The 2012 drought: impacts on the FAPRI agricultural commodity outlook

Transcription

1 The 2012 drought: impacts on the FAPRI agricultural commodity outlook By William H. Meyers Howard Cowden Professor of Agricultural and Applied Economics FAPRI at MU UN DESA Expert Group Meeting on the World Economy 22 October 2012 New York, NY

2 Is this the new normal? World Bank Price Indices 2005=100

3 Agenda FAPRI outlook in February 2012 What changed? Market outlook as of August 2012 Possible impacts of policy developments

4 The FAPRI Baseline in February 2012 It is not a forecast It is a projection based on a set of reasonable assumptions about Macroeconomic outlook Technology outlook Policy outlook

5 Dollars per barrel Oil price assumed to moderate West Texas intermediate oil price IHSGI, July June futures Sources: IHS Global Insight, July 2012; WTI crude oil futures, Oct. 11, 2012

6 Billion bushels Maize for ethanol growth slows, Feb 2012 baseline /06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22 Feed & residual Ethanol & coproducts Exports Source: USDA FAPRI-MU baseline, February 2012

7 U.S. maize farm price projections, Feb 2012 Sources: FAPRI-MU baseline, Feb. 2012; USDA, May 2012; CME Dec. contracts, June 8, 2012

8 So what happened this year? US and Kaz-Rus-Ukr-EU drought greatly changed market outlook FAPRI updated the baseline in August Briefly review that change A taste of August 2012 outlook

9 Bushels per acre Drop in US corn yield, bu/ac --three years in a row! U.S. corn yield Trend Source: FAPRI calculations based on NASS data, October 2012

10 Not just maize, but wheat too (USDA WASDE Oct 11, 2012) Production (mil mt) 2011/ /13 change Maize USA EU Brazil Arg + China Wheat FSU EU-27 and Aus USA

11 Not just maize, but wheat too (USDA WASDE Oct 11, 2012) Production (mil mt) 2011/ /13 change Coarse Grains USA FSU EU Arg + China Wheat FSU EU-27 and Aus USA

12 Big drop in world grain supply

13 As in 2010, prices react to drop

14 Agenda FAPRI outlook in February 2012 What changed Market outlook as of August 2012

15 Dollars per metric ton Sources: FAPRI-MU baseline, Feb. and Aug 2012; USDA, Oct 2012; CME Dec. contracts, Oct U.S. maize farm price projections, August /06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22 FAPRI Jan USDA Oct Dec fut. Oct 19 FAPRI Aug

16 Billion bushels Ethanol also adjusts to high price /06 07/08 09/10 11/12 13/14 15/16 17/18 19/20 21/22 Feed & residual Ethanol & coproducts Exports Ethnl Aug Feed Aug Exp Aug Source: USDA FAPRI-MU baseline, Feb 2012 and August 2012 update

17 Billion gallons U.S. ethanol production and use mandates Mandated use that can come from corn ethanol Conventional ethanol production Source: Calculations based on FAPRI-MU baseline, August 2012

18 Pounds per capita World consumption of 4 crops Corn Wheat Rice Soybeans Source: FAPRI-MU projections, August 2012

19 Pounds per capita World consumption of 3 meats Pork Beef Chicken Source: Author calculations based on USDA PSD Online data. USDA country coverage is not complete for meat consumption data, so per-capita consumption may be slightly understated.

20 $/MT World Grain Prices, Aug update HRW wheat, U.S. FOB Gulf Barley, Canada FOB Thunderbay Maize, U.S. FOB Gulf

21 $/MT World Oilseed Prices, Aug update Rapeseed, FOB Hamburg Sun seed, FOB Lower Rhine Soybeans, FOB Rotterdam

22 $/barrel Stochastic results show uncertainty th percentile Average of stoch. 90th percentile Source: FAPRI-MU August 2012 stochastic baseline, Refiners acquisition price

23 $/MT Price volatility to continue Price in 3 out of 500 MAIZE FOB Gulf outcomes No. 65 No. 425 No. 116 Source: FAPRI-MU August 2012 stochastic baseline. Maize FOB Gulf prices

24 Price in dollars per bushel 2012/13 U.S. corn yields and prices (FAPRI-MU stochastic baseline, prepared in February 2012) of 500 outcomes Yield: bu./a. Price: $7.20/bu. Average of 500 outcomes Yield: bu./a. Price: $4.81/bu U.S. yield in bushels per acre

25 $/MT Maize price uncertainty th Percentile Baseline 90th Percentile Source: FAPRI-MU August 2012 stochastic baseline, US FOB GULF PRICE

26 $/MT Wheat Price Uncertainty th Percentile Baseline 90th Percentile Source: FAPRI-MU August 2012 stochastic baseline, HRW WHEAT US FOB GULF

27 $/MT Soybean Price Uncertainty th Percentile Baseline 90th Percentile Source: FAPRI-MU August 2012 stochastic baseline

28 Agenda FAPRI outlook in February 2012 What changed Market outlook as of August 2012 Possible impacts of policy developments

29 Implications of an RFS waiver Current low RIN values suggest RFS is not very binding Use is in line with market demand given blending economics Few short-run economical alternatives to ethanol for octane enhancement Implies a waiver would not have big effect on ethanol use or on corn prices in short run Lots of uncertainties about actual market response

30 US Farm bill debate so far Bills passed by Senate and House Ag. Committee Eliminate direct and countercyclical payments, ACRE Create new risk management programs Senate emphasizes revenue-based program House Ag. emphasizes price-based program & crop insurance add-on N0 large impacts on crop prices

31 Main focus for new CAP reform Financial frame with upper spending limits Greening of 30 % of Direct payments as mandatory Partial convergence of direct payments Capping of Direct Payments Small market effects but could slow down production growth 25/10/

32 What to expect Continued prices higher than before the 2007/08 price surge Continued price volatility from year to year and from week to week Beware of many uncertainties that can impact markets at any time.

33 Unknowns and uncertainties High volatility likely to continue Major uncertainties in the markets Policy proposals and policy reactions Oil/Energy prices Exchange rates World price surges Financial crises Weather events/climate change

34 Recent FAPRI analyses August baseline update: _06_12.pdf Senate and House Ag. Committee farm bill: _05_12_Rev.pdf RFS waiver options: _11_12.pdf Or just visit to see what s new