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Office of the Chief EconomistOffice of the Chief Economist
USDA’s Office of the Chief Economist
February 20, 2020
2020 Agricultural Outlook
https://www.thedickinsonpress.com/business/agriculture/4730104-Snow-increases-
harvest-worries-as-North-Dakota-considers-disaster-declarations
1
Office of the Chief Economist
Outline
1. Trade
2. Crops & Livestock
3. Farm Economy
Photographer: Tiffany Hagler-Geard/Bloomberg via Getty Images
(Moriah Ratner/Bloomberg News)
CREDIT MADELYN BECK / ILLINOIS NEWSROOM
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Office of the Chief Economist
World growth forecast down, led by weakening of emerging markets and developing countries (not including coronavirus)
Data: International Monetary Fund, World Economic Outlook. April 2019, October 2019, and January 2020.
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1
2
3
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5
2017 2018 2019 2020 2021
An
nu
al p
erc
en
t ch
an
ge
Apr 2019
Oct 2019
Jan 2020
1
2
3
4
5
2017 2018 2019 2020 2021
An
nu
al p
erc
en
t ch
an
ge
Emerging: Apr 2019Emerging: Oct 2019Emerging: Jan 2020Advanced: Apr 2019Advanced: Oct 2019Advanced: Jan 2020
Office of the Chief EconomistOffice of the Chief Economist 4
Data: Refinitiv and China’s National Health Commission
Coronavirus tops macro global economy concerns; markets expecting recovery
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20000
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40000
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hai
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9=
1
S&P 500 vs Shanghai Composite Index and Corona Infections
# of Covid19 infections S&P500 Index Shanghai Composite Index
U.S. and China reach
Phase One agreement
Office of the Chief Economist
U.S. dollar appreciated early in the year before declining across many currencies
Data: Refinitiv
-10% -5% 0% 5% 10% 15% 20% 25% 30% 35%
UK pound
South Korean won
Russian rouble
Mexican peso
Japanese yen
Euro
Chinese renminbi yuan
Canadian dollar
Brazil real
Australian dollar
Argentina peso
US $ appreciation in 1st and 2nd half of 2019
1st half
2nd half
5
Office of the Chief Economist
U.S. agricultural exports by trade agreement status, size of trade
2020
Agreements:
51%
Previous
FTAs: 14%
Notification of Intent: 8%No Agreement: 26%
6
Canada
USMCA signed
into U.S. law
Jan. 29, 2020
$20.6B
China
Phase One
entered into
force
Feb. 14, 2020
$19.5B
Mexico
USMCA signed into
U.S. law Jan. 29,
2020
$18.6B
Japan
Entered into
force Jan. 1,
2020
$11.9B
Hong
Kong
$4.2B
South
Korea$6.9B
EU27
$9.7B
UK
$1.7B
Source: USDA, 2017 data
TWN
$3B
IDN
$3B
PHL
$2.6BVNM
$2.5B
THA
$2BTUR
$2B
India
$1.6B
SAU
$1.5B
UAE
$1B
PAK
$1B
Rest of World
$12.6B
CAFTA
$4.3B
Australia,
Peru, Israel,
Panama,
Singapore,
Chile-$5.6B
Co
lom
bia
$2.5
B
Kenya $0.1B
Office of the Chief Economist
U.S. agricultural exports in billion $ from 1990 to 2019 (FY) by income level
7
Source:
USDA using
gapminder
Office of the Chief Economist
U.S. agricultural exports forecast to rise $4 bil. in FY2020
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Source:
USDA using
gapminder
+$3.9B
+$0.8B
+$0.6B
-$0.1B
-$0.3B
Office of the Chief Economist
And where do we expect the largest growth in import demand?Projected growth in global imports over the next ten years (2020-2029)
Source: USDA
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Office of the Chief Economist
U.S. Crop and Livestock sectors forecast to improve in 2020
Forum News Service/Agweek/Mikkel Pates
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Office of the Chief Economist
June 11, 2019
A wet autumn further delayed an already slow U.S. harvest.
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Office of the Chief Economist
18-Nov-18
22-Feb-19
10-May-20
11-Jun-19
11-Jul-1912-Aug-
1912-Sep-
1910-Oct-
198-Nov-19
10-Dec-19
10-Jan-20
acres harvested 84.6 84.6 85.4 82.4 83.6 82 82 81.8 81.8 81.8 81.5
Yield 176.5 176 176 166 166 169.5 168.2 168.4 167 167 168
160
162
164
166
168
170
172
174
176
178
79
80
81
82
83
84
85
86
Yie
ld,
Bu
/acre
Acre
s, m
illio
ns
First 2019 WASDE
Acres = NASS Prospective
Plantings
Yield = WAOB trend
Acres and Yield = NASS surveys
Source: USDA.
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Office of the Chief Economist
Source: Adjemian, Arita, Hungerford, Breneman, and Johansson (Illinois FarmDoc, October 2019)
(400)
(200)
-
200
400
600
800
Millio
n b
ush
els
Figure 1. USDA Aug. corn production forecast minus average private trade expectations
Aug 2019 USDA
report
USDA August
corn
production
forecast
minus
average
private trade
expectations
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Office of the Chief Economist
50 cent drop in futures price Reaction inline with relationship
When USDA and the trade are on opposite pages, a price correction is usually coming
Source: https://farmdocdaily.illinois.edu/2019/10/market-reaction-to-usda-august-corn-crop-reports.html
300
320
340
360
380
400
420
440
Figure 2. Corn Dec19 Contract (cents/bu)
USDA report
released Aug
12, 2019y = -1.09x + 0.003
R² = 0.46
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Figure 3. Average Corn Futures Reaction to August USDA Reports, against the Market Surprise in the Production Forecast
x-axis: % Difference between
USDA Prod. Forecast and Avg
Trade Guess
y-axis: %
change in
Dec Corn
futures on
day of Aug
Report
Aug 12,
Source: Reuters, USDA; author
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Office of the Chief Economist
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2019
2016
2013
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
19
77
1974
USDA Trade Estimates
Forecasts of final corn production have been getting more accurate
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Since 2010, August
corn production
estimates have been
< 5% from final
Data: USDA, Refinitiv
Office of the Chief Economist
16 million acre decline in 2019 --- where do they end up?
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Source: USDA-NASS.
Office of the Chief Economist
Global stocks in days of use: stocks are relatively high but expected to decline over the next few years (except rice)
Data: USDA
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0
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40
60
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160
1990 1995 2000 2005 2010 2015 2020 2025 2030
Da
ys o
f U
se
/ C
on
su
mp
tio
n
Wheat
Corn
Rice
Soybeans
Office of the Chief Economist
Continued expansion expected in Brazil’s soybean and corn production
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-
1,000
2,000
3,000
4,000
5,000
6,000
2007/0
8
2008/0
9
2009/1
0
2010/1
1
2011/1
2
2012/1
3
2013/1
4
2014/1
5
2015/1
6
2016/1
7
2017/1
8
2018/1
9
2019/2
0
Mill
ion B
ushels
2nd Corn 1st Corn Soybeans
Source: CONAB. 2nd Corn assumed to be all corn minus 1st crop.
Office of the Chief Economist 19
New crop futures soybean:corn price ratio for 2020 points to a large corn crop, with some basis effects
Data: CME, Geograin.
Office of the Chief Economist
Corn and rice prices expected to edge down in 2020/21
Crop 2016 2017 2018 2019 2020F %∆
Wheat ($/bu) 3.89 4.72 5.16 4.55 4.90 8%
Corn ($/bu) 3.36 3.36 3.61 3.85 3.60 -6%
Soybeans ($/bu) 9.47 9.33 8.48 8.75 8.80 1%
Cotton (cents/lb) 70.5 68.6 70.3 63.0 64.0 2%
All Rice ($/cwt) 10.4 12.9 12.6 13.0 12.0 -8%
Data: USDA-OCE.
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Office of the Chief Economist
Crop (mil. acres) 2016 2017 2018 2019 2020F %∆
Corn 94.0 90.2 88.9 89.7 94.0 5%
Soybeans 83.5 90.2 89.2 76.1 85.0 12%
Wheat 50.1 46.1 47.8 45.2 45.0 0%
Cotton 10.1 12.7 14.1 13.7 12.5 -9%
Other feedgrains 12.6 10.7 11.0 10.8 11.1 3%
Rice 3.2 2.5 2.9 2.5 3.1 21%
Total 8 crops 253.4 252.3 253.9 238.0 250.7 5%
CRP 23.9 23.4 22.6 22.6 22.7 0%
8 crops + CRP 277.3 275.7 276.5 260.6 272.7 5%
Cropland area mostly up from last year
Source: USDA-OCE. Area planted. Values in red denote record levels.
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Office of the Chief Economist
Record production projected in 2020
Data in red denote record levels. 1 Total red meat and poultry. 2Skim-solids basis
exports as a percent of total milk production
Item 2010
Exports
as a % of
prod. 2019
Exports
as a % of
prod. 2020F
Exports
as a % of
prod.
Billion pounds
Beef 26.3 8.7% 27.2 11.1% 27.5 12.0%
Pork 22.4 18.8% 27.6 22.9% 28.9 25.5%
Broilers 36.9 18.3% 43.9 16.2% 45.8 16.2%
Total1 92.1 15.2% 105.2 16.3% 108.8 17.3%
Billion pounds
Milk2192.9 15.8% 218.3 19.0% 222.0 19.6%
Data: USDA-OCE.
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Office of the Chief Economist
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2
55
7
47
3
49
7
36
4
40
7
-
10
20
30
40
50
60
China Production World Exports toChina
China DomesticConsumption
World exports toeveryone but China
China pork production, supply and demand
2018 2019 2020F
2020 Production
down 18 mmts
from 2018
2020 China
Imports
projected up 2
mmts from 2018
China 2020
Consumption
down 15.8
mmts
Not enough global
export supply to fill
China’s ASF
shortfall
MMTsChina 2018 vs 2019 imports (mmts)
African Swine Fever shocks China and global pork supply
Data: USDA and TDM
Office of the Chief Economist
Prices: hogs, milk up, broilers down; steers largely unchanged
Item 2016 2017 2018 2019 2020F%∆
Dollars per cwt
Steers 120.86 121.52 117.12 116.78 117.00 0.2%
Hogs 46.16 50.48 45.93 47.95 49.00 2.2%
Broilers 84.3 93.5 97.8 88.6 87.0 -1.8%
Milk 16.30 17.65 16.27 18.60 18.85 1.3%
Data: USDA-OCE.
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Office of the Chief Economist
Recent milk production increases driven by cow numbers and milk per cow gains
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
8,800
8,900
9,000
9,100
9,200
9,300
9,400
9,500
Milk/cow/day (pounds)
Cow numbers(Thousands)
Dairy Cow Numbers (Left axis)
Milk per cow per day
Data: USDA
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Office of the Chief Economist
U.S. Dairy Herd by Size of Operation
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1
2
3
4
5
6
Million milk cows
Size of Operation by Number of Milk Cows (Head)
1997 2002 2007 2012 2017
Year
Milk Cow
Inventory
(millions)
Operations
with Inventory
(thousands)
1997 9.1 125.0
2002 9.1 92.0
2007 9.3 69.9
2012 9.3 64.1
2017 9.5 54.6
Data: USDA-NASS.
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Office of the Chief Economist
Distribution of Milk Production Cost by Farm and Production
$0
$10
$20
$30
$40
$50
$60
0 10 20 30 40 50 60 70 80 90 100
$/hundredweight
Percentile of Farms or Production
Farms Production 2019 All-Milk Price
Data: USDA-ERS, Agricultural Resource Management Survey, 2016.
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Office of the Chief Economist
Farm Economy and Policies
https://www.cnn.com/2017/03/08/us/ka
nsas-wildfires-livestock-lost/index.html
https://www.11alive.com/article/weather/hurricane/timeline-
how-will-hurricane-michael-affect-georgia/85-602040370
https://www.producer.com/2019/12/u-s-sugar-beet-farmers-face-
frozen-harvest/
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Office of the Chief Economist
How optimistic are you about economic prospects over the next 6 months?
Data: Refinitiv, USDA, University of Michigan, NAHB, Creighton, NAHB, Purdue/CME
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80
90
100
110
120
130
70
80
90
100
110
120
130Feb 2019 = 100Feb 2019 = 100
Corn Price Agbarometer DJIA
Consumer Sentiment Rural Mainstreet Housing Market
Corn price increases with
the knowledge of
widespread prevent plant.
Slow planting progress
and increased trade
tension
Signing of the phase I
trade deal with China
29
Office of the Chief Economist
Distribution of farm household income shows half of all farms earn negative farm income
PercentileFarm
Income
Off-farm
Income
Total
Income
5 -$47,714 $0 -$8,526
25 -$9,950 $33,577 $35,978
50 -$1,735 $65,841 $72,481
75 $8,783 $112,500 $122,991
95 $148,850 $205,000 $304,715
Source: USDA-ERS, Agricultural Resource Management Survey, 2018
-$50,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
0 10 20 30 40 50 60 70 80 90 100
Percentile
Total income
Farm Income
Off-farm Income
30
Office of the Chief Economist
Net returns are expected up, with lower expected government payments and crop insurance indemnities
Data: USDA-ERS
$0
$20
$40
$60
$80
$100
$120
$140
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Billion dollars (2020$)
Federal crop insurance indemnities minus premium
Direct government payments
Net farm income minus government payments and net federal indemnities
31
Office of the Chief Economist
Prevent plant boosted insurance indemnities in 2019 by > $4 billion
Source: USDA-Risk Management Agency * 2019 data collection is still ongoing.
0.0
0.5
1.0
1.5
2.0
2.5
$0$2$4$6$8
$10$12$14$16$18$20
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99
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20
19
Loss RatioBillion dollars (2020$)
Drought/Heat/Excess Sun Excess Moisture/Precipitation/Rain/Flood
Hurricane/Tropical Depression/Cyclone Other
Prevented Planting Price
WHIP/WHIP+ Loss Ratio
32
Office of the Chief Economist
MFP payments overlap areas where estimated damages are the highest
Source: USDA
33
Office of the Chief Economist
Debt-to-assets ratio remain low --- 13.59%, and debt financing cost falling despite total debt at historic levels
Data: USDA-ERS
“Interest
repayment
capacity”
=Interest
Expenses
divided by
(NFI before
interest and
taxes)
2020, $425.3B
2020, 15.22%
2020, 13.59%$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
0%
10%
20%
30%
40%
50%
60%
70%
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77
19
79
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81
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83
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85
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87
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89
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91
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93
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95
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97
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01
20
03
20
05
20
07
20
09
20
11
20
13
20
15
20
17
20
19
Billion dollars (2020$)
Percent
Debt (right axis) Interest repayment capacity Debt to asset ratio
34
Office of the Chief Economist
The percentage of corn, soybean, and hog farm businesses that are very highly leveraged has been trending upward
Data: USDA-ERS. Note: very highly leveraged farms have debt to asset ratios of >70%.
0%
2%
4%
6%
8%
10%
12%
14%
Corn specialized farms Soybeans specialized farms Hog specialized farms
35
Office of the Chief Economist
Farm bankruptcy rates remain historically low
0
5
10
15
20
25
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,0001
89
9
19
03
19
07
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15
19
19
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23
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27
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31
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35
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39
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43
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55
19
59
19
63
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67
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71
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75
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79
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83
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87
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91
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95
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99
20
03
20
07
20
11
20
15
20
19
Ban
kru
ptc
y R
ate
/ 10,0
00 fa
rms
Nu
mb
er
of
farm
s, exclu
din
g
sh
are
cro
pp
ers
Total farms
Bankruptcy Rate
Source: USDA-ERS, U.S. Courts
36
Office of the Chief Economist
Data: U.S. Courts
AK
AL
ARAZ
CA
CO
CT
DEFL
GA
IA
ID
ILIN
KS
KY
LA
MD
ME
MI
MN
MO
MSMT
NC
ND
NE
NH
NJNV
NY
OHOK
OR PA
RI
SC SDTN
TXUT
VA
VT
WA
WI
WVWY
0
2
4
6
8
10
12
0 2 4 6 8 10 12
10
-year
avera
ge o
f b
an
kru
ptc
ies p
er
10,0
00
farm
s
Number of bankruptcies in 2019 per 10,000 farms
Many states remain near
their 10-year average
bankruptcy rate.
37
Office of the Chief Economist
Negative returns for some heading into 2020 --- not including government payments
Data: Illinois, Arkansas, Kansas extension farm management budgets; MFP for 2019 tranche 3 only.
AR, conventional,
furrow irrigation
Central IL, high
prod, after soy
Central IL, high
prod, after corn
South Central KS,
continuous
2020F Cotton Corn Soybeans Wheat
Market returns:
Total costs (dollars/acre) $952 $864 $617 $271
Value of production (dollars/acre)
(includes cottonseed value for
cotton)
$923 $835 $540 $211
Market returns per
acre using total costs($28) ($29) ($77) ($60)
38
Office of the Chief Economist
Concluding Remarks
1. Current conditions point towards an improved outlook for 2020
• Trade deals will improve our access and trading opportunities
• A return to more normal trade will lower friction
2. Economic fundamentals are stable
• Interest rates remain low and keep borrowing costs down
• Equity remains high relative to debt
• Stable land values
3. Weather conditions will likely be better
• Corn and soybean area likely to be up from 2019
39
Office of the Chief Economist
Concluding Remarks (con’t.)
4. Livestock sector poised for continued growth• Modest growth in beef production, stronger growth in pork and
poultry• Growing opportunities for meat exports reflecting the Phase One deal,
U.S.-Japan agreement, and global income growth
5. International competition in crop and livestock production is intense• Corn and soybean expansion continues in Brazil
6. U.S. productivity remains remarkably strong• Continued investment in technology and innovation key to
maintaining markets and profitably, and feeding a growing global population
40
Office of the Chief Economist
Expectations for 2029/30?
Productivity of staple commodities continues to grow, fueled by technology
In 1929, approximately 6.3 million farms
produced 105 million metric tons of crop and
fiber, feeding and clothing 121 million
Americans.
In 2017, 2.0 million farms produced 561
million metric tons of crops --- an increase of
more than 400% on 9% fewer acres, feeding
and clothing 330 million Americans and
exporting food and fiber to help feed and
clothe billions globally.
And over the next 10 years, we would expect
an additional 90 million tons of production.Data: USDA-NASS; USDA Baseline.
Note: USDA WASDE crops included in the chart are
wheat, corn, sorghum, barley, oats, rice, soybeans, and cotton.
0
50
100
150
200
250
300
350
0
100
200
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400
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600
700
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29
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To
tal
pla
nte
d a
cre
s U
SD
A W
AS
DE
cro
ps (
Mil
lon
)
To
tal
pro
du
cti
on
of
US
DA
WA
SD
E C
rop
s (
Mil
lio
n M
T)
Crop production versus planted acres
Total metric tons (millions) Total planted acres
41
Office of the Chief Economist
The number of undernourished people in the world still number more than 800 million, and is heading in the wrong direction
Source: FAO, SOFI 2019.
42