USDA Agricultural Outlook - PDF Free Download

USDA Agricultural Outlook December 216 World Agricultural Outlook Board Office of the Chief Economist U.S. Department of Agriculture Washington, D.C.

The Office of the Chief Economist is Non Political

Office of the Chief Economist Office of the Chief Economist Several functions in support of the Secretary Climate Change Program Office (e.g., COP 21) Office of Energy Policy and New Uses (e.g. bioproducts) Office of Risk Assessment and Cost Benefit Analysis (e.g., biotech regs) Office of Environmental Markets (e.g., Chesapeake Bay) World Agriculture Outlook Board (e.g. Market Outlook) Trade / Sustainability / Labor (e.g., recent China case) Domestic Policy (e.g., Farm Bill 218)

WASDE and Crop Production and area products are market movers

Attaché Reports Official Country Reports U.S. and World Weather USDA s Economic Information System Travel Reports Economic and Trend Analysis Remote Sensing

Average 216 215 Agricultural Weather Assessments World Agricultural Outlook Board December 9, 216

Thailand: North Central Plains Region Chainat Province Landsat Imagery Comparison Feb 2, 214 Feb 5, 215 Foreign Agricultural Service Office of Global Analysis IPA Division Source: USGS EarthExplorer; Landsat 8 March 1, 215

Crop Reports Other Country Data

Near Chartres, France (about 5 miles southwest of Paris and in the northern grain belt) Picture courtesy Xavier Audran; FAS Paris

The price of corn * in dollars and real, monthly Dollars per bushel, monthly average 8.5 Reals per bushel, monthly average 17 7.5 Price in US dollars (left axis) 15 6.5 Price in real (right axis) 13 5.5 11 4.5 9 3.5 7 2.5 Jan 1 Jul 1 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 5 *Central Illinois

Office of the Chief Economist Index 2=1 15. 12.5 1. 97.5 95. 92.5 9. 87.5 85. 82.5 8. 77.5 75. 72.5 Jul 11 Jul 12 Weighted Average Dollar InterContinental Exchange Index Monthly average Last 5 years Jul 13 Weighted-Average Dollar InterContinental Exchange Index Jul 14 Jul 15 Jan 16 Mar 16 Weekly average Last 52 weeks Jun 16 Sep 16 Dec 16

The IMF s downward forecasts of global growth 4. Office of the Chief Economist Percent change Lower Growth World Percent change 5.5 5.25 Lower Growth Emerging markets and developing countries 3.75 5. 3.5 3.25 3. April 215 forecast October 215 forecast April 216 forecast October 216 forecast 213 215 217 219 4.75 4.5 4.25 4. 3.75 April 215 forecast October 215 forecast April 216 forecast October 216 forecast 213 215 217 219 Source: IMF, World Economic Outlook forecast database.

Global production and consumption are record highs MMT 8 Wheat MMT 1,1 Corn MMT 35 Soybean 7 1, 9 3 25 6 5 4 8 7 6 5 4 2 15 1 5 3 3 Source: World Agricultural Supply and Demand Estimates, December 9, 216. Foreign Agricultural Service, PS&D database.

Global ending stocks remain high Days of use 16 Wheat Rice Corn Soybeans Days of use 4 14 Cotton (right axis) 35 12 3 1 25 8 2 6 15 4 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214 216 1 Source: World Agricultural Supply and Demand Estimates, December 9, 216. Foreign Agricultural Service, PS&D database.

Office of the Chief Economist Prices soften, rise modestly over time Crop Ave 2 3 211 212 213 214 215F 216F 217 Baseline 226 Baseline Wheat ($/bu) 3.9 7.24 7.77 6.87 5.99 4.89 3.7 4. 5. Corn ($/bu) 2.14 6.22 6.89 4.46 3.7 3.61 3.35 3.3 3.7 Soybeans ($/bu) 5.45 12.5 14.4 13. 1.1 8.95 9.45 9.35 9.55 Cotton (cents/lb) 46.48 88.3 72.5 77.9 61.3 61.2 67. 64. 68. All Rice ($/cwt) 5.61 14.5 15.1 16.3 13.4 12.1 1.4 1.7 12.6 Red denotes record high. Source: USDA OCE, World Agricultural Supply and Demand Estimates, Dec 9, 216. Baseline, November 29, 216

Real Commodity Prices Long run downward price trend as productivity has increased 25=1 8 25=1 8 7 6 5 4 Corn Soybeans Rice Wheat 7 6 5 4 3 3 2 2 1 1 195 1955 196 1965 197 1975 198 1985 199 1995 2 25 21 215 22 225 Source: USDA OCE Early Release Tables from USDA Agricultural Projections to 226.

Crop Area Expected to Decline Crop (mil. acres) 21 211 212 213 214 215 216 217 226 Baseline Baseline Corn 88.2 91.9 97.2 95.4 9.6 88. 94.5 9. 86. Soybeans 77.4 75. 77.2 76.8 83.7 82.7 83.7 85.5 85 Wheat 52.6 54.3 55.3 56.2 56.8 55. 5.2 48.5 49.5 Upland cotton 1 1.8 14.4 12. 1.2 1.8 8.4 1. 1.5 1. Minor feed grains 11.4 1.4 12.6 14.6 12.8 15.2 12.6 11.7 1.8 Rice 3.6 2.7 2.7 2.5 2.9 2.6 3.2 2.7 2.9 Total 8 crops 244. 248.7 257.1 255.7 257.4 251.9 254.1 248.9 244.2 CRP 31. 31.1 29.5 26.8 25.4 24.2 23.8 23.5 23.9 8 crops + CRP 275. 279.9 286.7 282.6 282.9 276.1 277.9 272.4 268.2 Source: USDA OCE Early Release Tables from USDA Agricultural Projections to 226.

US Wheat Area 1919 226 1 9 8 7 6 5 4 3 Area for 217/18 lowest on record 2 1 1919 1924 1929 1934 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 24 29 214 219 224 Million acres Source: USDA OCE Early Release Tables from USDA Agricultural Projections to 226.

Despite a significant drought in the west, national wheat production was a record 27.4 Mt VHI Data Oct 21 Source: WASDE Secretary s Briefing December 9, 216 because near ideal growing conditions in the south and east led to very high yielding crops. December 9, 216

This year, conditions in the west are vastly better than in 21 VHI Data Oct 216 Source: WASDE Secretary s Briefing December 9, 216 and conditions in the south and east are even better than the excellent conditions in 21. December 9, 216

Global wheat supply and use Mil MT 8 4 75 7 35 3 25 65 6 55 2 15 1 5 Production Consumption Ending Stocks 5 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/211 211/212 212/213 213/214 214/215 215/216 216/217 Source: USDA PSD database, December 9, 216

MT/HT 4 3 2 1 1991/1992 1994/1995 1997/1998 Projected wheat exports 2/21 23/24 26/27 29/21 Russia Ukraine United States 212/213 215/216 MMT 2 175 15 125 1 Source: USDA OCE USDA Agricultural Projections to 225 released February 216. 75 5 25 US EU Canada Australia Argentina Other FSU

Global corn supply and use Mil MT 11 4 1 9 35 3 25 8 7 6 2 15 1 5 Production Consumption Ending Stocks 5 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/211 211/212 212/213 213/214 214/215 215/216 216/217 Source: USDA PSD database, December 9, 216

High World Corn Prices Support Area Mil Ha 27 Expansion in Competitor Countries $/bushel 8. 25 23 7. 6. 5. 21 4. 19 17 3. 2. 1. 15. 24/25 26/27 28/29 21/211 212/213 214/215 216/217 Corn Area in Argentina+Brazil+Ukraine U.S. Corn Price Source: PS&D Online, WASDE & NASS.

U.S. Corn Exports Will Likely Face Strong Competition Beginning In Spring 217 $/MT, FOB 26 24 22 Current Forward Quotes 2 18 16 14 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 Argentina, Up River Black Sea Brazil, Paranagua US Gulf Source: International Grains Council.

U.S. Is World s Largest Corn MMT 16 14 12 1 8 6 4 2 Exporter, But Share Has Declined 9% 8% 7% 6% 5% 4% 3% 2% 1% 212 U.S. Drought % 196/1961 1964/1965 1968/1969 1972/1973 1976/1977 198/1981 1984/1985 1988/1989 1992/1993 1996/1997 2/21 24/25 28/29 212/213 216/217 Total Trade U.S. Share Source: PS&D Online. Oct Sep basis.

Japan s Corn Import Market Size Declines While Fight For Market Share Increases 25/6 215/16 1.4 MMT 16.6 MMT U.S. Argie Brazil China Other 15.2 MMT Source: Japan Customs, Oct Sep basis.

Global corn exports Million metric tons 16 Global Corn Exports 14 12 1 8 6 4 2 199 1995 2 25 21 215 22 225 United States FSU 1 Brazil Argentina EU China Other 1 Former Soviet Union. Source: USDA OCE USDA Agricultural Projections to 225 released February 216.

5. 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. Monthly Chinese Corn/Barley/Sorghum Imports by Origin 1/21 12/21 2/211 4/211 6/211 8/211 1/211 12/211 2/212 4/212 6/212 8/212 1/212 12/212 2/213 4/213 6/213 8/213 1/213 12/213 2/214 4/214 6/214 8/214 1/214 12/214 2/215 4/215 6/215 8/215 1/215 12/215 2/216 4/216 6/216 8/216 1/216 Million Metric Tons US CORN US SORGHUM US DDG Ukraine CORN Thailand/Burma/Laos CORN Other CORN BARLEY Other SORGHUM Other DDG Source: Global Trade Information Services (GTIS)

Soybean to Corn Ratio In China and United States 4 3.5 3 2.5 2 1.5 1 Jan 5 Jul 5 Jan 6 Jul 6 Jan 7 Jul 7 Jan 8 Jul 8 Jan 9 Jul 9 Jan 1 Jul 1 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16 DCE Ratio CME Ratio Source: International Grains Council. Ratio of nearby futures.

Global soybean supply and use Mil MT 4 35 3 25 2 15 1 5 14 12 1 8 6 4 2 Production Consumption Ending Stocks 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/211 211/212 212/213 213/214 214/215 215/216 216/217 Source: USDA PSD database, December 9, 216

Soybeans MMT 45 4 35 3 25 2 15 1 5 Production Future Demand MMT 18 16 14 12 1 8 6 4 2 9/91 93/94 96/97 99/ 2/3 5/6 8/9 11/12 14/15 17/18 2/21 23/24 9/91 93/94 96/97 99/ 2/3 5/6 8/9 11/12 14/15 17/18 2/21 23/24 US S. America other Source: USDA OCE USDA Agricultural Projections to 225 released February 216. China Row

MMT 6 5 4 3 2 1 Soybean Meal Replaces Japan s Soybean Imports U.S. share of Japan s soybean imports ranged from 62 8 percent since 2 9% 8% 7% 6% 5% 4% 3% 2% 1% % Source: PS&D Online, Japan Customs, Oct Sep basis. Soybean Meal Soybeans U.S. Share of Soybean Imports

Japan s Soybean Meal Import Market Grows with Larger Shipments from China 215/16 2/21 17% +1.1 MMT 7% 611, MT Source: Japan Customs, Oct Sep basis. 1,721, MT China U.S India Other

Global rice supply and use Mil MT 5 25 45 2 4 15 35 3 1 5 Production Consumption Ending Stocks 25 2/21 21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/21 21/211 211/212 212/213 213/214 214/215 215/216 216/217 Source: USDA PSD database, December 9, 216

Global Rice Trade MMT 6 5 4 3 2 1 Thailand US Vietnam ROW Source: USDA OCE USDA Agricultural Projections to 225 released February 216.

Beef, pork, poultry, and milk production higher in 216 and 217, all but pork up in 218. Animal products 212 213 214 215 216F 217F 218F* Million metric tons Beef 11.7 11.7 11. 1.7 11.4 11.8 12.3 Pork 1.6 1.5 1.3 11.1 11.3 11.7 11.6 Broilers 16.8 17.1 17.5 18.2 18.5 18.8 18.9 Total 1 41.8 42. 41.5 42.3 44.2 45.4 45.6 Million metric tons Milk 91. 91.3 93.5 94.6 96.4 98.4 1.7 Red denotes record high. 1 Total includes turkey production. Source: USDA OCE, World Agricultural Supply and Demand Estimates, Dec 9, 216. Baseline, November 29, 216

Cattle and hog prices to come down in 216 and 217, but broilers and dairy turn up in 217, all up in 218. Item 212 213 214 215 216F 217F 218F* Prices in red denote record levels. Dollars per metric ton Steers 2,79 2,776 3,48 3,265 2,658 2,359 2,61 Hogs 1,343 1,413 1,676 1,17 1,9 882 896 Broilers 1,99 2,198 2,313 1,995 1,856 1,819 1,817 Milk 48 443 529 377 355 38 388 Source: USDA OCE World Agricultural Supply and Demand Estimates, December 9, 216 and *Early Release Tables from USDA Agricultural Projections to 226.

Office of the Chief Economist US Meat Exports 1 MT 3,5 3, 2,5 2, 1,5 1, 5 Broilers Pork Beef and veal 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216F 217F Source: USDA OCE.

Office of the Chief Economist US Dairy Exports 1 MT 6 5 4 3 2 1 Nonfat Dry Milk Cheese Butter Dry Whole Milk Powder 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216F Source: USDA.

Ethanol margin tightens but production high Ethanol Margin 1 Ethanol Production 2 $ per gallon annualized rate in billion gallons 1.6 1.4 1.2 1..8.6.4.2. -.2 -.4 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 16 15 14 13 12 11 1 Jan-1 RFS Max conventional ethanol Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Source: 1 OCE calculations, AMS data for IA, NE, IL/eastern corn belt, 2 Energy Information Agency.

US corn used in ethanol to grow Bil bu 6 modestly 5 4 3 2 1 Percent 4 35 3 25 2 15 1 5 226/27 1998/99 2/1 22/3 24/5 26/7 28/9 21/11 212/13 214/15 216/17 218/19 22/21 222/23 224/25 Ethanol corn use Ethanol share of corn use (%) Source: USDA Agricultural Projections to 226, Released November 29, 216

Bil Gallons 15 145 14 135 13 125 12 115 215 US Gasoline Consumption 216 217 218 219 22 USDA Gasoline Product Supplied, Bil Gallons AEO Liquid Fuels Use: by Fuel: Motor Gasoline Bil Gal November STEO Gasoline Cons, Bil Gal Source: Department of Energy, Annual Energy Outlook (AEO), Short Term Energy Outlook (STEO) and USDA limited baseline release November 29, 216 221 222 223 224 225 226 227

2. 1.5 1..5. Biofuel RIN prices dollars per RIN gallon Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16 Source: OPIS Closing in on Blend Wall EPA Announces Standards for 214, 215 and 216 (+ Biodiesel for 217) Finalizes 217 EPA Announces Proposed Standards for 217 (+ Biodiesel for 218) D6 D4 D5

Billion Gallons 25 Total US biofuel mandate lowered fuel types adjusted differently 2 15 1 5 Cellulosic Biodiesel Unspecified Advanced Conventional 214 Legislated 214 Applied 215 Legislated 215 Applied 216 Legislated 216 Applied 217 Legislated 217 Applied

Biodiesel Feedstocks 1,2 1, 8 6 4 2 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Million Pounds Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Soybean Oil Other Vegetable Oils Animal Fat Source: U.S. Energy Information Administration

Office of the Chief Economist Central Illinois Production Budget 216 Highly Productive Land Per Acre Trend Yields Corn After Soybeans Soybeans After Corn Per Acre + 1% Trend Yields Corn After Soybeans Soybeans After Corn Total non land costs $552 $351 $552 $351 Yield (bushel/acre) 21 58 221 64 Price (per bushel) $3.25 $9.5 $3.25 $9.5 Crop Revenue $653 $525 $718 $579 ARC(PLC) $3 $3 $3 $3 Insurance Proceeds $ $ $ $ Operator and Land Returns (excludes ARC/PLC) $11 $174 $166 $228 Cash Rent $278 $278 $278 $278 Source: University of Illinois, Dec 215 Crop Budget; FarmDoc Daily Land Rent Est, Sept 215.

U.S. 4WD Tractor Sales Accumulated Sales, current year and prior 5 year min/max 8, 7, 6, Units Sold 5, 4, 3, 2, 1, Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 5Y Min 5Y Max 216 Acc. Sales Source: American Equipment Manufacturers

$/acre 3 25 2 Office of the Chief Economist In the US falling rents ahead of land values Cash Rent Appalachian Corn Belt Delta States Lake States $/acre 8, 7, 6, 5, Land Value 15 1 5 199 2 21 22 Mountain Northeast Northern Plains Pacific Southeast Southern Plains 4, 3, 2, 1, 199 2 21 22 Source: USDA NASS.

$ billion 16 Net farm income declines in 216 and is the lowest since 29 12 8 Real 1/ Nominal 216F Net farm income is net cash farm income, plus noncash income and costs including inventory changes. 4 Net farm income forecast to decline 17.2%. 199 1995 2 25 21 215 F= Forecast. Source: USDA, Economic Research Service, Farm Income & Wealth Statistics. Data as of November 3, 216.

Farm sector debt to asset and debt to equity ratios expected to rise slightly in 216 Percent 3 25 2 15 Farm sector debt ratios, 197 216F Debt to asset ratio Debt to equity ratio Debt to asset (D/A) and debt to equity (D/E) are solvency ratios. Higher ratios indicate higher likelihood of default and decreased ability to overcome adverse financial events. 1 5 197 1973 1976 1979 1982 1985 1988 1991 1994 1997 F= Forecast. Source: USDA, Economic Research Service, Farm Income and Wealth Statistics Data as of November 3, 216 2 23 26 29 212 215 For the fourth straight year, both farm sector D/A and D/E ratios are forecast to rise, but remain low by historical standards (since 197).

Payment made in October 216 based on 215/16 crop

Crop Insurance has become the most important safety net program and revenue products dominate Mil acres 35 3 25 2 15 1 Other Area Revenue APH 5 199 1993 1996 1999 22 25 28 211 214 Source: USDA RMA Summary of Business Data

Market Outlook and Situation Commodity prices have declined from recent highs, historically productivity has kept pace with demand leading to long run declines in prices Record global production, including in the US, has led to rising global stocks Slowing global economic growth has slowed demand growth for agricultural products. US dollar strength poses challenges to export competitiveness Global policy changes impact trade and add market uncertainty China s demand path a key driver, for soybeans in particular Farm Income has declined with falling crop and livestock prices. Input use and land prices will adjust