result?

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