Nathan Kauffman Economist June 6, 213 The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
6 4 2 Percent change from year ago U.S. Real GDP Growth 6 4 2-2 -4 Blue Chip Forecast -2-4 -6-8 -1 Change from previous quarter Change from year ago 27 28 29 21 211 212 213 214 Calculations based on BEA and Blue Chip Forecast April 213-6 -8-1
12. Percent Unemployment Rate 12. 1. U.S. Kansas 1. 8. Missouri 8. 6. 6. 4. 4. 2. 2. Source: Bureau of Labor Statistics
Booming sectors plateau in 212 The Wildcards A Rebound in Household Spending Commodities Investment Housing Manufacturing Exports Government Consumer Spending
1. 8. 6. 4. 2.. -2. -4. Consumer Spending and Housing Percent change from a year ago Personal Consumption Expenditures (left scale) Existing Home Sales (right scale) 5. 4. 3. 2. 1.. -1. -2. -6. Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13-3. Source: Bureau of Economic Analysis and National Association of Realtors
Federal Government Debt as a Percent of GDP 1 9 8 7 6 5 4 3 2 1 Percent of GDP Actual Baseline Projection Source: Congressional Budget Office
Investment: uncertainty is a heavy burden. Business Investment Potential changes in tax law sparked an increase in business investment at the end of 212. Businesses report that increased economic, fiscal policy, and regulatory uncertainty are weighing on investments. 4 3 2 1-1 -2-3 Percent (SAAR) Equipment and Software Structures 4 3 2 1-1 -2-3 -4-4 27 28 29 21 211 212 213 Source: Bureau of Economic Analysis
3 25 2 15 1 5-5 -1-15 -2-25 Real U.S. Net Exports and Tenth District Manufacturing Index Tenth District Manufacturing Composite Index (left scale) Net Exports (right scale) 26 27 28 29 21 211 212 213 Source: Bureau of Economic Analysis and Federal Reserve Bank of Kansas City Percent change from previous year 6 5 4 3 2 1-1 -2-3 -4-5
Commodity Prices and Performance vs. Equities Index (23 = 1) Index (23 = ) 3 CRB Commodity Index (Left Scale) 25 2 15 1 5 Sep-3 Mar-4 Sep-4 Mar-5 Sep-5 Mar-6 Sep-6 Mar-7 Sep-7 Mar-8 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 1 75 5 25-25 -5 Source: Commodity Research Bureau, Yahoo! Finance, and author s calculations * Commodities include: natural gas, gasoline, WTI crude oil, copper, gold, platinum, corn, wheat, live cattle, cocoa, coffee, and sugar. Equities include the S&P 5 index.
3 2 1-1 -2 Percent Difference between Per Capita Income Growth in Tenth Federal Reserve District and U.S. -3 1981 1986 1991 1996 21 26 211 Calculations based on BEA data
Are commodities driving a transition in U.S. agriculture?
U.S. Corn Inventories and Crude Oil Production 2 Ending stocks-to-use ratio Corn Inventories (Left Scale) Crude Oil Production (Right Scale) Crude Oil Production (Billion Barrels) 4 15 3 1 2 5 1 22 26 21 214 218 222 Source: USDA, EIA Short-Term Energy Outlook, and EIA Annual Energy Outlook 213
U.S. Corn Futures Prices 7. Dollars per bushel Corn Futures Prices as of May 29, 213 7. Corn Futures Prices as of May 29, 212 6.5 213 Crop Insurance Price 6.5 6. 6. 5.5 5.5 5. Jun Sep Dec Mar Jun Sep Dec 5. Sources: barchart.com, data as of May 29, 212 and CBOT, data as of May 29, 213
7 6 5 Dollars per acre Corn Soybeans Net Returns (Returns less variable costs) 213 Projections 7 6 5 4 4 3 3 2 2 1 1 Source: USDA Agricultural Baseline Projections, various years
4 36 32 28 24 2 Ratio Feed Price Ratios Beef cattle-corn (Left Scale) Hog-corn (Right Scale) 213 Projections 2 18 16 14 12 1 16 211 212 213 214 215 216 217 218 219 22 221 222 8 Source: USDA Agricultural Baseline Projections
Could the transition in agriculture lead to a bust?
Farm Incomes Farmland Values Agricultural Exports Global Competition Energy Policy Farm Debt Interest Rates
14 U.S. Real Net Farm Income Billion Dollars (Constant 212 Dollars) 14 12 1 8 6 4 2 USDA Projections 12 1 8 6 4 2 Source: USDA
Federal Reserve 1 th District Farmland Value Gains Percent change from a year ago 35 3 Nonirrigated Cropland Irrigated Cropland 25 Ranchland 2 15 1 5-5 2 21 22 23 24 25 26 27 28 29 21 211 212 35 3 25 2 15 1 5-5 Source: FRB KC, Survey of Agricultural Credit Conditions
35 3 25 2 15 1 Cropland Value-to-Cash Rent Ratios Percent change from previous year Iowa Cropland Kansas Non-irrigated Cropland 35 3 25 2 15 1 5 1967 1972 1977 1982 1987 1992 1997 22 27 212 Source: NASS, USDA and Iowa State University Investors will spend $32 for every dollar of revenue. Implies a capitalization rate of 3.1% 5
18 16 14 12 1 8 6 4 2 Billion Dollars China All Other Countries U.S. Agricultural Exports (9.5%)* 2 21 22 23 24 25 26 27 28 29 21 211 212 213 Source: USDA Note: 213 agricultural exports forecast based on year-to-date 213 annual growth rate. * China s share of total U.S. agricultural exports in parentheses. (18.4%)* 18 16 14 12 1 8 6 4 2
2 18 16 14 12 1 8 6 4 2 Billion dollars Exports Imports U.S. Agricultural Export Growth USDA Baseline Projections 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 217 218 219 22 221 222 2 18 16 14 12 1 8 6 4 2 Source: USDA
Global Corn, Soybean, and Wheat Expansion 16 Acreage Index (2 = 1) Percent 2 12 19 U.S. Share of World Acreage (Right Scale) U.S. (Left Scale) 8 4 18 17 Brazil & Argentina (Left Scale) China (Left Scale) Black Sea Region* (Left Scale) 16 * Black Sea Region includes Russia, Ukraine, and Kazakhstan Source: USDA
18 17 16 15 14 13 12 11 1 9 8 Billion Gallons U.S. Gasoline Consumption, Ethanol Production, and Mandates U.S. Gasoline Consumption (Left Scale) Ethanol Production (Right Scale)* 215 Mandate (Right Scale) 26 28 21 212 214 216 Source: Energy Information Administration. * Ethanol Production is net of trade Billion Gallons The Gap? EIA Forecast 18 17 16 15 14 13 12 11 1 9 8
U.S. Farm Profits and Capital Investments per Farm 6 5 Thousand Dollars (25 Dollars) Net Returns to Farm Operators (Left Scale) Thousand Dollars (25 Dollars) 25 2 4 3 2 Farm Capital Expenditures (Right Scale) 15 1 1 5 191 1914 1918 1922 1926 193 1934 1938 1942 1946 195 1954 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21 Source: USDA
Farm Debt Outstanding at Commercial Banks 12. 1. 8. 6. 4. 2.. -2. -4. Percent change from previous year Non-Real Estate Real Estate 26 27 28 29 21 211 212 Source: FDIC, Call Report data 12. 1. 8. 6. 4. 2.. -2. -4.
KS Farm Management Farms: Average Debt-to-Asset Ratio 1979 24.6% 21 26.8% Debt-to-Asset Ratio >4% 1979 19.4% 21 25.6% Debt-to-Asset Ratio >7% 1979 1.3% 21 5.9% 25% 2% 15% 1% 5% % -1 1-2 2-3 3-4 4-5 5-6 6-7 >7 Debt-to-Asset Ratio Range (%) 1979 21 Source: Featherstone, A. Who Leveraged the Farm, 212 Agricultural Symposium, Federal Reserve Bank of Kansas City.
Monetary Policy
5 4 3 2 1 Personal Consumption Expenditures Price Index Percent change from previous year 5 4 3 2 1-1 Overall PCE Price Index -1 PCE Price Index - Excluding Food and Energy -2-2 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Source: Bureau of Economic Analysis
5 Target Federal Funds Rate at Year-End 4 3 2 1 212 213 214 215 Longer run Source: Federal Reserve Board of Governors, Summary of Economic Projections, March 213
Federal Reserve Balance Sheet: Assets 35 3 25 2 15 1 5 Billion Dollars Fed Agency Debt MBS Purchases Liquidity to Key Credit Markets Lending to Financial Institutions Long Term Treasury Purchases Traditional Security Holdings Source: Federal Reserve Board of Governors
Modest economic recovery continues, but in transition. Commodities drive a transition in U.S. agriculture. Softer crop sector profits Strengthening livestock profits In the transition, there are risks to U.S. agriculture, possibly beyond 213. Farm incomes, farmland values, export markets, global competition, ethanol, farm debt, and interest rates
Federal Reserve Bank of Kansas City 213 Agricultural Symposium For an invitation e-mail AgSymposium@kc.frb.org