Implications for commodity prices and farm income

Transcription

1 Implications for commodity prices and farm income Mike Dwyer Director, Global Policy Analysis Office of Global Analysis Foreign Agricultural Service US Department of Agriculture Global Policy Analysis Division Office of Global Analysis

2 Despite drought and cost challenges, U.S. farmers doing very well 2

3 18 $ per bushel (per CWT for rice) Wheat Soybeans Corn Rice ($/cwt) Source: USDA Baseline

4 Cattle Hogs Broilers US $/hundredweight for cattle and hogs & U.S. cents/lb for broilers Source: USDA Baseline

5 Growing global demand projected to keep U.S. net farm income strong Net Farm Income (Billions US$) Source: USDA Baseline & ERS Farm Income Statistics

6 1. Global economic growth and the rise of the middle class in developing countries 2. Value of the U.S. dollar 3. Worldwide biofuels production 4. Role of trade and trade liberalization 5. Energy and agricultural input prices 6. Additional crop land 7. Biotech developments

7 Global economy emerged from worst recession in decades in Developing countries performed better and growing faster than developed countries. Same is happening now and is likely to continue for the next decade. Consumer incomes are rising and middle class households are expanding rapidly, especially in large emerging markets. Impact on global food demand will be significant due to higher income elasticities for food in developing countries.

8 Most of the increase will be in developing countries and the impact on worldwide food consumption will be significant 1000 Households w/real PPP incomes greater than $20,000 a year Millions of Households Middle class in developing countries projected to increase 110% by 2022 vs. just 12% in developed countries Developing countries Developed countries 0 Source: Global Insight s Global Consumer Markets data as analyzed by OGA

9 24% of households in these countries are middle class. By 2022, this could increase to 51% and the impact on food consumption will be significant China India Russia Brazil Mexico Indonesia Turkey Thailand Egypt South Korea Philippines Vietnam Malyasia Colombia Taiwan Households w/ Real PPP incomes greater than $20,000 (millions) Proj gains by Source: Global Insight s Global Consumer Markets data as analyzed by OGA

10 Lower income countries spend much of that additional income on food 100% 90% 80% Other Education 70% Recreation 60% 50% 40% Transport & communication Health 30% 20% 10% Furnishings Housing 0% Clothing Food Congo, Dem. Rep. Niger Gambia, The Zambia Ghana Nigeria India China Morocco Namibia Paraguay Jordan Peru Brazil Bosnia Kazakhstan Mexico Macao Israel Malta Italy Australia Canada United States Source: USDA, Economic Research Service using International Comparison Program 2005 data.

11 3,5 3 2,5 2 1,5 1 0,5 0 Ukraine Germany Russia Japan South Korea China UK US Chile Brazil Indonesia Vietnam Mexico Turkey India South Africa Philippines Percent 0,5 1 Data source: World Bank Urban and overall population growth, 2010 Total Urban

12 Changes in Beef, Pork, and Poultry Consumption 2002 vs 2012 (P) 80% 74% 60% 40% 38% 39% 39% 27% 20% 16% 0% 1% 2% EU North East Asia America ( China) China South America FSU SE Asia South Asia Source: USDA Production, Supply & Distribution Database

13 Changes in Grains and Oilseed Meals in Feed Consumption 2002 vs 2012 (P) USA Canada E. Asia ( China) EU FSU Mexico 21% 20% 9% 0% 13% 16% MENA 31% SE Asia China South Asia S. America 63% 67% 69% 70% -25% 0% 25% 50% 75% Source: USDA Production, Supply & Distribution Database

14 115 US Agricultural Trade Weighted Exchange Rate Indexed Value of U.S. Dollar, 2005 = Source: USDA, Economic Research Service; Foreign Agricultural Service

15 Boosts feedstock demand, but recent rate of growth is expected to slow EU Billion Liters Brazil USA 0 Products covered: ethanol & biodiesel for all countries, but omits biodiesel for the US. No cellulosic biofuels included. Source: FAS Annual Biofuel Reports and Washington staff analysis.

16 Global agricultural trade has grown sharply over the past decade should reach $1.1 trillion over next decade. Most countries agricultural imports have increased substantially, esp. China and East/Southeast Asia. U.S. and EU imports growing, too. Almost all major agricultural exporters have seen sharp gains in recent years not just the U.S. FTAs have proliferated worldwide, boosting trade. This will continue with or without the U.S.

17 1.200 Global Agricultural Trade Billions US$ Source: Global Trade Atlas; USDA/FAS/OGA Projections

18 Billions US$ Global Agricultural Imports Developing Developed % +135% Source: GTIS data analyzed by OGA

19 South America, led by Brazil, dominates regional exports Billion Dollars Total Agricultural Export By Latin America Mexico Central America South America Source: USDA FAS

20 EU USA China Russia Japan S. Korea Saudi Arabia Iran Egypt Indonesia Total Agricultural Exports in 2012 (Billion $)

21 5 76% Five Year Growth in Exports (2007 vs. 2012) 4 31% Billion $ % 118% 1 70% 38% 0 Guatemala Costa Rica Honduras Nicaragua El Salvador Panama Data sources: Global Trade Atlas Note: For Panama and Costa Rica 2012 exports are projections by FAS/USDA

22 However, Asia is only a minor market for the region s exports. In 2012, U.S. and the EU accounted for only 65% of regional exports, down from 83% in Billion Dollars % 42% Asia EU ROW 33% 28% 2 41% USA % Source: USDA FAS

23 Commercial scale agriculture is energy and input intensive planting, growing, harvesting, transporting, processing, and packaging. In recent years, input prices have risen in response to strong growth in global demand for energy and ag products. Prices of diesel, fertilizer, seed, and agricultural chemicals have risen. Rising production costs pressure farmers operating margins, mitigates supply response, and lead to higher long run agricultural commodity and food prices.

24 300 IMF Price Indices Index 2005 = Crude oil All Commodities Food 50 0 Source: International Monetary Fund: International Financial Statistics

25 While commodity prices will remain fairly strong over next 10 years, they will lag rising production costs land rental rates also affected by rising land prices Billions US$ Gross Farm Income Total Production Expenses % Operating Margin* * Net farm income/total cash receipts Source: USDA/ERS

26 How aggressively will producers around the world respond to strong commodity prices? Where will the gains occur? Transportation/storage infrastructure and marketing costs will play a big role. Land tenure issues, laws governing foreign investment, and the degree of price transmission will also be major issues. South America will likely lead in land expansion (largely new frontier lands in Brazil) as will the Former Soviet Union (esp. Russia and Ukraine). Africa has more uncultivated land but high marketing costs, poor infrastructure, and long distances from markets will be a constraint.

27 Globally 446 million hectares of uncultivated land (1.1 billion acres) 52 million ha Share of Land With Travel Time to Market < 6 Hours 123 million ha 3 million ha 14 million ha Latin America & Car. 76% 202 million ha Sub Saharan Africa 47% M. East & N. Africa 87% E. Europe & C. Asia 83% East & South Asia 23% Source: World Bank

28 120% 100% 80% Area Yield Production % Change 60% 40% 20% 0% 20% Grains Oilseeds* Cotton Total *Includes soybean, sunflower, rapeseed, and peanut Source: USDA PSD Database

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30 Big drop in U.S. yields in 2012/13 is due to worst drought in decades 12 Corn Yield and Trend Tons/hectare United States EU East Asia South America Central America Source: USDA PS&D Database

31 Prolonged economic stagnation or new recession, crisis in Euro Zone, or a hard landing in China pose risks to agriculture s outlook USDA does not publish alternative baseline projections and only publishes once a year. The projections in this presentation were based on assumptions developed in fall of 2012 and published February Fiscal and monetary actions in the coming months should pre empt another global crisis but may not revive pre crisis (2008/09) growth rates However, if macroeconomic outlook worsens, it could: Reduce the growth of the middle class in emerging markets Increase the value of the U.S. dollar (safe haven response) Reduce global trade (including agricultural trade) Reduce almost all dollar based commodity prices Reduce farm income

32 Have we entered a golden era for agriculture? That depends on your definition The price and profit outlook looks more promising than it has in decades. New price/income floors for ag producers who receive world prices for their products. Strong growth in global food, feed, (bio)fuel, and fiber demand and a relatively weak U.S. dollar will keep food and agricultural prices high over the next decade. Much of this new demand will be centered in Asia agricultural trade will continue to grow with most of the new import demand coming from developing country markets, such as China, Southeast Asia, Middle East/North Africa, and Latin America. High commodity prices and production gains should help the total profitability of agriculture (despite operating margins coming under pressure) at least in those countries with high degrees of price transmission. If so, this should continue attracting new investment into the sector, i.e. land and new technologies. However, beware of rising input costs and short term exogenous shocks they are a major element of risk in the profit outlook.

33 Strong growth in global food, feed, (bio)fuel, and fiber demand and a weaker U.S. dollar will keep agricultural commodity prices high over the next 10 years which should keep U.S. farm economy strong. Much of this new demand will be centered in Asia agricultural trade will continue to grow with most of the new import demand coming from advanced developing markets, such as China, Southeast Asia, and Latin America. High commodity prices should help the total profitability of agriculture, despite operating margins coming under pressure. If so, this should continue attracting new investment into the sector, i.e. land and new technologies.

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