Fundamental Shifts Impacting U.S. Agriculture Richard Brock California Grain & Feed Association San Diego, CA April 28,
Game Changers 3 fundamental shifts Long term Impact
$2 cotton in 2011 industry will never be the same.
$8.00 corn in 2012 Research yield and drought resistant World Corn Production World Corn Exports billion bu billion bu 4.0 non U.S. 25 non U.S. 3.5 3.0 20 2.5 U.S. 15 U.S. 2.0 1.5 10 1.0 0.5 95/96 00/01 05/06 10/11 15/16 5 95/96 00/01 05/06 10/11 15/16 0.0
Oil price collapse Fracking changed the world low oil prices for a long time period. OPEC Collapse Weekly Crude Oil Futures $/barrel 150 125 100 75 50 25 2000 2005 2010 2015 0
Other market impacts
Technology Transfer to Asia
Water Availability
Consumer Demand Shift
General Economy & Outside Markets
I personally would suggest government. They never go to jail
U.S. Dollar Index
U.S. Dollars per Brazilian Real
500 400 300 200 100 0 CRB Index vs. U.S. Dollar Index Commodity prices often move inversely the U.S. dollar. CRB Index U.S. Dollar Index -100 2007 2008 2009 2010 2011 2012 2013 2014 2015 140 135 130 125 120 115 110 105 100 95 90 85 80 75 70
Water @ $1.39/20 oz. bottle = $8.90/gal Water is 6.4 times more expensive than gasoline!
Crude Oil, monthly continuous
June Crude Oil Shale oil regions
U.S. Crude Oil Inventory 2015 Million barrels 550 525 500 2011-2015 average 2011-2015 range 475 450 425 400 375 Source: EIA As of April 15th, crude oil inventory was: 10% above last year, 34% above 5-year average Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 350 325 300 275
12 U.S. Crude Oil Production and Imports Million barrels/day 11 10 9 8 7 Imports down 28% since 2006 peak Production down 6.4% from June peak 6 5 4 Domestic production up 127% since 2008 bottom 3 1990 1995 2000 2005 2010 2015 Source: EIA through April 15, ; values based on 4-week moving averages
Farm Economy
7 Stages of Agricultural Economic Cycle 7 Stages of Ag Economic Hope Confidence Skepticism Euphoria Cycles Concern Emotions Caution Now Despair Time 1985 2010 2015 Copyright by Richard Brock and Associates, Inc.
MAD MAD
$ Billion Net Farm Income -27% in 2014, -37% in 2015; Projected to Decline Additional 3% in 600 500 Total Gross Income 400 300 Total Expenses 200 100 Net Cash Income Net Farm Income 0 1995 2000 2005 2010 2015F F Source: USDA ERS, February
Corn Prices and Nitrogen Prices are Highly Correlated 400 USDA Nitrogen Price Index (1982=100) $8.00 Nitrogen Price Index (1982 = 100) 350 300 250 200 150 100 50 Corn Price (Marketing Year) Nitrogen Fertilizer Price Index Corn Price $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 Average Corn Price (marketing year) 0 $0.00 Source: USDA NASS
$10,000 $8,000 Cropland Value per Acre California Iowa Illinois 10,690 +5.4% 8,200-6.3% 7,650-0.6% $6,000 Nebraska 5,070-2.1% $4,000 United States 4,130 +0.7% Idaho 3,200 +5.3% $2,000 $0 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA Land Values, August 2015 Summary
30 Farm Sector Debt Ratios Increasing Percent 25 20 15 Debt-to-equity increasing: from: 12.8% in 2013 13.3% in 2014 14.7% in 2015 15.2% in Debt/Equity 10 Debt-to-assets increasing: from: 11.3% in 2013 11.7% in 2014 12.8% in 2015 13.2% in Debt/Assets 5 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F F Source: USDA ERS, U.S. Farm Income and Wealth Statistics, February
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 - U.S. Gross Farm Income Correlation to Cropland Value Based upon USDA projected gross farm income as of February, land values should be closer to $3,298 vs. $4,130 per USDA survey in August. Cropland is 25% "overvalued" by historical valuation measures. Actual Land Value Land value per regression formula 200% 190% 180% 170% 160% 150% 140% 130% $3,298 120% 110% 100% 90% 80% 70% 60% 50% % overvalued 40% 30% 20% 10% 0% -10% -20% % undervalued -30% -40% $4,130 in 2015
USDA Changes in Planted Acres (in millions) * compared with 2015 All Wheat Winter Wheat Other Spring sorghum Barley Soybeans Oats Dry Edible Beans Canola Sugar Beets Durum Wheat Rice Cotton corn -5.09-3.25-1.90-1.24-0.42-0.41-0.34-0.21-0.03 0.00 0.06 0.45 0.98 5.60-6.00-4.00-2.00 0.00 2.00 4.00 6.00 8.00 * Prospective Plantings
Corn Supply & Demand
U.S. CORN SUPPLY AND DEMAND USDA Outlook Forum Brock Marketing year begins Sept 1 14/15 15/16 Proj 16/17 15/16 16/17 ACREAGE (million) 93.6* Planted Area 90.6 88.0 90.0 88.0 91.5 Harvested Area 83.1 80.7 82.3 80.7 83.7 Yield 171.0 168.4 168.0 168.4 169.0 SUPPLY (mil bu) Beg. Stocks 1,232 1,731 1,837 1,731 1,837 Production 14,216 13,601 13,825 13,601 14,145 Imports 32 50 40 50 30 Total Supply 15,479 15,382 15,702 15,382 16,012 USAGE (mil bu) Feed & Residual 5,324 5,250 5,425 5,300 5,400 Food/Seed/Ind 6,560 6,621 6,600 6,595 6,600 Ethanol & By-Products 5,200 5,250 5,225 5,225 5,225 Domestic Use 11,883 11,871 12,025 11,895 12,000 Exports 1,864 1,650 1,700 1,650 1,800 Total Use 13,748 13,521 13,725 13,545 13,800 Ending Stocks (mil bu, Aug 31) 1,731 1,862 1,977 1,837 2,212 CCC 0 0 0 0 0 Privately-Owned 1,731 1,862 1,977 1,837 2,212 Stocks/Use 12.6% 13.8% 14.4% 13.6% 16.0% Farm Price ($/bu) $3.70 $3.40-3.70 $3.60 $3.20-3.80 $3.15-3.75 * Prospective Plantings report
USDA Corn Acreage Top 10 States (million acres) State 2013 2014 2015 March 1 intentions Change from 2015 Iowa 13.60 13.70 13.50 13.90 0.40 Illinois 12.00 11.90 11.70 12.10 0.40 Nebraska 9.95 9.30 9.40 9.70 0.30 Minnesota 8.60 8.20 8.10 8.20 0.10 Indiana 6.00 5.90 5.65 5.80 0.15 South Dakota 6.20 5.80 5.40 5.70 0.30 Kansas 4.30 4.05 4.15 4.80 0.65 Wisconsin 4.10 4.00 4.00 4.00 0.00 Ohio 3.90 3.70 3.55 3.55 0.00 Missouri 3.35 3.50 3.25 3.60 0.35 Top 10 Total 72.00 70.05 68.70 71.35 2.65 United States 95.37 90.60 88.00 93.60 5.60
110 Percent 100 90 80 70 60 50 40 30 20 10 - As of April 24th: 30% planted vs. 16% last year 16% 5-year average shaded area is 5-year range U.S. Corn Planting Progress 5-yr average Apr 03 Apr 10 Apr 17 Apr 24 May 01 May 08 May 15 May 22 May 29 Jun 05 Jun 12 Jun 19 Source: USDA NASS 2015 % Planted 5 year average +/ Missouri 81 31 50 Minnesota 45 11 34 Iowa 40 9 31 Kentucky 50 28 22 Tennessee 65 43 22 Illinois 42 25 17 Kansas 43 27 16 Wisconsin 10 3 7 Nebraska 16 11 5 Michigan 3 4 1 Ohio 8 9 1 Indiana 11 13 2 U.S. 30 16 14
Average Farm Price ($ / Bushel) 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 13 12 11 10 14 09 06 U.S. Corn Free Stocks/Use Ratio vs. Average Price (1975/76 - /17) 07 08 05 Source: USDA, Brock Associates 2015/16 13.6% stocks/use; $3.20-3.80/bu /17 16.0% stocks/use; $3.15-3.75/bu 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% Corn Ending Free Stocks to Use Ratio (10 = 2010/11 marketing year) 85
U.S. Corn Production (million bu) 2012 2013 2014 2015 * change from 2015 Iowa 1,877 2,140 2,367 2,505 2,449-2.2% Illinois 1,286 2,100 2,350 2,013 2,101 4.4% Nebraska 1,292 1,614 1,602 1,693 1,649-2.6% Minnesota 1,374 1,294 1,178 1,429 1,348-5.7% Indiana 597 1,032 1,085 822 933 13.5% South Dakota 535 803 787 800 734-8.2% Missouri 248 435 629 437 483 10.5% Ohio 438 649 611 499 549 10.0% Kansas 375 504 566 580 552-4.8% Wisconsin 396 439 485 492 481-2.3% Michigan 314 346 356 335 351 4.8% North Dakota 422 396 314 328 365 11.1% Rest of States 1,600 2,076 1,886 1,668 1,956 17.3% US TOTAL 10,755 13,829 14,216 13,601 13,950 2.6% * assumes Prospective Plantings acreage, 20 year trend yield by state, and 20 year average percent harvested by state
2,000 million bu 1,750 1,500 1,250 1,000 750 500 250 Source: USDA Corn Export Commitments 0 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug 12% below last year 2015/16 2015/16 2014/15 5 year average USDA Target 1,850 1,750 1,700 1,650
World Corn Export Share, 2007/08 to 2015/16 70% 60% 50% 40% 2012 Drought World Corn Export Volume: 2013/14: 131.1 2014/15: 141.7 est. 2015/16: 122.3 30% 20% 10% 0% U.S. Argentina Brazil Ukraine R.O.W. Source: USDA, April 2007/08 2015/16
250 60% mil. metric tons Ending stocks/use 200 World Corn Ending Stocks and Stocks/Use +1.9 mmt from last month; +1.3 vs. last year 50% 150 40% 100 30% 50 20% - 75/76 80/81 85/86 90/91 95/96 00/01 05/06 10/11 10% Ending Stocks (left scale) Ending Stocks/Use (right scale) Source: USDA FAS, April
Million 20 metric tons 15 China Corn Imports & Exports Imports Exports Exports 10 5 0-5 -10 Source: USDA, April Imports 2.5
250 Million metric tons 200 150 Production Consumption Ending Stocks Imports China Corn Fundamentals Record production Record consumption 100 Ending Stocks 50% stocks/use ratio 50 - Imports Source: USDA, April,
Ethanol
EPA Releases Final Renewable Fuel Obligations (RVO s) for 2014 - RFS Statutory Mandate: 14.40 15.00 15.00 Billion gallons 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 - Actual fuel ethanol production EPA Final RVO: 13.61 14.05 14.50 June 2015 EPA Proposal Sources: RFA, EPA RFS Statutory Mandate Final Renewable Volume Obligations
$/gallon 4.00 Ethanol Costs, Revenues, and Profitability/Gallon 3.50 3.00 2.50 Costs 2.00 1.50 1.00 0.50 - Profitability Revenues +$0.01 (0.50) 2011 2012 2013 2014 2015 Source: Iowa State University through March Brock est. for April
Million gallons 200 175 150 125 100 75 50 25 0-25 -50-75 -100-125 U.S. Ethanol Imports and Exports Exports Imports Net exports 2011 2012 2013 2014 2015 Source: USDA FAS (through February; March data to be released in May)
$10.00 $/bu $9.00 $8.00 Central Illinois Cash Corn (1905 *) 1917 1948 1948 1974 1974 1996 1996 2012 31 Years +29% 26 Years +40% 22 Years +32% 16 yrs +63% 2008 $8.54 $7.00 $6.00 $5.00 $4.00 $3.97 $5.25 $3.00 $2.00 $2.21 $2.84 $1.00 $0.00 15 Years 14 Years 13 Years 9 Years * Updated April 26,
December Corn
Soybean Supply & Demand
U.S. SOYBEAN SUPPLY AND DEMAND USDA Outlook Forum Brock Marketing year begins Sep 1 14/15 15/16 Proj. 16/17 15/16 16/17 82.2* ACREAGE (million) Planted Acres 83.3 82.7 82.5 82.7 83.5 Harvested Acres 82.6 81.8 81.6 81.8 82.7 Yield 47.5 48.0 46.7 48.0 47.5 SUPPLY ( mil bu) Beg. Stocks 92 191 450 191 439 Production 3,927 3,929 3,810 3,930 3,928 Imports 33 30 30 30 30 Total Supply 4,052 4,150 4,289 4,150 4,397 USAGE (mil bu) Crush 1,873 1,870 1,900 1,870 1,900 Exports 1,843 1,705 1,825 1,710 1,850 Seed 96 65 92 92 97 Residual 49 34 32 39 48 Total Use 3,862 3,705 3,850 3,711 3,895 Ending Stocks (mil bu, Aug 31) 191 445 440 439 502 CCC 0 0 0 0 0 Privately-Owned 191 445 440 439 502 Stocks/Use 4.9% 12.0% 11.4% 11.8% 12.9% Farm Price ($/Bu) $10.10 $8.50-9.00 $8.50 $8.05-9.20 $8.25-9.50 * Prospective Plantings report
USDA Soybean Acreage Top 12 States (million acres) State 2013 2014 2015 March 1 intentions Change from 2015 Iowa 9.30 9.85 9.85 9.70-0.15 Illinois 9.50 9.80 9.80 10.00 0.20 Minnesota 6.70 7.35 7.60 7.40-0.20 Missouri 5.65 5.65 4.55 5.50 0.95 Indiana 5.20 5.45 5.55 5.55 0.00 Nebraska 4.80 5.40 5.30 5.30 0.00 Ohio 4.50 4.70 4.75 4.65-0.10 South Dakota 4.60 5.15 5.15 5.00-0.15 North Dakota 4.65 5.90 5.75 5.90 0.15 Kansas 3.60 4.00 3.90 3.85-0.05 Arkansas 3.27 3.23 3.20 3.05-0.15 Mississippi 2.01 2.21 2.30 2.00-0.30 Top 12 Total 63.78 68.69 67.70 67.90 0.20 United States 76.84 83.28 82.65 82.24-0.41
110 Percent 100 90 80 70 As of April 24th: 3% planted vs. 2% last year 2% 5-year average shaded area is 5-year range U.S. Soybean Planting Progress 60 50 40 30 20 10 2015 5-yr average Apr 24 May 01 May 08 May 15 May 22 May 29 Jun 05 Jun 12 Jun 19 Jun 26 Jul 03 Source: USDA NASS
USDA World Soybean Production (million metric tons) 2012/13 2013/14 2014/15 2015/16 2015/16 Change from Feb Brazil 82.0 86.7 97.2 100.0 0.0 United States 82.8 91.4 106.9 106.9 0.0 Argentina 49.3 53.4 61.4 59.0 0.5 World Total 268.6 282.6 319.5 320.2-0.1 Source: USDA, April World Soybean Production
Price 10.50 10.00 9.50 9.00 8.50 Soybean Commitments of Traders Futures and Options Combined, as of April 19, Large Specs Price (dotted line, left scale) Contracts 200,000 150,000 100,000 50,000 0-50,000-100,000-150,000-200,000 Source:CFTC Commercials 8.00 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul -250,000-300,000
Continuous Monthly Soybean Futures 4 yrs 4 yrs 7/08 9/12 20.00 $/bu 18.00 Approximate time from peak to peak 5 yrs 5 yrs 4 yrs 2.5 yrs 4 yrs 6/88 5/04-53% 16.00 14.00 12.00 9/83-51% -53% 7/93 5/97-56% -53% Broken Support 10.00 8.00 4/00 6.00 9/86 6/91 7/99 2/05 3 yrs 3 yrs 2 yrs Approximate time from peak to trough 1980 1985 1990 1995 2000 2005 2010 2015 2015 16 4.00 2.00 0.00
November Soybeans
July Soybean Meal
Cotton
U.S. COTTON SUPPLY AND DEMAND USDA Outlook Forum Brock Marketing year begins Aug 1 14/15 15/16 Proj 16/17 15/16 16/17 ACREAGE (million acres) Planted Area 11.04 8.58 9.56* 9.40 8.58 9.60 Harvested Area 9.35 8.06 8.45 8.06 8.93 Yield 838 767 812 771 795 SUPPLY (million 480-lb. bales) Beginning Stocks (August 1) 2.35 3.70 3.60 3.70 3.63 Production 16.32 12.87 14.30 12.94 14.79 Imports 0.01 0.04 0.01 0.00 0.00 Total Supply 18.68 16.61 17.91 16.64 18.42 USAGE (million 480-lb. bales) Mill Use 3.58 3.60 3.60 3.60 3.70 Exports 11.25 9.50 10.70 9.40 10.90 Total Use 14.82 13.10 14.30 13.00 14.60 Unaccounted 0.16 0.01 0.01 0.00 STOCKS (million 480-lb. bales) Ending Stocks (July 31) 3.70 3.50 3.60 3.63 3.82 Farm Price ( /lb) 61.30 58-59 58.0 60-62 55-65 * Prospective Plantings report
18 U.S. Cotton Planted Area Million Acres 17 16 15 14 13 12 11 10 9 8 7 6 9.56
Percent 100 90 80 70 60 As of April 24 th: 10% planted vs. 9% last year 13% 5-year average shaded area is 5 year range U.S. U.S. Cotton Planting Progress 50 40 30 20 10 0 5-yr average 2015 Source: USDA
All Cotton Export Commitments (million bales) Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Source: USDA 5-yr average Last Year 2015/16 Commitments are: 25% below last year 33% below 5-year average 14 13 12 11 10 9 8 7 6 5 4 3 2 1 - USDA target: 10.0 9.5
World Cotton Ending Stocks and Stocks to Use World Cotton Stocks (Million 480-Pound Bales) 120 100 80 60 40 20 Ending Stocks Ending Stocks to Use Ratio -1.1 from last month; -9.7 from 2014/15 120% 100% 80% 60% 40% 20% World Ending Stocks to Use Ratio 0 0% Source: USDA FAS, April
Cotton's Share of Fiber Consumption, U.S. 44% 42% 40% 38% 36% 34% 32% Source: USDA ERS, Cotton and Wool Yearbook, November 2015 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
120 World Cotton Ending Stocks 100 U.S. World Cotton Stocks (Million 480-Pound Bales) 80 60 40 20 R.O.W. China 63% of total 0 Source: USDA FAS, April
Cotton, Monthly Continuous
December Cotton Futures
Livestock Update
Billion lbs. 50 45 U.S. Meat Production and Forecast (and percent change 2015 vs. 2014, vs. 2015) +3.1% +3.1% Poultry 40 35 30 25 20 All red meat and poultry combined: +2.6%, +3.2% USDA Outlook Forum: "red meat and poultry production will be record large in " Pork +7.2% +1.9% +4.8% -2.3% Beef 15 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 proj. Source: USDA ERS, April
lbs. per capita 120 110 U.S. Per Capita Meat Consumption (and annual percent change 2015 vs. 2014, vs. 2015) Poultry +5.7% +2.4% 100 90 80 All red meat and poultry combined: +4.4%, +2.1% 70 60 50 Beef -0.4% +2.0% 40 30 Pork +7.3% +0.8% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 proj. Source: USDA ERS, April
$/head 2,200 2,000 1,800 1,600 1,400 1,200 1,000 1,250 lb. Live Cattle Value less 50 bu Corn Cost 10.6 years peak to peak 11.0 years peak to peak Apr '16 800 600 400 1980 1985 1990 1995 2000 2005 2010 2015
Continuous Monthly Live Cattle Futures
Dairy
24,000 lbs/cow 22,000 U.S. Milk Production > U.S. per cow production estimated at 22,755 lbs; up 1.6% > production estimated at 211.8 bil lbs; up 1.5% 240 billion lbs. 220 20,000 18,000 16,000 Production per cow (left scale) U.S. Production (right scale) 200 180 160 14,000 140 12,000 120 10,000 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: USDA NASS, April, 100
National Milk Total Cost-of-Production $/cwt 30 29 28 27 26 25 24 23 22 21 20 2010 2011 2012 2013 2014 2015 19 Source: USDA ERS
National Milk/Feed Price Ratio Pounds of 16-percent-protein mixed dairy feed equal in value to 1 pound of whole milk. Higher Feed-Pice Ratios Favor Higher Profitability 4.00 3.50 3.00 2.50 2.00 1985 1990 1995 2000 2005 2010 2015 Source: USDA 1.50
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