2018 Crop Outlook. Chris Hurt, Professor, Department of Agricultural Economics. Michael Langemeier, Assoc. Director, Center for Commercial Agriculture

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1 2018 Crop Outlook Chris Hurt, Professor, Department of Agricultural Economics Michael Langemeier, Assoc. Director, Center for Commercial Agriculture James Mintert, Director, Center for Commercial Agriculture

2 Stocks Situation Stocks June 1 Pre-Report Expectation Difference Corn: Slight Bearish Soybeans Neutral Wheat: Neutral Million Bushels ,306 5, ,222 1, ,100 1,098 +2

3 Acreage Situation June Acres Pre-Report Expectation Difference Corn: Bearish Soybeans Neutral Wheat: Bearish Spring Wheat Bearish Million Acres

4 95 85 Corn, Soybean, Wheat Planted Acres Corn -3% Beans +7% Wheat -9% Million Acres Corn Soybeans Wheat

5 Millions U.S. Planted Acres: 17 Crops + CRP + Hay Crops y = x R² = Since Last year Since March 18 Corn +1.1 Beans +.6 Wheat

6 2018 Trend Corn U.S Corn Indiana Soybeans U.S Soybeans Indiana 53.5 Weekly Crop Ratings Yield Estimates (Bu./Acre) 6/3/ /10/ /17/ /24/

7 Temperature July/Aug/September Precipitation

8 50% 40% U.S. Ending Stocks to Use: Corn & Soybeans Wheat Corn Soybeans 30% 20% 14.2% 10.8% to 13.2% 10% 0% 9.2% 12.0% 8.7% to 10.8% Year

9 Corn USDA Purdue Difference Plant 88.0 Hvst 80.7 Yield ?? USDA 17/18 18/19 18/ Carry In 2,293 2,102 2,102 Production 14,604 14,040 14, Total Supply 16,942 16,192 16,729 Feed & Residual 5,500 5,350 5,400 FSI Non-Fuel 1,465 1,490 1,500 FSI Fuel (Ethanol) 5,575 5,675 5,700 Export 2,300 2,100 2,175 Total Use 14,840 14,615 14,775 Ending Stocks 2,102 1,577 1, US Farm Price $3.40 $3.90 $ $.30 $3.25-$3.55 $3.40-$4.40 Before Tariffs

10 December Corn Futures BarChart $4.30 $3.58

11 Soybeans USDA Purdue Difference Plant 89.0 Hvst 88.2 Yield ?? USDA 17/18 18/19 18/ Carry in Production 4,392 4,280 4, Total Supply 4,718 4,810 4,925 Seed & Residual Crush 2,015 2,000 2, Exports 2,065 2,290 2,290 Total Use 4,213 4,425 4, Ending Stock Farm Price $9.40 $10.00 $9.50 -$.50 $8.75-$11.25

12 November Bean Futures BarChart $10.60 $8.64

13 Tariff Situation: -June 15: U.S. announces $50 billion of tariffs on China for intellectual property infringements -$34 billion to begin July 6 -$16 billion later -June 15: China announces $50 Billion in Retaliatory Tariffs on U.S. Exports -$34 billion tariffs go into place July 6 -Including $15.5 Billion of U.S. farm products

14 Which Ag Products? 2017 U.S. Sales to China (Million $) Volume of Sales Percent of U.S. Production Volume Soybeans $12,356 1,176 Mill Bu. 27.0% Corn $ Mill Bu..2% Wheat $ Mill Bu. 3.1% Pork $1, ,000 MT 2.0% Beef $ ,000 MT 1.1% Poultry $ ,000 MT Total 6 $15,350

15 Tariff (tax) is 25% of the delivered value and goes into place on July 6, 2018 Brazil Origin U.S. Origin Pre-Tariff Delivered Price $12.00 $ % Tariff on U.S. +$3.00 Chinese Crushers Costs $12.00 $15.00

16 -U.S. Soybeans become the highest cost beans in the world for the Chinese -China buys all the beans possible from NON-U.S. origins -China still will need to buy many U.S. beans-but will buy the minimum they can from us -Chinese preference for NON-U.S. beans will stimulate higher prices and acreage among our competitors -Over time this will discourage soybean acres in the U.S

17 Impacts of Chinese Tariffs Purdue Study (Taheripour & Tyner) -U.S. soybean prices drop by up to 5% -Harms U.S. soybean industry up to $3 billion per year -Harms Chinese consumers up to $3 billion per year -Helps Brazilian ag economy by near $3 billion per year -Harms the entire world by up to $2 billion per year (net of + and -)

18 Corn tariffs not as negative to prices as soybeans -We export about 50% of U.S. soybean production and China s share approaches 30%. Tariffs are to be initiated on July 6 -We export only 15% of corn production and China s imports of U.S. corn last year were only.2% of our production -The 25% Chinese corn tariff will have little impact on our corn prices

19 -Mexico is considering a more modest 10% tariff on U.S. corn and other U.S. farm commodities -Mexico is our #1 foreign corn buyer -China purchased from the U.S. in million bu. corn -Mexico purchased from the U.S. in million bu. corn -Purchases from the U.S. in 2017: -Chinese soybean purchases were 27% of U.S. production -Mexican corn purchases were 4% of U.S. production -Mexico needs the corn for livestock and human use and are hesitant to put tariffs in place and push domestic food prices up -Corn tariffs are not nearly as serious to corn prices as soybean tariffs and are linked to whether Mexico follows through on tariff threats

20 Corn Summary Reports: Bearish Stocks + 43 Million 1.1 Million more acres than USDA Strong yield potential Tariffs not as significant. Mexico?? Crop insurance little downside protection-yet? Usage will be strong-more limited downside price risk

21 Soybean Summary Reports: Bullish Stocks = Neutral 580,000 More acres than USDA Tariffs extremely harmful China the key We are the residual supplier Crop insurance providing downside protection $9.50 beans if tariffs disappear

22 West Central Indiana Case Farm Corn/Soybean Farm 1500 acres of corn 1500 acres of soybeans January, 2018 Current Ratio = 2.96 Working Capital per Crop Acre = $369

23 Comparisons of Liquidity, Net Farm Income, and Retained Earnings for December 2018 between Late May and Late June Crop Price Projections Financial Metric Late May Late June Difference Liquidity Measures Current Ratio Working Capital per Crop Acre Net Farm Income and Retained Earnings $394 $316 -$78 Net Cash Flow $169,144 $51,807 -$117,337 Net Farm Income $134,054 -$100,621 -$234,675

24 Change in Value of 2018 U. S. Crops using USDA Production from June 1, 2018 to July 2 $Billion Corn -$7.407 Soybeans -$7.201 Wheat -$ crops -$ USDA estimates 2018 net farm income at $59.5 billion

25 Share of Respondents Expecting LOWER Commodity Prices in 12 Months % of respondents 35 Corn Soybeans Wheat Cotton /15 1/16 4/16 7/16 10/16 1/17 4/17 7/17 10/17 1/18 4/18 6/18 Month & Year Source: Purdue University Center for Commercial Agriculture, Producer Survey, June 2018

26 Next 2 Webinars Coming Up in August, 2018 Purdue Land Values & Ag Economy Barometer Purdue.edu/commercialag Purdue.edu/agbarometer