The Outlook for Grain Markets and Texas Agriculture in 2013
Emily Kerr and Michael Plante
40%38%
9%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Corn Soy Wheat
Share of world production, 2000-2010 average
U.S. dominates world production of corn, soy
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4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Dollars per bushel
Corn prices jump 40 percent in two months
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Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13
Dollars per bushel
Soy prices increase 25 percent from May to July 2012
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2006 2007 2008 2009 2010 2011 2012 2013 2014
Dollars per bushel
Soybeans
Wheat
Corn
Other price spikes occurred in recent years
Outline
1. What’s behind recent price movements – Growing demand, supply issues
2. Outlook for the harvest in 2013 – Looking better if weather cooperates
3. Implications for 11th District agriculture – High grain prices adversely affect Texas/N.M.
350403
145
207
177
14854
114
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2006 2012
U.S. Ethanol
U.S. less Ethanol
China
Rest of World
Million metric tons
The world is consuming more corn!
The Ethanol Situation
Ethanol’s impact on corn demand
1. Huge impact before 2010 – 2010 production 170% higher than 2006
2. Since 2010 little additional demand – About 40% of U.S. crop used for ethanol, byproducts
3. More advanced plants remain profitable – Suggests corn will continue to be used for ethanol
The Ethanol Situation
What does an advanced plant produce? Component of Corn Processed and sold as
Carbohydrate Ethanol
Fat Corn oil
Leftover (mainly protein) Distiller’s grain (animal feed)
178 182
46
76
0
50
100
150
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250
300
2006 2012
China
Rest of World
Million metric tons
China is driving growth in soybean consumption
Growing demand pressures supply
• World supply has grown dramatically
• Weather issues are a constant threat
• Bad weather for U.S. corn: 2010, 2011, 2012
• Weather issues abroad for soy and wheat
Spillovers are important
Price spikes in one crop can spillover to others:
• Consumers substitute towards other crops (example: away from corn toward wheat)
• Crops compete for acreage
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-1.5
-1
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0.5
1
1.5
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2007 2008 2009 2010 2011 2012 2013
Corn
Soybeans
Million acres, Y/Y change
Forecast
Corn and soybeans compete for acreage in Iowa
Outlook for 2013
• Demand expected to continue growing
• Drought greatly relieved in Corn/Soy belt
• Future weather remains unpredictable
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2006 2007 2008 2009 2010 2011 2012 2013
Actual Harvest
Sept. 2013 ForecastMillion metric tons
Bumper corn harvest expected in U.S.
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2006 2007 2008 2009 2010 2011 2012 2013
Initial 2013 Forecast
Actual Harvest
Sept. 2013 ForecastMillion metric tons
Bumper corn harvest expected in U.S.
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100
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400
2006 2007 2008 2009 2010 2011 2012 2013
Initial 2013 Forecast
Actual Harvest
Sept. 2013 ForecastMillion metric tons
Bumper corn harvest expected in U.S.
Looking to our region
High grain prices: bad news for 11th District agriculture
• Grain is a key input for livestock producers
• 11th District agriculture largely livestock – Total TX agriculture=$23 billion in cash receipts
• Livestock=$16 billion – Cattle=$11 billion
• Agriculture accounts for 1% of Texas GDP and 2% of New Mexico GDP – 9% when including linked economic activities
Corn
Cattle
Soybeans Cotton
Fruits/Veg.
Other Crops
Other Livestock
Corn
Cattle Soybeans Fruits/Veg.
Other Crops
Other Livestock
Corn
Cattle
Soybeans
Cotton
Fruits/Veg.
Other Crops
Other Livestock
Regional ag varies from U.S., Corn Belt
U.S. Texas
Iowa
Shown are cash receipts by commodity group, 2011. Source: USDA.
N.M.
Cattle
Corn
Other Livestock
All other
Prolonged drought makes matters worse October 2010 October 2011
October 2012 Current
Source: U.S. Drought Monitor.
Drought – Severe
Abnormally dry
Drought – Moderate
Drought – Extreme
Drought – Exceptional
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100
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2000 2002 2004 2006 2008 2010 2012
Millions Millions
Texas cattle herd dwindling
Texas
Rest of U.S.
What does this mean for Texas?
• Declining share of U.S. cattle herd – Ethanol byproducts give advantage to Corn Belt
• Fewer feedlots, meat processors – Cargill closure, likely more to come
• Farmers planting less cotton, more corn
Drought expected to persist in TX/NM
Source: U.S. Seasonal Drought Outlook. Valid for September 19-December 31, 2013.
What’s the takeaway?
• Growing demand, weather pressuring prices
• Bumper harvest expected in 2013
• Eleventh District agriculture outlook mixed
Extra slides…
The Ethanol Situation
Government support
1. Tax credit for blending ethanol into gasoline – Eliminated in December 2011
2. Tariff on imports of Brazilian ethanol – Eliminated in December 2011
3. Renewable Fuel Standard (RFS) – Production has exceeded mandate in recent years
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2006 2007 2008 2009 2010 2011 2012 2013 2014
SoybeansWheatCorn
Dollars per bushel
Russian export ban lifted
Russia bans exports of wheat
U.S. harvest unexpectedly low
S. American crop fails
U.S. drought
Drought in U.S. and Russia
U.S. harvest unexpectedly low
Demand for soy continues to grow despite skyrocketing prices, inventories decline significantly
Despite 100% price hike, demand continues growing
U.S. plants lowest amount of soy in 12 years
Export bans by India, Vietnam in early 2008 cause global rice market to freeze up, prices skyrocket
Export bans on wheat in India, others in 2007. Australian crop fails, world inventories decline to lowest levels in 20 years, panic buying by governments
Narrative approach provides compelling stories about run ups
Strong soybean production also expected
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2006 2007 2008 2009 2010 2011 2012 2013
Million metric tons
Forecast
2013 U.S. wheat harvest impacted by weather
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2006 2007 2008 2009 2010 2011 2012 2013
Million metric tons
Forecast
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ending stocks (LHS)
Price (RHS)
Million metric tons Dollars per bushel
U.S. corn stocks severely depleted in recent years
A few notes on crop insurance
• Provides yield protection and price protection
• Who pays? – Premiums subsidized by federal government
• Who uses it? – Most farmers, very few ranchers
• One of several agriculture subsidies mandated by farm bill
Texas ag land values
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2005 dollars per acre
Irrigated Cropland
Dry Cropland
Ranchland