Department of Economics
Agricultural Outlook
Iowa Chapter of the ASFMRA Annual MeetingAmes, Iowa
February 5, 2009
Chad HartAssistant Professor/Grain Markets Specialist
Department of Economics
U.S. Corn Supply and Use
Source: USDA-WAOB, Jan. 2009
-50
$3.90-0.10$4.00
-100
+316
-50
+81
Department of Economics
U.S. Soybean Supply and Use
Source: USDA-WAOB, Jan. 2009
-30
$9.00 $9.00
+50
+38
NC
Department of EconomicsSource: USDA-WAOB, Dec. 2008
Drought in South America
Department of EconomicsSource: Dow Jones Newswires
Argentine Drought Impacts (Early Reports)
2007 ProductionCorn 20.9 million tonsSoybeans 46.2 million tons
Current USDA EstimatesCorn 16.5 million tons -21%Soybeans 49.5 million tons +7%
Estimates from Buenos Aires Cereal ExchangeCorn 12.3 to 13.7 million tons -35 to -41%Soybeans 34.5 to 38.2 million tons -17 to -25%
Department of Economics
Chinese Corn Production
Source: USDA-WAOB, Jan. 2009
Department of Economics
Soybeans in China
Source: USDA-PSD, Jan. 2009
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007 2008
Mill
ion M
etr
ic T
on
s
Production Imports
Department of EconomicsSources: Various USDA-NASS reports
Livestock Adjustments
Sows farrowing: Sept-Nov 2008 2.99 million, down 6% from last yearDec-Feb 2009 2.97 million, down 3% from last yearMar-May 2009 3.01 million, down 2% from last year
Broiler-type eggs set: 203 million, down 7% from last yearBroiler chicks placed: 166 million, down 6% from last year
Feedlot placements: 2.02 million, down 5% from last year
Department of Economics
Ethanol Margins
Source: ISU, CARD
Department of Economics
Biodiesel Margins
Source: ISU, CARD
Department of Economics
Renewable Fuels Standard (RFS)
0
2
4
6
8
10
12
14
16
2009 2010 2011
Bill
ion g
allo
ns
Additional Advanced Biofuels Biodiesel
Cellulosic Biofuels Conventional Biofuels
Calendar Year
Billion Bushels
2009 3.75
2010 4.29
2011 4.50
CropYear
Billion Bushels
2008 3.57
2009 4.11
2010 4.43
Department of Economics
U.S. Blended Motor Gasoline Consumption
Source: Energy Information Administration
115
120
125
130
135
140
145
Bill
ion
Ga
llons
Actual Feb. Proj. July Proj. Dec. Proj.
Department of Economics
Outside Influences (Jan. 2007 = 1)
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.51
/3/2
00
7
3/3
/200
7
5/3
/200
7
7/3
/200
7
9/3
/200
7
11/3
/20
07
1/3
/200
8
3/3
/200
8
5/3
/200
8
7/3
/200
8
9/3
/200
8
11/3
/20
08
1/3
/200
9
Dow Oil Corn Soybeans
Department of Economics
Outside Influences (Sept. 2008 = 1)
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.009/2
/2008
9/9
/2008
9/1
6/2
008
9/2
3/2
008
9/3
0/2
008
10/7
/2008
10/1
4/2
008
10/2
1/2
008
10/2
8/2
008
11/4
/2008
11/1
1/2
008
11/1
8/2
008
11/2
5/2
008
12/2
/2008
12/9
/2008
12/1
6/2
008
12/2
3/2
008
12/3
0/2
008
1/6
/2009
1/1
3/2
009
1/2
0/2
009
Dow Oil Corn Soybeans
Department of Economics
130
135
140
145
150
155
160
165
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Mill
ion
acr
es
Corn & Soybean AreaGrowth rate of 1.55 million acres per year
Department of Economics
CRP Expiring Contracts
Source: USDA-FSA
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012 2013
Mill
ion
acr
es
Department of Economics
Input Costs
Source: USDA, Agricultural Prices, Dec. 2008
Department of Economics
The Rise and Fall of Fertilizer Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
Ammonia Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Department of Economics
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
$ pe
r B
ushe
l
Season-average Price Cost
Department of Economics
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
6.00
8.00
10.00
12.00
$ pe
r B
ushe
l
Season-average Price Cost
Department of Economics
Estimates for 2009 Iowa Costs
Non-land
Cost
Land Cost
Total Cost
Expected Yield
Cost per Bushel
($/acre) (bu/acre) ($/bu)
Corn
486.61 205.00 691.61 160 4.32
Soybean
285.60 205.00 490.60 50 9.81
December 2009 Corn Futures = $4.16 (2/2/09)November 2009 Soy Futures = $9.25 (2/2/09)
Source: Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf
Department of Economics
Crop Exports
Source: USDA, PSD
0.0
0.5
1.0
1.5
2.0
2.5
Bill
ion
bush
els
Corn Soybeans
Department of Economics
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
Jan-
03
Apr
-03
Jul-0
3
Oct
-03
Jan-
04
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Canada Mexico Brazil EU
China South Korea Japan Australia
Exchange Rates (Jan. 2003 = 1)
Source: USDA, ERS
Department of Economics
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
Canada Mexico Brazil EU
China South Korea Japan Australia
Exchange Rates (Jan. 2003 = 1)
Source: USDA, ERS
Department of Economics
2007 World Corn Exports
Source: USDA, FAS
U.S.65%
Other12%
Argentina16%
Brazil7%
Drought issuesfor 2008 crops
Department of Economics
2007 World Soybean Exports
Source: USDA, FAS
Other5%
U.S.40%
Paraguay6%
Brazil32%
Argentina17%
Drought issuesfor 2008 crops
Department of Economics
0%
10%
20%
30%
40%
50%
60%
70%
80%
Week
2006 2007 2008
Pace of Corn Export Sales
Source: USDA, FAS
Department of Economics
Japan40%
Other26%
Mexico19%
South Korea9%
Taiwan6%
2008 U.S. Corn Exports
Source: USDA, FAS
Department of Economics
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Week
2006 2007 2008
Pace of Soybean Export Sales
Source: USDA, FAS
Department of Economics
China60%
Other17%
EU10%
Mexico7%
Japan6%
2008 U.S. Soybean Exports
Source: USDA, FAS
Department of Economics
U.S. Stocks-to-Use Ratios
0%
5%
10%
15%
20%
25%
30%
Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006
Department of Economics
World Stocks-to-Use Ratios
0%
5%
10%
15%
20%
25%
Corn Soybeans Corn - Avg. 1990-2006 Soy - Avg. 1990-2006
Department of Economics
Finishing Out the 2008 Crop YearGeneral economic conditions
A lot of recent market trade has been tied to reaction to the financial crisis and the world’s responseEconomic slowdown raises concern about export and energy demand
Most important ag. statistic: Exchange rates or South American production
Current futures are indicating 2008 season-average prices of $3.75-4.25 for corn and $9.25-9.75 for soybeans
Stress on South American crops has provided some support for prices
Department of Economics
Thoughts for 2009 and BeyondMany of the storylines from 2008 will continue
Tight stocks for corn (worldwide) and soybeans (U.S.)The competition for acreageEthanol’s buildout & livestock’s adjustmentEnergy price & general economy concerns
Market volatility will remain highLink to the energy marketsMore market players with different trading objectives
Given current factors, the 2009 outlook is for crop prices around $4.00 for corn and $8.50-8.75 for soybeans
Key factor: Economic growth returns by early 2010
Department of Economics
Hog and Cattle Outlook 2009 and Beyond
John D. Lawrence
Extension Livestock Economist
Iowa State University
Department of Economics
Overview
• Total production and competing meats
• Hog liquidation underway, but slowing?
• Tighter beef supplies and contracting
• MCOOL
• Feed costs and risks
Department of Economics
TOTAL RED MEAT & POULTRY PRODUCTIONQuarterly
19.0
20.0
21.0
22.0
23.0
24.0
JAN-MAR APR-JUN JUL-SEP OCT-DEC
Bil. Pounds
Avg.2003/07
2008
2009
2010
Department of Economics
COMMERCIAL BEEF PRODUCTIONQuarterly
5.6
5.8
6.0
6.2
6.4
6.6
6.8
7.0
7.2
JAN-MAR APR-JUN JUL-SEP OCT-DEC
Bil. Pounds
Avg.2003/07
2008
2009
2010
Department of Economics
COMMERCIAL PORK PRODUCTIONQuarterly
4.0
4.5
5.0
5.5
6.0
6.5
JAN-MAR APR-JUN JUL-SEP OCT-DEC
Bil. Pounds
Avg.2003/07
2008
2009
2010
Department of Economics
RTC BROILER PRODUCTIONQuarterly
7.5
8.0
8.5
9.0
9.5
JAN-MAR APR-JUN JUL-SEP OCT-DEC
Bil. Pounds
Avg.2003/07
2008
2009
2010
RTC TURKEY PRODUCTIONQuarterly
1.20
1.30
1.40
1.50
1.60
JAN-MAR APR-JUN JUL-SEP OCT-DEC
Bil. Pounds
Avg.2003/07
2008
2009
2010
Year over year declines in chicken started in September
Department of Economics
Hog Overview
• Supply side favorable– Reduction underway
• Demand side a concern– Smaller supplies of competing meats– Exports below 2008 record levels– Consumer income
• Breakeven year expected
• Liquidation slowing
Department of Economics
Estimated Returns to Farrow to Finish Hog Production, $/Head, Iowa State University Extension
$(60)
$(40)
$(20)
$-
$20
$40
$60
Jan-0
1
Jul-0
1
Jan-0
2
Jul-0
2
Jan-0
3
Jul-0
3
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Jul-0
6
Jan-0
7
Jul-0
7
Jan-0
8
Jul-0
8
Department of Economics
U S PORK EXPORTS TO MAJOR MARKETSCarcass Weight, Monthly
0
20
40
60
80
100
120
140
2000 2001 2002 2003 2004 2005 2006 2007 2008
Mil. Pounds
Japan
SouthKorea
HongKong
China-Mainland
Livestock Marketing Information Center
Department of Economics
Dec Hogs and Pigs Report
Mil head % change
All Hogs 66.7 -2.2%
Breeding Herd 6.1 -2.4%
Market Hogs 60.6 -2.1%
Under 60 21.3 -5.5%
60 - 119 15.1 -0.5%
120 - 179 12.7 0.5%
180 & over 11.5 -0.4%
Department of Economics
Dec Hogs and Pigs Report
Pig Crop Mil head % change
Jun - Aug 29.3 0.5%
Sep - Nov 28.4 -3.7%
Farrowing Intentions
Dec - Feb 2.97 -3.3%
Mar - May 3.01 -1.6%
Pigs per Litter
Sep - Nov 9.5 2.4%
Department of Economics
Sow Slaughter in US
Total US Sow
Slaughter
Canadian Sows Slaughtered
in USUS Sows Slaughtered
January-December 15
1000 head 3368.3 561.5 2806.8
% Change 5.60% 35.80% 1.00%
September-December 15
1000 head 989.1 182.8 806.4
% Change -1.40% 45.30% -8.10%
November-December 15
1000 head 380.7 78.7 301.9
% Change -6.80% 49.80% -15.20%
Department of Economics
ISU Estimated Costs and Selling Prices, Farrow to Finish ($/cwt Live Wt)
$-
$10
$20
$30
$40
$50
$60
$70
Jan-
06
May
-06
Sep-0
6
Jan-
07
May
-07
Sep-0
7
Jan-
08
May
-08
Sep-0
8
Jan-
09
May
-09
Sep-0
9
Jan-
10
May
-10
Feed Variable Total Hog Price
Jan 15 Futures prices and historic basis
ProjectedReported
Department of Economics
Hog Summary
• Smaller supplies
• Exports below 2008, but second largest
• Domestic demand steady to weaker
• Watch feed costs
• Profitable summer, breakeven year
• Contraction slowing
Department of Economics
Cattle Overview
• Demand concern looms
• Herd reduction underway
• Lower supplies of competing meats
• Feed cost implications
Department of Economics
Demand Concerns
• Income!!!!– Mortgages and stock market– Unemployment growing
• Less spending at restaurants
• Value shopping for home consumption
• Stronger US$ slowing exports
Department of Economics
Livestock Marketing Information Center
WHOLESALE BEEF CHUCK PRICESBoneless 2 Piece, Weekly
115
125
135
145
155
165
175
185
195$ Per Cwt.
Avg.2002-06
2007
2008
WHOLESALE BEEF BOTTOM ROUND PRICES18-33 Pounds, Weekly
110
120
130
140
150
160
170
180
190$ Per Cwt.
Chuck and round prices above 2007 and 5 year average
Consumers eating out less often and spending less per trip.
They are trading down at the meat counter so less total dollars to the system.
Department of Economics
Livestock Marketing Information Center
U S BEEF AND VEAL EXPORTSCarcass Weight, Annual
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1985 1988 1991 1994 1997 2000 2003 2006 2009
Bil. Pounds
Department of Economics
Beef Demand Summary
• Demand has weaken since Adkins
• Higher relative price and restaurant volume– Greater impact from weaker economy– Ground beef may benefit but not high value cuts
• Exports rebounding but stronger US$ will limit exports and favor imports
Department of Economics
CATTLE ON FEEDUS Total, Monthly
9.5
10.0
10.5
11.0
11.5
12.0
12.5
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Mil. Head
Avg.2003-2007
2008
2009
Livestock Marketing Information Center
Data Source: USDA/NASS
COF -7.1%
Steers -7.5%
Heifers -6.4%
Department of Economics
Qtr LT700 GT700
1 7.6% -6.9%
2 -8.7% -7.5%
3 -14.8% 7.4%
4 -13.1% 2.5%
Feedlots placing heavier feeder cattle
Delays marketings and seasonal patterns
Heavier slaughter weights
CATTLE PLACED WEIGHINGMORE THAN 700 POUNDS
1,000 Plus Capacity Feedlots, U.S., Monthly
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Mil. Head
CATTLE PLACED WEIGHINGLESS THAN 700 POUNDS
1,000 Plus Capacity Feedlots, U.S., Monthly
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Mil. Head
Avg.2002-06
2007
2008
Department of Economics
Beef Supply Summary
• Smaller beef supply– Reduced fed cattle slaughter currently and
through mid-year– Continued high cow slaughter
• Trend to heavier placement weights– Backgrounding opportunities?– Continued heavy carcasses
Department of Economics
Feed Price Implications
Breakeven Purchase Price to Pay for 550# Steer Sold at 1200#
Corn Fed Cattle Selling Price
Price $80 $90 $100 $110 $120 $130
$3.00 $90 $111 $132 $153 $175 $196
$4.00 $82 $103 $124 $145 $167 $188
$5.00 $74 $95 $116 $137 $159 $180
$6.00 $66 $87 $108 $129 $151 $172
$7.00 $58 $79 $100 $121 $143 $164
$8.00 $50 $71 $92 $113 $135 $156
Cowherd Estimated Cost of Production
Variable Cost $120
Total Cost $150+
Department of Economics
Year % Chg. % Chg. Live Str Southern Plains Str
Qrtr Produce Consume 5-Mkt Avg 7-800# 5-600#
09 1 -3.3 -2.2 91-93 98-101 106-109
09 2 -4.1 -3.6 94-97 105-109 110-115
09 3 1.5 1.1 91-95 109-114 114-120
09 4 -0.3 -1.5 95-100 108-115 112-119
Year -1.5 -1.4 93-96 105-110 110-117
10 1 1.0 -2.4 95-101 106-113 111-119
10 2 -3.1 -4.0 100-107 110-118 117-127
10 3 -0.2 -0.7 94-102 111-120 117-128
10 4 -1.6 -1.9 99-108 110-120 115-124
Year -1.0 -2.3 98-104 110-117 115-124
Production and Price Forecast, Jan 2009
Livestock Marketing Information Center
Department of Economics
Cattle Summary
• Weak economy and strong dollar bad for beef demand
• Near term smaller supplies of beef though mid ’09
• Herd reduction continues leading to smaller supplies into 2012 or later
• Near term pressure on cattle prices
• Stronger prices in 2009 and beyond
Department of Economics
Thank you for your time!
Any questions?
My web site:http://www.econ.iastate.edu/faculty/hart/
Iowa Farm Outlook:http://www.econ.iastate.edu/outreach/agriculture/periodicals/ifo/
Ag Decision Maker:http://www.extension.iastate.edu/agdm/