Michael Boehlje Purdue University Center for Food and Agriculture Business

Transcription

1 Michael Boehlje Purdue University Center for Food and Agriculture Business

2 Financial crisis/business climate Energy and agriculture/the bio-economy Globalization of production and consumption More uncertainty/volatility Policy/trade future Land/water/open space challenges Innovation and technology

3 Financial Crisis/Business Conditions Turmoil in the Financial Markets

4 Credit/capital availability Freezing of capital markets for ag unlikely Some firms (particularly in the livestock) sector will encounter serious problems Cost of funds will likely increase - increased risk premiums 100+ basis points Most firms will have access, but will be more scrutiny/requirements

5 Recession in U.S./Europe Issues are how deep (or shallow) and how long Will it become global China, India, S. America Reduced animal protein demand beef and pork Costs typically adjust more slowly Margin compression/risk

6 Grain producers o Strong incomes/cash flow o Higher land values o Low debt positions/leverage Livestock producers o Losses/negative cash flow o Discounted asset values o Higher leverage o 1-2 years before profits return Agribusinesses o Livestock packers high stressed (Pilgrims Pride, Smithfield, Tyson) o Ethanol highly stressed (Verasun) o Grain elevators and fertilizer/chemical retailers stressed

7 Low interest rates and inflation Little inflation investing and low debt Better liquidity so far Stronger incomes cushion the blow Fewer highly leveraged land purchases

8 Importance of liquidity Maintain a war chest credit lines, cash, strong equity position in solid assets Stay diversified Watch for opportunities distressed assets, rental land released Negotiate aggressively (fert, seed, chems) Hug your lender Position for the turn-around Better to be too late than too early

9 Energy and Agriculture From Food to Fuel 9

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11 $1.50 Margin Per Bushel: Iowa Ethanol Plants $ $ $ /8/11 10/8/11 11/8/11 12/8/11 1/8/12 2/8/12 3/8/12 4/8/12 5/8/12 6/8/12 7/8/12 8/8/12 9/8/12 10/8/12 11/8/12 12/8/12 1/8/ $ $ Department of Agricultural Economics Purdue University

12 Corn Use: 15B Ethanol by Billion Bushes Crop Crop 09 Crop 2% Annual Increase 2010 to 2014 Crops Crop Years Department of Agricultural Economics Purdue University

13 Traditional biofuels Ethanol from corn/sugar cane Biodiesel from vegetable oils Next generation biofuels Cellulosic ethanol Biodiesel from non-oilseed crops Biochemicals/biomaterials Replacements for petroleum base Combinations of biobased resins and fibrous structures Other high value chemicals from bioprocessing Biopharma Pharmaceuticals derived from biobased products and processes 13

14 Globalization From the Breadbasket to a Loaf of Bread in the Basket 14

15 Global demand exports of animal protein to China/India/Asia 15

16 1. Globalization: Population Source: Professor Marcos Neves, PENSA, Brazil

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18 1. Globalization: Production Source: Marcos Neves, PENSA, Brazil

19 Global demand exports of animal protein to China/India/Asia Global production Brazil in soybeans, poultry, and beef China in pork and cotton India in Cotton Australia in Wheat Inputs (fertilizer & fuel) and products Exchange rates Road/rail/water infrastructure Public sector ag R&D 19

20 45% Depreciation 2002 to June % Appreciation Since June 2008 Department of Agricultural Economics Purdue University

21 Illustra>on of Deprecia>on of the Dollar and Impact on U.S. Prices Oil Corn Soybeans Wheat Anhydrous $/barrel $/bushels $/ton 2002 Prices: $1.05 Euros/$1 $25 $2.00 $5.00 $3.00 $325 May 2008 Prices: $.65Euros/ $1 October 2008: Assume 20% price decrease for demand and 20% apprecia>on $ $125 $6.00 $13.00 $7.50 $1000 $75 $3.60 $7.80 $4.50 $600 Department of Agricultural Economics Purdue University

22 Uncertainty/Volatility From Floating Along to Managing the Rapids 22

23 36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% Total World Grains: Stocks to Use ( Crops) 1960/ / / / / / / / / / / / / / / / / / / / / / / / /20 09 Department of Agricultural Economics Purdue University

24 Crude Futures Corn Futures Department of Agricultural Economics Purdue University

25 Fer8lizer and Corn Price: (N= Black Sea; P=P2O5 N.Africa; K=Delv Europe) Urea Anhydrous Potash Midwest Corn Department of Agricultural Economics Purdue University

26 Higher cash costs fertilizer, seed, chemicals Higher land rents/values Higher feed costs Margin compression/risk Fewer risk management options Less effective government safety net More counter party risk Increased working capital needs Financial reserves critical

27 From the Farm Bill to Broader Policy

28 Energy Immigration Environmental Food Safety Transportation Farm Bill

29 Government Expenditures Buy America Financial Assistance Package Tax Policy

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31 From Plenty to Go Around to Conflicts Abound

32 Land/open space resources Availability and use Degradation Siting and location Prices Ownership/property rights

33 Wet lands and conservation Recreational uses Land use planning/urbanization Rural/urban water rights Odor issues Water quality

34 Innovation is the Lifeblood

35 Simplify/automate Product vs. process innovation Sustaining vs. disruptive innovation

36 Biotech/nutrition triple stack Information PDAs, automatic capture Process control GPS guidance

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38 New Markets Recreational activities Carbon sequestration Energy production Bio-based market Ethanol from corn Ethanol from cellulose Industrial products (plastics, paints, etc.) Organic/natural/local products Services JIT delivery, storage

39 Strategic choices and strategic risk Crop mix Livestock choices Business model Closed loop systems Co-product production Recycling Integrated crop/livestock systems What not to do

40 Implementing supply chains Tracking and tracing/food safety Inventory/logistics lean Locking in supplies in grain Maintaining market access Buyer Supplier

41 Technology and Timeliness Auto steer Larger equipment Electronic monitoring/measuring Process control technology Work flow scheduling Modularity mentality Pod or replicate Platforms in production/manufacturing

42 What we will do biological manufacturing of specific attribute raw materials for nutritional, pharmaceutical and industrial products enduses How we will do it integrated value chains that enable genetics to plate traceability How we will compete Quality (better) Speed to market (faster) Cost (cheaper)