Office of the Chief Economist
Robert JohanssonChief Economist, USDA February 2018
ROOTS OF PROSPERITYOUTLOOK FOR 2018
Office of the Chief EconomistOffice of the Chief Economist
60
80
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60708090
100110120130140
Michigan Creighton Fed ReserveCorn price NAHB Purdue
2017 = 100
Farmers’ sentiment is low compared to others, following corn prices down
Data: USDA, UofMich, Purdue, Fed Reserve, NAHB, Creighton.
2
2017 = 100
Office of the Chief EconomistOffice of the Chief Economist
Real prices trend down, as ag productivity outstrips population growth
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1960 1970 1980 1990 2000 2010 2020
Real Commodity Prices
CornSoybeansRiceWheat 0
50
100
150
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1960 1970 1980 1990 2000 2010 2020
World Production
CornSoybeansRiceWheat
Data: USDA, BLS.
2005=100 2005=100
Corn price down 61%, soybeans by 47%, rice by 65%, and wheat by 68%.
Corn supply risen up 420%, soybeans by 1,116%, rice by 219%, and wheat by 222%.
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Office of the Chief EconomistOffice of the Chief Economist
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Bill
ion
dolla
rs
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Nominal net farm income
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Real net farm income falling
Data: USDA
Real net farm income
Office of the Chief EconomistOffice of the Chief Economist
What might improve income?• Demand change:
• Global GDP growth boosts demand• Dollar weakness boosts trade• Improved market access abroad
• Supply change:• Weather events• Less distorting int’l farm policy
• US Farm Policy• Current economic conditions• New farm bill—when?
5
Office of the Chief EconomistOffice of the Chief Economist
IMF growth forecasts more optimistic
3.00
3.50
4.00
4.50
5.00
5.50
2014 2015 2016 2017 2018 2019 2020 2021
April 2017 forecast
October 2017 forecast
January 2018 update
Percent changeWorld
3.00
3.50
4.00
4.50
5.00
5.50
2014 2015 2016 2017 2018 2019 2020 2021
April 2017 forecast
October 2017 forecast
January 2018 update
Percent changeEmerging markets and developing countries
Data: IMF.
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Office of the Chief EconomistOffice of the Chief Economist
Income growth will drive increased global demand
142176
25766
728
150151
0 100 200 300 400ColombiaVietnamMalaysia
TaiwanPhilippines
ThailandSouth Korea
TurkeyEgyptBrazil
MexicoRussia
IndonesiaIndia
ChinaHouseholds w/ Real PPP incomes greater than $20,000 (millions)
2016 Proj. gains by 2026
Million HouseholdsData: Global Insight’s Global Consumer Markets data.
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Office of the Chief EconomistOffice of the Chief Economist
Dollar depreciating so far in 2018 versus customer currencies
-10-505
10152025
2015 2016 2017 2018 to date
Canadian dollar Korea won
Japan yen Mexico peso
Taiwan dollar China yuan
% change Y-O-Y
Data: Thomson Reuters Datastream
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Office of the Chief EconomistOffice of the Chief Economist
Down versus most competitor currencies too
-20-10
010203040506070
2015 2016 2017 2018 to date
Argentina peso Australia dollarBrazil real Canadian dollarEurozone euro Russia ruble
% change Y-O-Y
Data: Thomson Reuters Datastream
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Office of the Chief EconomistOffice of the Chief Economist
That should help maintain FY2018 ag exports
Data: USDA.
050
100150200
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Trade Surplus U.S. Agricultural Exports U.S. Agricultural imports
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Office of the Chief EconomistOffice of the Chief Economist
FTA’s account for large share of total U.S. ag exports
0%
10%
20%
30%
40%
50%
020406080
100120140160 FTA Partner Non-FTA Partner FTA Share
Data: USDA.
Bill
ion
dolla
rsShares
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Office of the Chief EconomistOffice of the Chief Economist
U.S. crop forecast
Photo source: www.farmanddairy.com/438028.html
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Office of the Chief EconomistOffice of the Chief Economist
Global ending stocks to continue relatively high, moderating price volatility
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160
2000 2002 2004 2006 2008 2010 2012 2014 2016
Wheat CornRice Soybeans
Ending stocks days of use
Data: USDA.
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Office of the Chief EconomistOffice of the Chief Economist
Some prices expected to edge up into 2018/19
2014 2015 2016 2017 2018F %∆
Wheat ($/bu) 5.99 4.89 3.89 4.60 4.70 2.2
Corn ($/bu) 3.70 3.61 3.36 3.30 3.40 3.0
Soybeans ($/bu) 10.10 8.95 9.47 9.30 9.25 -0.5
Cotton (cents/lb) 61.30 61.20 68.00 69.00 63.00 -8.7
All Rice ($/cwt) 13.40 12.20 10.40 12.50 11.90 -4.8Data: USDA.
Crop
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Office of the Chief EconomistOffice of the Chief Economist
Corn prices rise slowly over next 10 years
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2000200120022003200420052006200720082009201020112012201320142015201620172018Actual
Data: USDA
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Office of the Chief EconomistOffice of the Chief Economist
Prices +/- will depend on weather and economyProjections
for 2020
Low CornPrice
High CornPrice
Corn price ($/bu) 2.02 5.56
Yield (bu/acre) 196 158
Ending stocks(mils bu) 4,477 1,699
Soybean price ($/bu) 5.49 10.89
Data: USDA & FAPRI.
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Corn Price Simulations
95%
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Office of the Chief EconomistOffice of the Chief Economist
0.00.20.40.60.81.01.21.41.6
0.000.200.400.600.801.001.201.401.60
US DDG Exports to other US DDG Exports To China DDG/Corn Price (t-1)
Biotech rejectionsAD/CVDs
…and on other countries farm and trade policies17
Data: USDA.
DDG/corn price ratio DDG exports mmt
Office of the Chief EconomistOffice of the Chief Economist
2.102.202.302.402.502.602.702.80
3-Sep 3-Oct 3-Nov 3-Dec 3-Jan 3-Feb 3-Mar 3-Apr 3-May 3-Jun
Evolution of New Crop U.S. Soybean to Corn Price Ratio for Selected Years
2014 2016 2017 2018
… but farmers plant based on what they expect18
Office of the Chief EconomistOffice of the Chief Economist
Crop (mil. acres) 2014 2015 2016 2017 2018F %∆Corn 90.6 88.0 94.0 90.2 90.0 -0.2%
Soybeans 83.3 82.7 83.4 90.1 90.0 -0.1%Wheat 56.8 55.0 50.1 46.0 46.5 1.1%
All cotton 11.0 8.6 10.1 12.6 13.3 5.6%Other feedgrains 12.9 15.2 12.6 10.7 12.6 17.8%
Rice 3.0 2.6 3.2 2.5 2.9 16%
Total 8 crops 257.6 252.0 253.4 252.1 255.3 1.3%
Corn and bean area at parity, wheat holding
Data: USDA.
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Office of the Chief EconomistOffice of the Chief Economist
Who’s buying now? Global Import Share (2017/18)
Data: USDA
Mexico9%
China8%
N. Afr/Mid-East22%
Japan9%
EU9%
Rest of World43%
Coarse Grains
China65%
EU9%
Mexico3%
Japan2%
Rest of World21%
Soybeans
Sub-Saharan
Afr13%
N. Afr/Mid-
East29%
SE Asia14%
FSU4%
Brazil4%
Rest of World36%
Wheat
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Office of the Chief EconomistOffice of the Chief Economist
Data: USDA
Mexico10%
China10%
N. Afr/Mid-East24%
Japan7%
EU6%
Rest of World43%
Coarse Grains
China70%
EU7%
Mexico2%
Japan2%
Rest of World19%
Soybeans
Sub-Saharan Afr16%
N. Afr/Mid-
East29%
SE Asia14%
FSU4%
Brazil4%
Rest of World33%
Wheat
Who will be buying? Global Import Share (2027/28)
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Office of the Chief EconomistOffice of the Chief Economist
U.S. export share of global trade flattens
Data: USDA
0%
20%
40%
60%
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100%
0%10%20%30%40%50%60%70%80%90%
Corn Soybean Wheat
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Office of the Chief EconomistOffice of the Chief Economist
Outlook for Livestock and Dairy
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Office of the Chief EconomistOffice of the Chief Economist
Meat and milk production to be record high in 2018
Data in red denote record levels. 1 Total red meat and poultry
Item 2014 2015 2016 2017 2018F %∆Billion Pounds
Beef 24.3 23.7 25.2 26.2 27.7 5.9Pork 22.8 24.5 24.9 25.6 26.9 5.1
Broilers 38.6 40.0 40.7 41.6 42.6 2.3Total1 92.2 94.6 97.6 100.1 103.9 3.8
Milk 206.1 208.6 212.4 215.4 218.7 1.5Data: USDA-OCE.
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Office of the Chief EconomistOffice of the Chief Economist
Beef production is projected to continue to rise
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Billi
on p
ound
s
2000200120022003200420052006200720082009201020112012201320142015201620172018Actual
Data: USDA
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Office of the Chief EconomistOffice of the Chief Economist
September 13, 2011Released Thursday, Sep. 15, 2011)
Valid 7 a.m. EST
AuthorMark SvobodaNational Drought Mitigation Center
February 13, 2018(Released Thursday, Feb. 15, 2018)
Valid 7 a.m. EST
AuthorEric LuebehusenU.S. Department of Agriculture
Percent of Southern Plains* In D3-D4 Drought
* Kansas, Oklahoma, and Texas
September 13, 2011:February 13, 2018:
83.3%16.5%
U.S. Drought Monitor, Sept 2013 and Feb 201826
Office of the Chief EconomistOffice of the Chief Economist
Livestock, poultry, and milk prices were higher in 2017, but will decline in 2018
Prices in red denote record levels.
Item 2014 2015 2016 2017 2018F %∆Dollars per cwt
Steers 154.56 148.12 120.86 121.52 119.25 -1.9Hogs 76.03 50.23 46.16 50.48 48.00 -4.9
Broilers 104.9 90.5 84.3 93.5 90.8 -2.9Milk 23.97 17.13 16.30 17.63 16.05 -9.0
Data: USDA.
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Office of the Chief EconomistOffice of the Chief Economist
Export volumes rise over time
Data: USDA.
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Beef Pork Chicken
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2021
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Dairy, Fat-BasisDairy, Skim Solids-Basis
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Office of the Chief EconomistOffice of the Chief Economist
Status of the Farm Economy
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Office of the Chief EconomistOffice of the Chief Economist
Data: USDA.
Working capital falling
$0$20$40$60$80$100$120$140$160$180
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2012 2013 2014 2015 2016 2017F 2018F
Assets (left axis)
Working Capital (right axis)
Debt (left axis)
Mill
ion
dolla
rsM
illion dollars30
Office of the Chief EconomistOffice of the Chief Economist
Debt-to-asset ratios vary by sector
Data: USDA.
0%5%
10%15%20%25%30%35%
Cotton Wheat Corn Soybeans All othercrops
Cattleand
calves
Hogs Poultry Dairy Otherlivestock
Highly leveraged (0.41< dta > 0.70)
Very highly leveraged (dta > 0.71)
% of farm businesses
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Office of the Chief EconomistOffice of the Chief Economist
050100150200250300350400450
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F
Borrowing continuing to rise
Data: USDA.
Total debt
Real estate debt
Non-real estate debt
Billion dollars (2018$) Billion dollars (2018$)
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Office of the Chief EconomistOffice of the Chief Economist
Debt-to-assets remain low, but interest payments rising
Data: USDA.
0%
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Office of the Chief EconomistOffice of the Chief Economist
The share of non-performing loans is rising
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0.0%
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1.5%
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2.5%
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ar-0
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p-04
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Non-real estate loansPercent (lhs)
Billion dollars (rhs)
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2.5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Mar
-00
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Mar
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Sep-
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Real estate loans
Billion dollars (rhs)
Percent (lhs)
Data: Federal Reserve Board of Governors
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Office of the Chief EconomistOffice of the Chief Economist
Farm bankruptcy remains low
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012345678
Bankruptcies / 10,000 farm
sM
illio
ns o
f far
ms,
exc
ludi
ng
shaa
recr
oppe
rs
Total farms
BankruptcyRate
Source: USDA-ERS.
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Office of the Chief EconomistOffice of the Chief Economist
Farm programs and changes
https://fm.cnbc.com/applications/cnbc.com/resources/img/editorial/2017/09/11/104702221-GettyImages-56058522.530x298.jpg?v=1505137319
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Office of the Chief EconomistOffice of the Chief Economist
Crop insurance increasing in importance
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10152025303540
1985 1987 1989 1991 1993 1665 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Bill
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dolla
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Crop insurance
Conservation
Emergency
Decoupled
Partially decoupled
Coupled
$15 billion per year$5.7 billion from crop ins
37
Source: USDA.
Office of the Chief EconomistOffice of the Chief Economist
• 2017Crop insurance indemnities reflects location of 2017 natural disasters
Source: USDA-RMA.
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Office of the Chief EconomistOffice of the Chief Economist
Source: CBO.
Projected Farm Bill spending by commodityB
illio
n do
llars
0.0
1.0
2.0
3.0
4.0
5.0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Corn SoybeansWheat Upland cottonRice PeanutsDairy net outlays
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Office of the Chief EconomistOffice of the Chief Economist
80 percent generic base acres > 2009-2012 average for upland cotton planted acres
Data: USDA.
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0
5
10
15
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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F
Upland cotton, planted acres80% Generic base, enrolled (2017)Upland cotton, 2009-2012 average planted acres
Mill
ion
acre
s
Office of the Chief EconomistOffice of the Chief Economist
0.00
0.50
1.00
1.50
2.00
2.50
$0$2$4$6$8
$10$12 Milk/feed margin (lhs)
BBA payments at $8 margin (rhs)
MPP payments at $8 margin (rhs)
Increased MPP payments to dairy producers
Note: Payments at $8 are annual payments/cwt to producers with margin coverage at $8.Data: USDA.
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$US/cwt $US/cwt
Office of the Chief EconomistOffice of the Chief Economist
Conclusion
1. Total meat and milk production reach record highs in 2018.2. Strong global GDP and weak dollar maintains exports this year. 3. Parity between soybean and corn acreage in 2018.4. Net farm income is forecast down and projected to fall in real terms. 5. The 2018 Bipartisan Budget Act will extend farm safety net programs for
cotton and dairy and provide additional assistance to producers facing losses from 2017 disasters.
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Office of the Chief EconomistOffice of the Chief Economist 43
Thank you!