ag outlook 2019: growing locally, selling ......october 2018 forecast january 2019 interim forecast...

Office of the Chief Economist

Robert Johansson

Chief Economist, USDA

Feb 2019

AG OUTLOOK 2019:

GROWING LOCALLY,

SELLING GLOBALLY

http://www.goldenrice.org/

Credit: COURTESY OF NIC BENNER University of Missouri

Office of the Chief EconomistOffice of the Chief Economist

Outline

1. Farm economy

2. Crops & Livestock

3. Trade

4. Farm Bill

https://www.cnbc.com/2018/06/07/

https://finance.yahoo.com/chart

2


3.00

3.50

4.00

4.50

5.00

5.50

2015 2016 2017 2018 2019 2020 2021 2022

April 2018 forecast

October 2018 forecast

January 2019 interim forecast

Percent change

Growth forecasts less optimistic --- global purchasing power falls by

$0.7 trillion (cumulative from 2019 – 2022)

World GDP

3

Data: IMF

3.00

3.50

4.00

4.50

5.00

5.50

2015 2016 2017 2018 2019 2020 2021 2022

April 2018 forecast

October 2018 forecast

January 2019 interim forecast

Percent change

Emerging Markets and Developing Countries

Office of the Chief EconomistOffice of the Chief Economist 4

Dollar up year-over-year, but mixed over the last few months

Data: Thomson Reuters Datastream

1%

4%

5%

6%

7%

7%

10%

14%

17%

18%

0% 5% 10% 15% 20%

Japan yen

Mexico peso

Korea won

Taiwan dollar

China yuan

Canadian dollar

Euroland euro

Australia dollar

Russia ruble

Brazil real

Argentina peso

US$ appreciation over last 12 months

95%

Last 6

months

36%

-1%

4%

3%

2%

1%

-1%

0%

-1%

2%

-2%


Real farm income settles; equity shows slight decline

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$-

$20

$40

$60

$80

$100

$120

$140

$160

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60

19

62

19

64

19

66

19

68

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70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

2018F

Net farm income Equity

Billion dollars ($2018) Billion dollars ($2018)

Data: USDA-ERS

5


0

50

100

150

200

250

300

350

400

450

0

50

100

150

200

250

300

350

400

450

19

60

19

62

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18F

Mill

ion

s

Mill

ion

s

Borrowing against real estate equity fuels debt growth

Data: USDA-ERS

Total debt

Real estate debt

Non-real estate debt

Billion dollars (2018$) Billion dollars (2018$)

6


Debt-to-assets remain low --- 13.5%

but debt financing highest since 1988

Data: USDA-ERS

0%

10%

20%

30%

40%

50%

60%

70%

0%

10%

20%

30%

40%

50%

60%

70%

Debt financing Debt-to-Asset ratio

25%

13.5%

7


AL

AR

AZ

CA

CO

CT

DE

FL

GA

IA

ID

ILIN

KS

KY

LA

MD

ME

MI

MN

MO

MSMT

NC

ND

NE

NH

NJ

NM

NV

NY

OHOK

ORPA

RI

SC SDTN

TXUT

VA

VT

WA

WI

WVWY

0

1

2

3

4

5

6

7

8

0 1 2 3 4 5 6 7 8

Number of bankruptcies in 2018 per 10,000 farms

10

-ye

ar a

vera

ge o

f b

ankr

up

tcie

sp

er

10

,00

0 f

arm

s

8

Nationally, 2.35 bankruptcies per 10,000

farms 10 x’s lower than peak in 1987

Data: USDA-ERS, U.S. Courts


How optimistic are you about economic prospects over the next 6

months?

Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.

60

70

80

90

100

110

120

60

70

80

90

100

110

120

Feb 2018 = 100Feb 2018 = 100

Purdue Creighton Corn price NAHB Michigan

9


U.S. crop forecast

https://www.agweek.com/business/agriculture/4512383-moisture-snow-has-really-hampered-harvest

10


Real prices trend down, as crop production outstrips demand

0

100

200

300

400

500

600

700

800

1960 1970 1980 1990 2000 2010 2020

Real Crop Prices

Corn

Soybeans

Rice

Wheat

0

30

60

90

120

150

180

210

240

1960 1970 1980 1990 2000 2010 2020

World Crop Production

Corn

Soybeans

Rice

Wheat

Data: USDA, BLS

2005=100 2005=100

Corn price down 59%

since 1960, soybeans by

52%, rice by 70%, and

wheat by 65%.

Corn output has risen 435% since

1960, soybeans by 1,190%, rice by

225%, and wheat by 215%.

11


Global stocks in days of use: tightening market for corn and soybeans

over next few years

12

40

60

80

100

120

140

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

Days of use Wheat

Corn

Rice

Soybeans

Data: USDA


U.S. soybeans prices fall under trade dispute

270

290

310

330

350

370

390

410

430

450

China retaliates

against U.S.

soybeans

U.S. & China 90 day truce,

China pledges U.S. soybean

purchases

Data: IGC, FOB prices

$/MT


14

22

1.2

0.4

0.3

3.4

1.9

1.1

Year over Year

Change (mmts)

Alternative markets for U.S. soybeans up, but not

enough to recover exports to China

U.S. exports for

2018/19 are 13.5

mmts behind last

year

13.5

Data: USDA

*Marketing Year to Date (Sept to Feb)

14


Stocks overhang will take years to unwind

Data: USDA

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

200

7/0

8

200

8/0

9

200

9/1

0

201

0/1

1

201

1/1

2

201

2/1

3

201

3/1

4

201

4/1

5

201

5/1

6

201

6/1

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201

7/1

8

201

8/1

9

201

9/2

0

202

0/2

1

202

1/2

2

202

2/2

3

202

3/2

4

202

4/2

5

202

5/2

6

202

6/2

7

202

7/2

8

202

8/2

9

U.S. Soybean Ending Stocks with USDA Baseline 10 year Projections

Soybean stocks

Stocks-to-UseTariffs imposed

July 2018

Million MTs Stocks-to-use (%)

15


Crop 2019F %∆ (YoY)

Soybeans ($/bu) 8.80 +2.3%

Corn ($/bu) 3.65 +1.4%

All Rice ($/cwt) 12.20 +0.8%

Wheat ($/bu) 5.20 +1.0%

Cotton ($/lb) 0.67 -6.9%

Data: USDA

5 year low 2019F 5 Year high

Some prices expected to edge up into 2019


Crop2019F

(mil. acres)%∆ (YoY)

Corn 92.0 +3.3%

Soybeans 85.0 -4.7%

Wheat 47.0 -1.7%

All cotton 14.3 +1.1%

Rice 2.7 -9.8%

Data: USDA

Corn and bean area at parity, wheat holding



Outlook for Livestock and Dairy

Photograph: Rachel Doyle

18


Real prices trend down, as U.S. livestock production outstrips demand

0

50

100

150

200

250

300

350

400

1960 1970 1980 1990 2000 2010 2020

Real U.S Livestock, Poultry, and Milk Prices

Steers

Chicken

Milk

Hogs0

30

60

90

120

150

1960 1970 1980 1990 2000 2010 2020

U.S. Meat and Milk Production

Beef

Chicken

Pork

Milk

Data: USDA, BLS

2005=100 2005=100

Steer price down 44%

since 1960, hogs by 68%,

milk by 52%, and chicken

by 56% (from 1964).

Beef output has risen 87% since

1960, pork by 143%, milk by

77%, and chicken by 1,050%.

19


African Swine Fever (ASF) may affect global pork

demand

Source: USDA-APHIS Data: CME.

20

40

45

50

55

60

65

70

75

U.S. Hog Futures

Aug 2018, China

confirms first

outbreak of ASF

Cents/lb

China 301

retaliation &

Mexico 232

retaliation

China 232

retaliation


Livestock 2019F %∆ (YoY)

Steers ($/cwt) 118.50 +1.2%

Hogs ($/cwt) 42.50 -7.5%

Broilers ($/cwt) 97.00 -0.8%

Milk ($/cwt) 17.25 +6.5%


Data: USDA

Low prices for steers and hogs in 2019

21


Item2019F

(billion lbs)%∆ (YoY)

Beef 27.6 +2.7%

Pork 27.3 +3.8%

Broilers 43.1 +1.4%

Total1 104.7 +2.3%

Milk 220.1 +1.1%

Data: USDA

Meat and milk production to be record high in 2019


22

1Total red meat and poultry


Trade Outlook

23


Agricultural export values expected to remain flat in 2019, China share

down sharply

Data: USDA

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

-

20

40

60

80

100

120

140

160

Canada Mexico China Other % of China Share

Billion dollars

24


Global demand drives growth in U.S. livestock and dairy exports

Data: USDA

0

2

4

6

8

10

20

00

20

02

20

04

20

06

20

08

20

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20

28

Billo

ns o

f p

ou

nd

s

Beef Pork Chicken

0

10

20

30

40

50

60

20

00

20

02

20

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28

Billio

ns o

f p

ou

nd

s

Dairy, Fat-Basis

Dairy, Skim Solids-Basis

25


Data: USDA

… and drives growth in U.S. feed grain exports

Million metric tons Million metric tons

26

-

10

20

30

40

50

60

70

80

-

10

20

30

40

50

60

70

801

99

6/9

7

19

97

/98

19

98

/99

19

99

/00

20

00

/01

20

01

/02

20

02

/03

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/04

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04

/05

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/06

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/07

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/25

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/26

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/27

20

27

/28

20

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/29

Corn Wheat Soybeans


New FTAs may impact U.S. access into top export markets

Canada $21 b

Mexico $19 b

EU $11 b

Japan$12 bChina $20 b

ROW $55 b

Canada $34 b Mexico $27 b

EU $130 b

Japan $52 b

China $118 b

ROW $342 b

Top 5 U.S. Export Markets FTAs (excl. U.S.)

Canada-EU (CETA)

EU-Mexico

EU-Japan

CPTPP (TPP-11)

Australia-China

New Zealand-China

U.S.-FTAs with Top 5 Export Markets

NAFTA (in effect)

USMCA (signed)

Proposed:

U.S.-Japan, U.S.-EU, U.S.-UKGlobal ag imports (2017)$703 billion (excl. U.S.)

Data: Global Trade Atlas

Total U.S. ag exports (2017)$138 billion

27


USMCA strengthens North American market integration

NEXT STEPS

• USITC report to Congress

• Administration submits implementing

legislation package to Congress

• After bill is reported out of the

Committees, the House and Senate

vote on the bill

• Bill signed into law, agreement is

implemented by proclamation

Data: USDA-FAS

84% 96% 65% 82% 87% 83% 77% 99% 91% 91% 68%0%

20%

40%

60%

80%

100%

120%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

United States

Rest of World

U.S. share of Mexico’s Ag Imports, 2017$ bil.

28


Farm Policy

29


2018 Farm Bill outlay = $428 billion over 5 years

Nutrition $326.0 b

Crop Insurance$38.0 b

Commodity Programs (CCC)

$31.4 b

Conservation$29.3 b

Other $3.5 b• An increase of ~$400 mil. per

year over the 2014 Farm Bill

for FY2019 - FY2023

• Percent spent on Nutrition

remains at 76% but with

more funding for

employment training

• Increase in Research

funding of $365 mil. over 5

years

Data: CBO

30


0

5

10

15

20

25

30

35

40

45

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019f

Billio

n d

ollars Coupled

Partially decoupled

Decoupled

Emergency

Conservation

Crop insurance

Data: USDA, fiscal year.

Characteristics of US farm programs changing over time; crop

insurance increasing in importance

MFP

10-year average = $18.7 billion per year

--- $6.2 billion from crop insurance

31

WHIP


ARC/PLC payments per base acre expected to change under 2018

Farm Bill

*Uses 80% of generic base acres enrolled in 2015. Official estimates of seed cotton

base acres are not yet available. Data: CBO

Farm 2014 Bill:

June 2017 Baseline

2018 Farm Bill:

January 2019

Baseline

Corn $98.85 $106.93

Soybeans $34.16 $42.67

Wheat $75.10 $60.90

Seed Cotton* Not Applicable $172.59

Rice $440.78 $738.21

Peanuts $881.21 $713.11

• Seed cotton became a

covered commodity

under the Bipartisan

Budget Act of 2018

(BBA)

• Minor adjustments were

made to Agriculture Risk

Coverage (ARC) and

Price Loss Coverage

(PLC) in the 2018 Farm

Bill.

32


Dairy operations are decreasing in number, as herd sizes grow

8.8

8.9

9.0

9.1

9.2

9.3

9.4

9.5

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Dairy Cattle (millions)

Licensed Operations

Licensed Operations (Left axis)

Total Inventory (Right axis)

Data: USDA-NASS

275

570

900

0 500 1000

2002

2007

2012

Number of cattle

Median dairy herd size

33


Net benefits for a median-sized dairy (900 cows ≈ 19.5M pounds)

Data: USDA

34

5-year average

MPP (2014 Farm Bill)

5-year average

DMC (2018 Farm Bill)

Premium for $8.00/cwt margin $230,184 $268,396

Premium for $9.50/cwt margin NA $7,500

(for first 5M lbs only)

Average annual net payment

$8.00/cwt margin coverage

$9.50/cwt margin coverage

-$172,119

NA

-$218,076

$40,421

Note: Applies MPP and DMC provisions to 2014-2018 data.


3rd

5th

1st

1st

33%

7%

34%

16%

20%

11%

0% 20% 40% 60% 80% 100%

Corn

Wheat

Soybeans

Cotton

Beef

Pork

U.S. Global Share of Production

United States ROW

Conclusion ---- Growing Locally and Selling Globally

Data: USDA

1st ($9B)

1st ($6B)

2nd ($22B)

2nd ($6B)

2nd ($6B)

1st ($7B)1st

3rd

37%

15%

33%

35%

14%

32%

0% 20% 40% 60% 80% 100%

Corn

Wheat

Soybeans

Cotton

Beef

Pork

U.S. Global Share of Exports

United States ROW

35


Growing economies, growing supplies, and falling real food prices

improve food security

2018 = 21.1% food insecure 2028 = 10.4% food insecure

Source: USDA-ERS.

36

ag outlook 2019: growing locally, selling ......october 2018 forecast january 2019 interim forecast...

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