Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
13th Annual Farmer Cooperatives ConventionDecember 6-7, 2010
Economic Update: Managing Risk in a Deleveraging and Rebalancing
Global Economy
Presented by: Terry N. Barr, Senior Director of Industry ResearchKnowledge Exchange Division, CoBank, ACBE-mail: [email protected]
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
• Continuing volatility … meaning more working capital, lower acceptable levels of leverage and mandatory well-defined strategies for risk management.
• Increasing costs from regulatory compliance and declining support from federal programs.• More challenging access to capital markets with broader risk analysis, including counterparty.• Changing U.S. consumer behavior & demographics.• Growing trade dependency (more risk & volatility)•Increasing consolidation and realignment of supply chains. Domestic integrated into global chains.
The Emerging Business Environment Will Include ……..
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Labor Force Growth is Driver of Future Growth and Potential Trade Issues
0
200
400
600
800
1000
1200Million people in the 15-64 age group
BrazilChina
IndiaMexico
RussiaU.S.
W. Europe
Source: UN population database
1. A labor force of 1.7 billion workers must be integrated into the global economy! 2. A consumer base of 1.7 billion people with more purchasing power must also be integrated!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Asia Becoming More Significant Factor in Balancing Global Growth
-2
0
2
4
6
Percent change in annual world growth (purchasing-power parity rates)
Advanced countries Rest of world China India
Advanced economies accounted for over half of world growth rate from 1970 to 2008. From 2010 to 2012 they will account for less than one-third!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
* Currencies weighted by relative market importance to total U.S. trade.
70
80
90
100
110
120
130
140
150Indexes of major currencies/US$ (March 1973=100)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 0874 76 78 10
From March 2009 ………. -14%From 1997-03 average … -28%
Dollar Erosion Has Boosted Foreign Buying Power and Commodity Prices
Competitive devaluations and protectionism will be significant issues in 2011-
12!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The U. S. Transition
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
-2
0
2
4
6
Percent change Gross Domestic Product (Chained 2005$)
Recovery Shaped by CautiousConsumer and Financial Headwinds
Recovery path dramatically different!
Consumer holds the key to the pace of this recovery!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Continued High Unemployment and Excess Capacity in Labor Markets
2
4
6
8
10
12
Percent rate of unemployment
6
12
18
24
30
36
Average weeks of unemployment
unemployment rate
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Recessions
12
This transition required 5 years with average growth rate of 4.5%!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Fiscal and Monetary Policy: Setting Stage for 2011 and Beyond
CongressWhite House
Federal Reserve
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
What Will Election Mean For The Evolving Business Environment?Lame duck session: Tax extenders 2011 budget spendingNew 2011 Congress ? Deficit reduction will dominate Congress through session. Policy changes through funding levels.• Spending cuts• Revenue increases• No farm bill but change
through budget cuts!Regulatory activities:Agenda may accelerate!
Food safety, environment, nutrition, etc.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Economic Conditions Increasingly Diverse in Agriculture
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Smaller Than Expected 2010 Crops Lead Grain Stocks Lower
0
100
200
300
400
500Million metric tons of wheat & coarse grains
0
8
16
24
32
40Stocks-to-use percentage
World stocks Total stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Acreage Shifts Will Favor Corn But Weather / Input Costs Will Play Role!
Corn
Soybeans
Wheat
Upland Cotton
7 other crops*
Hay harvested
CRP
Double crops
Total acreage
93.5
64.7
60.5
10.8
20.2
61.0
36.8
5.0
349.2
2007
+1 to +4
-2 to +1
+2 to +4
+1 to +2
-1 to 0
+0 to +1
-1 to 0
+1 to +2
0 to +2
Change10 to 11
----------------- million acres -----------------
* Barley, oats, sorghum, rice, sunflowers, peanuts and canola
86.0
75.7
63.2
9.3
23.7
60.1
34.6
7.1
348.6
2008
86.5
77.5
59.2
9.2
20.8
59.8
33.7
4.7
346.4
2009
88.2
77.7
53.6
11.0
21.2
59.7
31.3
2.8
343.4
2010
90-93
76-79
56-58
12-13
20-21
60-61
31
4-5
346-349
2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Key Crop Input Prices Set Globally and Likely to Remain Volatile
100
200
300
400
500
600
700
Index (1990-92=100)
Feed Nitrogen Potash & Phosphate
China has increased loans to their agricultural sector, particularly sectors with supply shortages!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Reduced Global Harvest Boosts Prospects for Wheat market
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Wheat Stocks Rebounding
0
50
100
150
200
Million metric tons of wheat
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
(25)
0
25
50
75
100
125Million metric tons
Ending stocks
Domestic use
Production
Net exports
Declining FSU-12 Wheat Production Driving Markets
28% of world trade
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0.0
0.5
1.0
1.5
2.0
2.5
3.0Billion bushels
Ending stocks
Total useProduction
Rebound in Global Wheat production Could Push U.S. Stocks Higher in 2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Corn Market Riding the Ethanol Wave
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Corn Stocks Remain Tight Even With Large Harvest
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110
2
4
6
8
10
12
14Billion bushels
Production Total Use Free stks Gov't stks
Nearly 40 percent of the crop is utilized for ethanol.
Total corn use is now over 13.5 billion bushels!!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Ethanol Increases Continue to Drive Corn Markets
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Billion bushels of corn
Feed and residual
Exports
Food, seed & industrial
Ethanol use is key driver!
(38% of use)
Ethanol
DDG's
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Dollars per bushel (monthly prices received by farmers, USDA)
Corn price
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Loan rate
Season average price levels
Corn Prices Rally Strongly into 2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Soybean Market Riding Export Wave to China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Global Trade Remains Strong
0
25
50
75
100
125
150Million metric tons or bales
Coarse grains
Wheat
Soybeans
Cotton 39% to China
60% to China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
South American Crop Size Will set Tone for 2010 and 2011 Cropyears
0
50
100
150
200
250
Million metric tons
Brazil and Argentina
United States
World
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Sharply Larger Global Soybean Stocks Weighing on Markets
0
10
20
30
40
50
60
70Million metric tons of soybeans
0
5
10
15
20
25
30
35Stocks-to-use percentage
Ending stocks Stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Soybean Stocks Limited by Strong Demand and Acreage Competition
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110
500
1,000
1,500
2,000
2,500
3,000
3,500Million bushels
Production Total Use Stocks
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
$2
$4
$6
$8
$10
$12
$14Dollars per bushel (monthly prices received by farmers, USDA)
Soybean price
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Loan rate
Season average price levels
Soybean Prices Reflect Increasing Pressures From Larger Supplies
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Cotton Market Riding Export Wave to China and Low Stocks
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Cotton Stocks Beginning Rapid Adjustment
0
10
20
30
40
50
60
Million 480-pound bales of cotton
0
10
20
30
40
50
60
Stocks-to-use percent
Stocks Stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Increased Acreage and Output in 2011 Would Still Leave Stocks Low
0
5
10
15
20
25Million 480 pound bales
Production Total Use Stocks
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
20
30
40
50
60
70
80
90Cents per pound (monthly prices received by farmers, USDA)
Upland cotton price
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Loan rate
Cotton Prices Sharply Higher As Global Stocks Decline
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Livestock, Dairy and Poultry
Can Domestic Meat and Dairy Industry Bid Grain Out of Ethanol and Export Sectors?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat Industry Will Be Cautious About Expansion in 2011-12
0
5
10
15
20
25
30
35
40Billion pounds
Beef
Pork
Broilers - 0.4 % -1 to -3% - 3.0 % 0 to 3%
Change in 2010 2011 + 3.1 % 0 to +2%
BeefPork
Broilers
2007 2008 2009 2010 2011 +2.2% + 3% -3.2% 0.2 % 0 to 1 %
Percent change in total meat output
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Higher Broiler Shipments in 2011 Will Boost Meat Exports
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10-3
0
3
6
9
12
15Billion pounds (red meat: carcass weight; poultry: ready-to-cook)
Imports Exports Balance
Export share of 2011 U.S. production Broilers ….. 18% Beef ………. 9% Pork ……… 20% All meat .......16%Dairy (fat)… 3%
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat Exports at Plateau Following Strong Upward Trend
Beef Pork Broilers0
1
2
3
4
5
6
7Billion pounds (1999-2011)
99 02 03 05 07 09 11 99 02 03 05 07 09 11 99 02 03 05 07 09 11
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Broiler Industry Gauging 2011 Exports, Consumers and Feed Costs
3
4
5
6
7
8
9Ratio: pounds of broiler feed equal in value to 1 lb. of live broilers
quarterly data* Number of pounds of Broiler Grower Feed equal in value to 1 lb. Broilers, live weight.
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 0907 08 10 11
Data source: Livestock Marketing Information Center; USDA, NASSChart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Cow Calf Returns Likely to Remain Positive As Inventory Continues Decline
-150
-100
-50
0
50
100
150
200Dollars per cow
90
95
100
105
110
115
120
125Million head
Cattle inventory(January 1)
Cow-calf returns
Data source: Livestock Marketing Information Center; USDA, NASSChart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Ability to Pass Increased Costs to Consumer Will Set Cattle Prices
50
60
70
80
90
100
110
120
130
140Dollars per cwt.
500-600 lb steer calves
700-800 lb feeder steers
Fed steers
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
International Dairy Product Prices: Oceania
0
1000
2000
3000
4000
5000
6000U.S. dollars per metric ton
butter skim milk powder Chedddar cheese
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Dairy Sector Challenged by Volatility in Product and Feed Prices
8
10
12
14
16
18
20Dollars per hundredweight
Price support
All milk price
Increasing competition in a
smaller global marketplace!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Milk Production Potential Likely to be Limited by Feed Cost Escalation
120130140150160170180190200210220Million pounds milkfat basis
Commercial supply Commercial disappearance
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 1005
10
1520
25Ending stocks
Market keys 2011-12:Domestic consumer?International market volatility;Feed costs
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Agriculture Sector Rebounding Sharply in 2010-11
80
100
120
140
160
180
200Index (1990-92=100)
Prices received: crops
Prices paid*
*Prices paid commodities & services, interest, taxes and wage rates
Prices received: livestock
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110
20
40
60
80
100Billion dollars
Net Farm Cash Income
Direct government payments*
* emergency payments are striped area of government payments)
Net cash income in agriculture is now averaging around $80 billion a year
compared with an average of $60 billion for the previous decade….. but more volatility!
Farm Income: Agriculture Continues Strong Performance
Record high
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Farm Debt Leveraging Has Not Followed Land Prices Higher
0
500
1000
1500
2000
2500
Billion dollars
0
100
200
300
400
500
Billion dollars
Change 1970-1980Assets ... +259%Debt ....... +235%
Change 1980-1990Assets ... -16%Debt ....... -19%
Change 1990-2000Assets ... +43%Debt ....... +25%
Change 2000-2010Assets ... +74%Debt ....... +43%
Farm assets(left scale)
Farm debt(right scale)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
We May All Have to Get Out and Push But Opportunities Abound!
The Road Ahead