University Extension/Department of Economics Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2010 Chad Hart Assistant Professor/Grain

University Extension/Department of Economics

Risk Environment for Agriculture

Agricultural Credit SchoolAmes, Iowa

June 8, 2010

Chad HartAssistant Professor/Grain Markets Specialist

[email protected]


Brief List• General economic conditions

• Food, feed, and energy demand

• Agricultural, energy, and trade policy

• Input and output pricing

• Production / crop progress


World Real GDP, 2008 Projections

Sources: International Financial Statistics, Global Insight

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

% C

ha

ng

e fro

m P

revi

ou

s Y

ea

r


World Real GDP Projections


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

% C

ha

nge

fro

m P

revi

ous

Year

World, Dec. 2007 World, Dec. 2008


World Real GDP Projections


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

% C

ha

nge

fro

m P

revi

ous

Year

World, Dec. 2007 World, Dec. 2008 World, Dec. 2009


Government Deficits

Source: Congressional Budget Office, Mar. 2010


Government Debt

Source: Congressional Budget Office, Mar. 2010

University Extension/Department of EconomicsSource: Center for Budget and Policy Priorities

University Extension/Department of EconomicsSource: Congressional Budget Office, Jan. 2010

University Extension/Department of EconomicsSource: U.S. Census Bureau, 2009


Population2010 2020 2050

(billion) (billion) (billion)World 6.831 World 7.558 World 9.202

China 1.330

China 1.385

India 1.657

India 1.173

India 1.326

China 1.304

U.S. 0.310 U.S. 0.341 U.S. 0.439Indonesia 0.243

Indonesia 0.268

Indonesia 0.313

Brazil 0.201

Brazil 0.223 Ethiopia 0.278

Pakistan 0.177

Pakistan 0.204

Pakistan 0.276

Bangladesh 0.158 Nigeria 0.182 Nigeria 0.264

Nigeria 0.152Bangladesh 0.181

Brazil 0.260

Russia 0.139Russia 0.132

Bangladesh 0.234

Japan 0.127

Mexico 0.125 Congo 0.189

Source: U.S. Bureau of the Census,International Data Base


Change in Per Capita Meat Consumption

Source: FAPRI

-5%

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

China Mexico Russia India Indonesia U.S.


In 2020, we will use 26 billion bushels of wheat, 36 billion bushels of corn, and 11 billion bushels of soybeans.

World Consumption Growth

Sources: USDA, FAPRI

0%

10%

20%

30%

40%

50%

60%

70%

80%

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

14

/15

15

/16

16

/17

17

/18

18

/19

19

/20

Wheat Corn Soybeans

In 2000, we used 21.5 billion bushels of wheat, 24 billion bushels of corn, and 6 billion bushels of soybeans.


Liquid Fuel Usage2007 2015 2020 2025 2030 2035

(Million Barrels Oil Equivalent per

Day) (Percent of 2007 Value)

United States 20.6 98% 100% 102% 104% 107%

Canada 2.3 96% 96% 96% 100% 104%

Mexico 2.1 105% 110% 129% 129% 138%

Europe 15.3 92% 88% 88% 89% 90%

Japan 5.0 84% 86% 86% 84% 82%

China 7.6 132% 153% 178% 201% 222%

India 2.8 114% 129% 139% 154% 168%

Africa 3.1 113% 116% 126% 135% 148%

Central and South America 6.0 110% 112% 117% 125% 133%

World 86.1 103% 107% 113% 121% 128%

Source: Energy Information Administration


Crude Oil Prices

Source: Energy Information Administration

0

20

40

60

80

100

120

140

Ja

n-8

6

Ja

n-8

8

Ja

n-9

0

Ja

n-9

2

Ja

n-9

4

Ja

n-9

6

Ja

n-9

8

Ja

n-0

0

Ja

n-0

2

Ja

n-0

4

Ja

n-0

6

Ja

n-0

8

Ja

n-1

0

Ja

n-1

2

Ja

n-1

4

Ja

n-1

6

Ja

n-1

8

$ p

er

ba

rre

l


Price Movements Since 2007

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

2.51

/3/2

00

7

3/3

/20

07

5/3

/20

07

7/3

/20

07

9/3

/20

07

11

/3/2

00

7

1/3

/20

08

3/3

/20

08

5/3

/20

08

7/3

/20

08

9/3

/20

08

11

/3/2

00

8

1/3

/20

09

3/3

/20

09

5/3

/20

09

7/3

/20

09

9/3

/20

09

11

/3/2

00

9

1/3

/20

10

3/3

/20

10

5/3

/20

10

Dow Oil Corn Soybeans


Price Movements in 2010

0.80

0.85

0.90

0.95

1.00

1.05

1.101/

4/20

10

1/11

/201

0

1/18

/201

0

1/25

/201

0

2/1/

2010

2/8/

2010

2/15

/201

0

2/22

/201

0

3/1/

2010

3/8/

2010

3/15

/201

0

3/22

/201

0

3/29

/201

0

4/5/

2010

4/12

/201

0

4/19

/201

0

4/26

/201

0

5/3/

2010

5/10

/201

0

5/17

/201

0

5/24

/201

0

5/31

/201

0

Dow Oil Corn Soybeans


Ethanol Margins

Source: ISU, CARD


Ethanol Blending Advantage

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

1/3

/20

07

4/3

/20

07

7/3

/20

07

10

/3/2

00

7

1/3

/20

08

4/3

/20

08

7/3

/20

08

10

/3/2

00

8

1/3

/20

09

4/3

/20

09

7/3

/20

09

10

/3/2

00

9

1/3

/20

10

4/3

/20

10

$ p

er

ga

llon


0

5

10

15

20

25

30

35

40

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

Bill

ion G

allo

ns

Conventional Biofuels Cellulosic Biofuels

Biodiesel Additional Advanced Biofuels

Renewable Fuels Standard (RFS)


CARB Fuel Carbon Values

Source: CA Air Resources Board, April 2009


Countries Pursuing BiofuelsUSBrazilArgentinaColombiaParaguayCanadaUruguayMexico

ThailandNew ZealandSouth AfricaSouth KoreaPhilippinesIndonesiaPakistanChina

IndiaMalaysiaAustraliaJapanEURussia

Not a complete list


Farm Bill Titles

I. Commodities IX. EnergyII. Conservation X. Hort. & Organic Ag.III. Trade XI. LivestockIV. Nutrition XII. Crop InsuranceV. Credit XIII. Commodity

FuturesVI. Rural Development XIV. MiscellaneousVII. Research XV. Trade & TaxesVIII. Forestry


Farm Bill Projected Spending

14%

8%

66%

8%4%

Commodity Conservation Nutrition Crop Insurance Other

Projected Spending 2008-2013$297 Billion


World Trade Organization• Ongoing negotiations for WTO agriculture

agreement

• Targeting changes in domestic support, tariffs, tariff quotas, and export subsidies

• Both general and product-specific guidelines for agricultural policy changes


U.S. Corn Emergence

Source: USDA, Crop Progress

0

20

40

60

80

100

4/15 4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10

% E

mer

ged

Maximum since 1999 Minimum since 19992010 20095-yr Average (2005-2009)


U.S. Soybean Planting

Source: USDA, Crop Progress

0

20

40

60

80

100

4/22 4/29 5/6 5/13 5/20 5/27 6/3 6/10 6/17 6/24 7/1

% P

lant

ed

Maximum since 1980 Minimum since 1980

2010 2009

5-yr Average (2005-2009)


Input Costs

Source: USDA, Agricultural Prices, May 28, 2010


Changing Basis Patterns


Basis Two Years Ago


Basis This Year


2007/082008/09

2009/102010/11

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0% 5% 10% 15% 20% 25% 30%

Stocks-to-use ratio

Pric

e ($

per

bus

hel)

Corn


2007/082008/09

2010/11

2009/10

4

5

6

7

8

9

10

11

0% 5% 10% 15% 20%

Stocks-to-use Ratio

Pric

e ($

per

bus

hel)

Soy


1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

$ pe

r B

ushe

l

Season-average Price Cost per Bushel

Iowa Corn Prices vs. Costs

Right now, about a nickel under breakeven with USDAabout 9 cents under breakeven with futures


2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00$

per

Bus

hel

Season-average Price Cost per Bushel

Iowa Soybean Prices vs. Costs

Right now, 7 cents over breakeven with USDAat breakeven with futures


Thank you for your time!

Any questions?

My web site:http://www.econ.iastate.edu/faculty/hart/

Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/

Ag Decision Maker:http://www.extension.iastate.edu/agdm/

Documents

University Extension/Department of Economics Risk Environment for Agriculture Agricultural Credit School Ames, Iowa June 8, 2010 Chad Hart Assistant Professor/Grain