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Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 1
Presentation by:Terry Barr, Senior Director of Industry ResearchKnowledge Exchange Division, CoBank, ACBE-mail: [email protected]
“EconomicOutlook: Global
Transitions”
Rural EconomicOutlook Conference
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)Data source: World bank
0
25
50
75
100
125
150
175
Indexes (2010=100)
6 0 6 2 6 4 6 6 6 8 7 0 7 2 7 4 7 6 7 8 8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6 1 8
E n e rg y A g ric u ltu re (a ll c o m m o d it ie s )
RisingGlobal
Middle class
EconomicTurmoil2009-13
PolicyRealignment
2014-18
Commodity Market Realignments Will ContinueTo Reflect The New Realities of Global Economy
Factors that drove the previous decade have reversed: Slow and volatile growth in China. Value of U.S. dollar sharply higher. Advanced economies facing subdued growth potential! Emerging market growth slowed by market turmoil! Global terrorism and geopolitical risks increasing. Global commodity supplies are growing larger.
Unless Mother Nature intervenes we will remain inbottoming phase of commodity cycle!
Old normal zone
Newnormalzone?
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 2
This Strategy Will Not Work!
Business Strategies Must Adapt
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Most Agriculture Products Are More ExportDependent and Focused on Asian Growth
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 3
Global debt burden, impacts of aging populations, lack ofpolitical consensus or leadership, rising anti-globalizationsentiment & election cycles will delay reforms / growth!
Eurozone – Brexit and refugee migration issue is splinteringcoalitions; elections in France and Germany in 2017 will bevolatile; Brexit negotiations will take years! Bank of Englandreduces rates and injects more quantitative easing.
Japan – more fiscal stimulus. Bank of Japan actions next? U.S. – 2016 elections will be divisive; Fed remains cautious!
China’s economic transition and debt issues will reducepotential growth and add economic uncertainty.
Divergent central bank policies inject financial/currency risk.
Declining capital flows to emerging markets will limit growth.
Geo-political uncertainties and terrorism are ongoing issues.
Global Economics and Politics Unsettled
PolicyRealignment
2014-18???
RisingMiddleClass
2004-08Avg.=4.5%
EconomicTurmoil2010-13
Avg.=3.9%
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Little Optimism for A Global Economic SurgeOver the Next Few Years; Too Much Turmoil
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
-2
0
2
4
6
Percent change in annual world growth (purchasing-power parity rates)
Advanced countries Rest of world China India
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 4
Global Economy Can’t Avoid MajorStructural and Geo-political Issues Forever!
Angela Merkel
German Chancellor
Mario Draghi
ECB PresidentChristine Legarde
Managing Director IMF
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Europe: EU challenged by Brexit;Eurozone questions remain asgovernment debt levels and
banking sector still a problem;2017 elections in France and
Germany will be devisive withrising anti-globalizationsentiment. ECB promises
whatever it takes;
Confidential andProprietary 8
Euro Region Struggling to Transition
Monetary Union Fiscal Union Banking Union
No shortcut
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Reality is a 2-3 year transition with expanded ECB role!Major structural reform will be required in labor markets.
Countries must forfeit significant sovereignty on bankingand fiscal decisions to permit the transition from a
monetary union to a fiscal and banking union!
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 5
Confidential andProprietary 9
2.2
1.7
3.23.0
0.4
-4.4
2.0
1.4
-0.6-0.4
1.1
2.01.7
1.5
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-5
-4
-3
-2
-1
0
1
2
3
4
Annual percent change
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Euro Zone Growth Rates Remain WeakWith Germany Providing Most Growth
Global Economy Can’t Avoid MajorStructural and Geo-political Issues Forever!
Angela Merkel
German Chancellor
Mario Draghi
ECB PresidentChristine Legarde
Managing Director IMF
Prime Minister Shinzo Abe
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Japan: currencydevaluations and
another round of QE($130 bil.) but the thirdarrow of reform is still
missing??Growth likely under 1
percent for several years
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 6
Confidential andProprietary 11
5.6
3.3
0.80.2
0.9
1.92.6
1.6
-2.0
-0.2
2.3
0.4 0.3
1.72.4
1.31.7
2.2
-1.0
-5.5
4.7
-0.6
1.5 1.5
0.00.5 0.5 0.6
19901992
19941996
19982000
20022004
20062008
20102012
20142016
-8
-6
-4
-2
0
2
4
6
8
Annual percent change
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Japan Must Carry Out Structural Reformsor lose Growth Momentum
Global Economy Can’t Avoid MajorStructural and Geo-political Issues Forever!
Angela Merkel
German Chancellor
Mario Draghi
ECB PresidentChristine Legarde
Managing Director IMF
Prime Minister Shinzo Abe
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Xi Jinping
President of China
China: leadership is solidifying control. Growth targetshave been lowered to transition to consumer driven
economy. Vulnerability in financial system and shadowbanking sector.
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 7
9.8
11.3
12.7
14.2
9.69.2
10.4
9.3
7.7 7.77.3
6.9 6.66.2
93-0
220
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
1520
1620
17
0.0
2.5
5.0
7.5
10.0
12.5
15.0
Percent growth rate per year
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Chinese Growth Likely to Remain SubduedAs Advanced Economies Remain Weak
Fiscal stimulus maybe needed to stay
above 6.5%!
Source: IMF
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Why China Acted To Preserve Export MarketShare As Domestic Economy Underperforms
60
70
80
90
100
110
120
130
140
150
160
170
180
Indexes of currencies/US$ with January 1999=100
S. Korea
China
U.K.
Taiwan
Mexico Japan
19 9 9 2 00 1 20 0 3 2 00 5 2 00 7 2 00 9 2 01 1 2 0 13 2 01 5 2 0 17
-5 %
Changefrom Sept.
2015
- 14%
+14%+6%
-17%
+4%
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 8
Global Economy Can’t Avoid MajorStructural and Geo-political Issues Forever!
India
Brazil
Russia
Emerging markets
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Emerging markets remain weak ascommodity prices decline and trade
volumes slow. Currency volatility hasrisen rapidly and capital inflows have
declined dramatically! Geopoliticalturmoil in many regions!
3.8
4.5
6.4
7.9
7.2
8.2
8.7
5.8
3.1
7.4
6.2
5.2 5.04.6
4.04.2
4.6
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
1
2
3
4
5
6
7
8
9
10
Annual percent change in real GDP
E m e rg in g M arke ts a n d D ev e lo p in g E c o n o m ie s
6.0
6.6
8.3 8.5
9.3
10.1
11.2
7.3 7.5
9.6
7.7
6.87.0 6.8 6.6 6.5 6.3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
2
4
6
8
10
12
Annual percent change in real GDP
E m ergin g and D evelo ping A sia
0.5 0.4
2.0
6.2
4.7
5.6 5.7
3.9
-1.3
6.1
4.9
3.1 2.9
1.0
0.0
-0.6
1.6
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-2
-1
0
1
2
3
4
5
6
7
Annual percent change in real GDP
L atin A m e rica & C arib b ea n
2.5
3.8
7.2
9.4
5.4
6.5 6.4
5.2
2.3
5.1
4.54.9
2.32.7
2.3
3.4 3.4
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0
1
2
3
4
5
6
7
8
9
10
Annual percent change in real GDP
M iddle East & N . Africa
Emerging Markets Face Wide Range ofChallenges in New Global Environment
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 9
Amid These Transitions Central Banks AreHaving Difficulty in Coordinating Policy Moves
U.S. FederalReserve
Bank
Bank ofJapan
EuropeanCentralBank
Bank ofEngland
Bank of England will now adaptpolicy to Brexit. Reduces policy rateto 0.25% , added $79 bil. in gov’t
bond purchases and $10 bil. incorporate bond purchases.
U.S. Federal Reserve rate increase in 2015may be followed by additional increase in
late 2016. Federal Reserve in reactiverather than preemptive role relative to
inflation, unemployment and globalissues!
Bank of Japan hasimplemented negative
interest rate policy in additionto existing monetary actions.
European Central Bank continues aggressivequantitative easing and purchasing corporate
securities. If Euro region growth weakens it willundertake further actions beyond negative interest
rate strategy!
10,000
8,000
6,000
4,000
2,000
0
12,000
14,000
16,000
Billion U.S. dollars
U.S. Federal Reserve
European Central Bank
Bank of Japan
15,207
Monthly Central Bank Assets for U.S., Japan and Euro Area
June 2006 to August 2016
Central Bank Balance Sheets Continue to Growin 2016 Exceeding $15 Trillion!
Chart source: Cumberland Advisors
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 10
19Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0
1
2
3
4
5
6
7
Percent
Bank of Japan
Bank of England
European Central Bank
U.S. Federal Reserve
2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7
Central Banks Have Been Very AccommodatingSince 2008 …… Unable to Break Cycle!!
Zero interest rate policy (ZIRP) isnow its 8th year!
Negative interest rate policy(NIRP) now covers 22 countries
and 25 % of world GDP!
2 year 10 year Spread Under/OverCountry yields * yields* 2 year U.S. Treasury
---------- percent ---------- Basis points
United States 0.826 1.690 -------
Germany -0.682 -0.045 -150.8
France -0.633 0.200 -145.9
U. K. 0.138 0.778 -68.8
Japan -0.277 -0.069 -110.3
Switzerland -0.961 -0.552 -178.7
Canada 0.555 1.068 -27.1
Negative Interest Rates Widen SpreadsWith U.S. Treasury Yields
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
*As of October 4, 2016
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 11
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
* C u rre n c ie s w e ig h te d b y re la t ive m a rk e t im p o rta n c e to to ta l U .S . tra d e .
70
80
90
100
110
120
130
140
150
Indexes of major currencies/US$ (March 1973=100)
80 8 2 84 8 6 88 9 0 92 94 9 6 98 0 0 02 0 4 06 0 874 7 6 7 8 10 12 14 1 6
From 2002 to 2011 ……….……….... -38 %From Sept. 2011 to Sept. 2016 …. +30 %
Dollar declinedby over 25%
after floating in1973!
Asianfinancial
crisis
Deferred Federal Reserve Actions HavePushed U.S. Dollar Lower
Currencyto US dollar:
ChinaEuro
JapanBrazil
AustraliaIndia
RussiaMexico
U.S. Index
Change2014
-9 %-15 %+4 %
-39 %-19 %-10 %-69 %-45 %+13 %
from Sept.2015-5 %+0 %+14 %
+ 17 %+7 %-1 %+3 %
-14 %-2 %
U.S. dollar indexdown 5 percent since
January 2016 !
U.S.savings &loan crisis
Volkerfed policy
22
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
U.S. dollars and Brazilian reals per bushel
0
12
24
36
48
60
72
84
96
Mexican pesos per bushel
U.S. Brazil Mexico
C o rn
2005
S ept. ch ange fro m 20 15 & 2 014:
U .S . ........ -13 % -12 %
B raz il ...... -21 % + 25%
M exico .... -3 % + 24%
2006 2008 200 9 2010 20 11 2012 2013 2 014 2015 2 0162 007
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Currency Changes Alter the Competitiveness ofU.S. in Terms of Customers and Competitors
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 12
Current U.S. Business Cycle is FourthLongest But Under Performing
0 4 8 12 16 20 24 28 32 36 40 44
-10%
0%
10%
20%
30%
40%
50%
Percent change from previous business cycle peak
1960-69
1969-73
1973-80
1980-81
1981-90
1990-2001
2001-07
2007-??
Num ber of quarters from previous peak and real grow th during each business cycle
38 qtrs(+52 % )
42 q trs(+41% )
36 q trs(+35% )
27 q trs(+1 9% )
34 qtrs(+11 % )
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2007-?? cycleFourth longestDeepest / longest troughWeakest recovery
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 13
25Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Economic Recovery Remains Subdued AsU.S. Economy Unable to Weather Volatility
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
-2
0
2
4
6
8
Percent change in real GDP Average growth:1970-791980-89=1990-99=2000-09=2010-16=
3.2 %3.2 %3.2 %1.8 %2.1 %
-8
-6
-4
-2
0
2
4
6
8
Percent change in quarterly Gross Domestic Product (Chained 2005$)*
* S e a s o n a lly a d ju s te d a t a n n u a l ra te2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 22 0 1 0 2 0 1 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6
60-70% of U.S. economic growth comesfrom consumer spending:
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. On Subdued Growth Path But GrowthMomentum May Have Emerged in 2nd Quarter
2.4%1.5%2.2%1.6%Annual average= 2.5%
1.4 %
2.4% 1.5%
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 14
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Real Gross DomesticProduct (GDP)
Personal Consumption(personal savings rate %)
Fixed investmentNonresidential
Residential
Change in Inventories
Net exports
Government spending
Percent points of contribution at annual rate:
---------- Percent change from year earlier ----------
---------- Percent change at annual rate ----------
2014III
5.0
2.9
2.5(5.7)
1.21.1
0.1
0.3
0.5
0.5
IV
2.3
2.5
3.1(5.6)
0.2-0.1
0.4
0.2
-1.1
-0.1
2015I
2.0
3.3
1.6(5.5)
0.60.2
0.4
1.1
-1.7
0.4
II
2.6
3.0
1.9(5.7)
0.70.2
0.5
-0.5
-0.1
0.6
III
2.0
2.2
1.8(5.9)
0.90.5
0.4
-0.6
-0.5
0.3
IV
0.9
1.9
1.5(6.0)
-0.0-0.4
0.4
-0.4
-0.5
0.2
I
0.8
1.6
1.1(6.1)
-0.1-0.4
0.3
-0.4
0.0
0.3
2016II
1.4
1.3
2.9(5.7)
-0.2-0.1
-0.3
-1.2
0.2
-0.3
Resilient Consumer Offsets Weakness inBusiness Investment and Inventory Drawdown
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
50
60
70
80
90
100
110
120
130
140
Percent (debt-to-income)
Debt-to-Income
Consumer Spending Remains Resilient WithLess Debt and More Disposable Income
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Consumer net worth
Consumption will track income growth. Consumers are more comfortable with debt levels;incomes are rising; home prices are improving and equity markets are near record levels.
Net worth has recovered and remains at record levels. Discretionary income is higher(aided by lower gas prices and lower debt service). Wage and job growth remain issues?
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
10
20
30
40
50
60
70
80
90
100
Trillion dollars
Housing bubble
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 15
Consumers Are Showing ConfidenceThrough their Credit Card Usage
8 0-10
-8
-6
-4
-2
0
2
4
6
8
10
Billion dollars (change in 3-month moving average of consumer revolving credit)
8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Auto Sales Have Recovered Strongly SinceRecession But Are Beginning to Plateau
5
10
15
20
25
Monthly light vehicle sales (millions at annual rate)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
R ecessions
12 14 16
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 16
3.0
3.5
4.0
4.5
5.0
Percent (net worth-to-GDP)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Dot combubble
Housingbubble
Consumer Net Worth As A Percent of GrossDomestic Product Is At Historically High Levels
Fedbubble?
32
-750
-500
-250
0
250
500
Change in nonfarm payrolls (thousand)
Monthly change 12-month moving average
8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2
* B u s in e s c y c le tro u g h s : N o v 1 9 8 2 , M a rc h 1 9 9 1 , N o v e m b e r 2 0 0 1 a n d J u n e 2 0 0 9 .
0 4 0 6 0 8 1 0 1 2 1 4 1 6
Job Growth Steady in September;Unemployment Rate Up With Participation
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Unemployment rate = 5.0 %Underemployment = 9.7 %Participation rate = 62.9 %Average duration = 27.5 weeks
156,000 jobs created in September(167,000 in private sector)
(averaged 203,900 for last 12 months)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 17
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Hourly Earnings Improving But Lagging theConsistent Decline in the Unemployment Rate
0
2
4
6
8
10
12
Percent rate of unemployment
0
2
4
6
8
10
12
Percent change in average hourly earnings
unemployment rate hourly wages
7 0 7 2 74 76 78 80 82 84 86 88 90 9 2 94 96 98 0 0 0 2 04 06 0 8 10
R ecessions
12 14 16
Sept.5.0%
Sept.+2.7%
0
0.25
0.5
0.75
1
1.25
1.5
1.75
2
2.25
2.5
Million starts per quarter, seasonally adjusted
Multi-family Single family Total
7 2 7 4 7 6 7 8 8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 40 2 0 6 0 8 1 0 1 2 1 4 1 6
Housing Sector Retaining Some MomentumBut It Appears to be Plateauing
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 18
Business Investment is Key to Growth andJobs in the U.S. Economy In Years Ahead
1999200
400
600
800
1000
1200
1400
1600
1800
2000
2200
2400
Billion dollars in profits; investment at annual rates
Business fixedinvestm ent
Corporateprofits (after tax)
Residentialinvestment
2001 2003 2005 2007 2009 2011 2013
Housing in slowrecovery
2015
Declining corporateprofits and polcyinaction limiting
businessinvestment.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
36
U.S. Economic Policy Inaction CreatesHeadwinds for Break-out Investment Growth
Risk management and investment strategies cannot deal with policy vacuum.Companies can measure and adjust to risk based on actual policy decisions!
Financial sector Financial sector regulatory reform continues
Energy sector No energy policy despite new energy paradigm;Shale technology change fossil / renewable roles.
Immigration Beginning to look like 2017 issue?
Health care sector Affordability Care Act, unintended consequences?
Regulatory oversight Increasing regulation; Clean air & water, Food safety
Federal budgetissues
Changing tax policy / entitlements / infrastructureon hold until 2017? Ongoing budget uncertainties.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Trade agreements Trans-Pacific Part. (TPP); Trans-Atlantic (TTIP) ????
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 19
Energy Sector Realignments Will Continue toBe A Major Impetus for Economic Volatility
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Energy Sector Negative for InvestmentBut A Stimulus for Consumption in 2016
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
Dollars per barrel
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Dollars per million Btu
W e s t Te x a sIn te rm e d ia te
(le ft s c a le )
H e n ry H u b(r ig h t s c a le )
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Energy Information Administration forecasts
Will there be an effective agreementamong the major non-U.S. oil
producers? With effective action oilprices could move into the $50-60 range
in 2017 despite weak global demand.
Data source: U.S. Energy Information Administration
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 20
Fiscal and Monetary Policy in TransitionWhite House
CongressU.S. Treasury Department
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Federal Reserve
Regulatory Agenda WillAccelerate Under
Administrative Authoritiesin 2016!!!
(expect legislative/legal challenges)
Fiscal Policy Actions Will Await Presidentialand Congressional Election Outcomes
White House
Congress
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Legislative progress on taxpolicy, entitlements, etc. willbe deferred to next Congress.Election results and budgetpressures will complicate
2017 policy options!!!
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 21
The House of Representatives
248 Republicans 187 DemocratsMost Republican seats since 1929.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Republicans +61The Senate
Republicans +8
What Will the 115th Congress and NewPresident Accomplish in 2017 and Beyond?
54 Republicans 46 Democrats** two Independents caucusing with Democrats
Republican control of House of Representatives seems secure.However control of the Senate will be in play with Republicansneeding to defend 24 and Democrats defending 10!.
Presidential election will likely be negative and contentious!
In 2018 control of the Senate will be back in play with Democratsneeding to defend 25 seats and Republicans defending 8!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
200
Deficit in billion dollars
-16
-14
-12
-10
-8
-6
-4
-2
0
2
-6 %
R e a g a n C lin to nG . H .B u s h
G .W . B u s h
S o u r c e : C o n g r e s s io n a l B u d g e t O ff ic e (A u g u s t 2 0 1 6 ) , B E A a n d T r e a s u r y D e p a r tm e n t
D e f ic it a sp e r c e n to f G D P
P e r c e n t o f G D P
O b a m a
-1 0 %
? ? ? ? ?
Over 10,000 people per daycould qualify for Medicare
over the next 13 years!
Even If Congress Adheres to SequestrationCommitments the Deficit Will Rise Sharply
First budgetsof next
President
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 22
24%28%
6%
16%26%
24%30%
9%
14%
23%Defense
NetInterest
Medicare /Medicaid
NetInterest
Defense
SocialSecurity
Discretionaryand other
mandatory
Discretionaryand othermandatory
FY 2015 FY 2020
SocialSecurity
Medicare /Medicaid
Social Security, Medicare, Medicaid and NetInterest Consuming Larger Share of Budget
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
58% of Spending 63% of SpendingData source: CBO August 2016
Eis
en
ho
we
r
Ke
nn
ed
y
Jo
hn
so
n
Nix
on
/F
ord
Ca
rte
r
Re
ag
an
H.W
.B
us
h
Cli
nto
n
G.W
.B
us
h
Ob
am
a
Tru
man
Ro
ose
velt
D ebt held by publicas % of G DP
40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20
Fiscal year
0
2
4
6
8
10
12
14
16
18
20
22
24
Trillions of dollars
0
12
24
36
48
60
72
84
96
108
120
132
144
Percent of GDP
D ebt held by public in dollars
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
National Debt Will Be Increasing Rapidly in theYears Ahead Unless Action is Taken
Data source: CBO August 2016
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 23
Monetary Policy in Transition
U.S. Treasury Department
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Federal Reserve
Appropriate pace of policy firming: midpoint of target range or target level estimatesof FOMC participants for federal funds rate at end of respective year (March 2016)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.02016 2017 Longer run
Federal Reserve Consensus on Start and EndBut Pace of Increase is in Question
2018
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2019The FOMC consists of twelve members--seven members of the Board of Governors,; the president of theFederal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serveone-year terms on a rotating basis. The additional possible dots are for seven presidents not on FOMC.
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 24
47Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0
1
2
3
4
5
6
7
8
9
Percent
1 0 -y e a rT re a s u rie s
F e d e ra lF u n d s R a te
9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 40 3 0 5 0 6 0 7 0 90 8 1 21 0 1 1 1 3 1 4 1 61 5 1 7
Federal Reserve Will Be Cautious and ContinueTo Promote Growth and Employment
• Availability of credit will not be an issue.• Balance sheet and working capital will be
issue in context of price expectations.
-1
0
1
2
3
4
5
0
Percent change from year earlier (monthly seasonally adjusted)
Total PCE deflator Core PCE deflator
2008 2009 2010 2011 2012 2013 2014 2015*M o n th ly p e rs on a l c o n s um ptio n e x pe n d itu re s d e fla to r (2 00 9 =1 0 0); co re e x clud e s fo o d a n d e n erg y
2016
Core Inflation Is Accelerating Slowly
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 25
0
1
2
3
4
5
6
Percent rate
1 0y e a r
7y e a r
5y e a r
3y r
2y r
1y r
3 0y e a r
2 0y e a r
J a n , 2 0 0 7
J a n , 2 0 0 8
J a n . 2 0 1 4
J a n . 2 0 1 3
J a n . 2 0 1 7
J a n . 2 0 1 8
Yield Curve Likely to Flatten Very GraduallyUnder Federal Reserve Preferred Option
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Agriculture Markets Are Continuing SignificantTransitions in This Global Environment
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 26
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
10
20
30
40
50
60
70
80
Million metric tons of soybeans
0
5
10
15
20
25
30
35
40
Stocks-to-use percentage
World ending stocks Stocks-to-use
S o y b ea n s
Global Carryovers Remain Large; Stocks-to-UseNear Record High for Wheat and Cotton
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
50
100
150
200
250
300
Million metric tons of coarse grains
0
12.5
25
37.5
50
62.5
75
Stocks as percent of use
Co a rse G ra in s
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
50
100
150
200
250
Million metric tons of wheat
0
8
16
24
32
40
Stocks as percent of use
W h ea t
72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
20
40
60
80
100
120
Million 480-pound bales of cotton
0
20
40
60
80
100
Stocks-to-use percent
World ending stocks Stocks-to-use
C o tto n
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
Dollars per bushel (monthly prices received by farmers, USDA)
W h e a t p r ic e
8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 67 0 7 2 7 4 7 6 7 8$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
Dollars per bushel (monthly prices received by farmers, USDA)
C o rn p r ic e
8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 67 0 7 2 7 4 7 6 7 8
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Dollars per bushel (monthly prices received by farmers, USDA)
S oy be an price
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 1670 72 74 76 78
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Commodity Markets Are in Different Stagesof Transition …. “Now Cents Matter”
20
30
40
50
60
70
80
90
100
Cents per pound (monthly prices received by farmers, USDA)
U pland cotton price
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 1670 72 74 76 78
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 27
53Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
1.9%
2.5%2.3%
2.9%
1.3%
0.7%
0.2%0.4%
1.4%
3.0% 3.0%
20052006
20072008
20092010
20112012
20132014
20152016
2017
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Percent change in production from year earlier
To ta l in clud in g farm p rod u ction fo r red m ea ts a n d, fo r p o u ltry, fe de rally in sp ec te d p lu s n o n-fed erally ins p ec te d, les s co n de m n ation s.
Total U.S. Meat and Poultry ProductionContinuing Strong Increases Into 2017
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
Dollars per doz. (monthly prices USDA)
E g g s(a ll e g g s )
9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6$0
$25
$50
$75
$100
$125
$150
$175
Dollars per cwt. (monthly prices USDA)
C a tt le p r ic e s(s te e rs & h e i fe r s G E 5 0 0 lb s )
9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4
H o g p r ic e s(b a r r o w s a n d g i l ts )
1 6
0
5
10
15
20
25
30
Dollars per hundredweight (monthly prices USDA)
M ilk prices
92 94 96 98 00 02 04 06 08 10 12 14 16
0
20
40
60
80
100
Cents per pound (monthly prices USDA)
Broiler and Turkey prices
92 94 96 98 00 02 04 06 08 10 12 14
Broilers
Turkeys
16
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Animal Protein/Dairy Adjusting to GlobalDependence; Lower Feed Costs Will Help
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 28
55Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
50
60
70
80
90
100
110
120
130
140
Index (2011=100)
P r ic e s re c e iv e d : c ro p s
* P r ic e s p a id c o m m o d it ie s & s e rv ic e s , in te re s t , ta x e s a n d w a g e ra te s
P r ic e s re c e iv e d : l iv e s to c k
P r ic e sp a id
Commodity Prices Adjusting Sharply to NewMarket Realities; Cost Side Next
Costpressures
56Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
0
25
50
75
100
125
150
Billion dollars
Net cash income (Aug.)
February estimate
Direct payments Decade averages
D irec t g overnm en t p aym ents*
* S ou rce: U S DA
2010-16
$122 .2
2000-09
$72 .2
1990-99
$56 .51980-89
$42 .7
Since 2010 net cash farm income hasaveraged 64 percent higher than
previous decade!
Farm Income Likely To Be Under DownwardPressure But Revisions Boost Income!
2015 incomerevised up by
$15 bil.
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 29
The market transitions will bring new opportunities andchallenges as supply chains from farmers to retailersrealigned to new domestic and global market realities.
Accessing and implementing new enhancedtechnologies and precision agriculture/data mining willbecome strategic business option for producers. Theywill need size and scale to exploit these technologies.
The regulatory and market demands for more scrutiny ofthe food/input chains will expand and impact domesticand global supply chains from producers to retailers.(food safety, sustainability)
The Transition in Markets CreatesStrategic Management Challenges
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The pace of consolidation, both horizontally andvertically, will accelerate over next few years aseconomies of scale, diversification and globalpositioning are driven by massive amounts of liquidity.(production agriculture, input supply chains, and foodprocessing and retailing will reevaluate strategies foradjusting to new realities.)
Mega mergers already in pipeline will change inputsupply chain (Dow-Dupont merger would control 25%of global seed market and 15% of pesticide sales,ChemChina-Syngenta, Bayer-Dow, Potash and Agriumand John Deere-??)
The Transition in Markets Creates StrategicManagement Challenges for Cooperatives
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rural Economic Outlook Conference October 21, 2016
Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 30
A strong balance sheet with significant working capitaland strong risk management policies will be required.Debt capital will become more expensive and subject totightening credit standards in the years ahead.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Farmers, particularly mega-producers, will requiretheir partners to provide speed, space and risk
management options for inputs and marketing.
The Transition in Markets Creates StrategicManagement Challenges for Cooperatives