FACTORS CREATING RISK IN U.S. GRAIN MARKETS WAY TOO EARLY GRAIN MARKET OUTLOOK TO 2050 22 ND NATIONAL WORKSHOP FOR DAIRY ECONOMISTS & POLICY ANALYSTS APRIL 30, 2015 JOHN NEWTON UNIV. OF ILLINOIS JCNEWT@ILLINOIS.EDU #NWDEPA15
2050: WORLD POPULATION EXPECTED TO GROW BY 1/3 Estimated World Population in 2050 > 9 Billion People Current Population 7 Billion People Source: FAO, UN 2015 Majority of population growth expected to occur in Africa
FEEDING THE NINE BILLION WILL REQUIRE TECHNOLOGY AND INNOVATION THAT WILL HELP FARMERS RAISE MORE ANIMALS FOR FOOD AND GROW MORE CROPS ON THE LAND ALREADY IN PRODUCTION. - C. ARNOT, THE CENTER FOR FOOD INTEGRITY
BY 2050, U.S. CORN CONSUMPTION AT 18.5 BIL. BU. w/ ETHANOL >5 BIL. BU. FEED AND RESIDUAL USE IS THE LARGEST CATEGORY AT 7 BIL. BU. 25,000 Actual Consumption CBO Forecast to 2025/26 MY Implied Trends from CBO Baseline 20,000 Mil. Bu. 15,000 10,000 Livestock Feed & Residual 5,000 Ethanol - 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23 Marketing Year Ethanol Exports Feed and Residual Food, Seed, and Industrial Ending Inventory *Author's Calculations Source: USDA, CBO, & Author s Calculations 2024/25 2026/27 2028/29 2030/31 2032/33 2034/35 2036/37 2038/39 2040/41 2042/43 2044/45 2046/47 2048/49
CORN USE FOR ETHANOL NOW MORE THAN 5 BILLION BUSHELS A YEAR, IN 2002 LESS THAN 1 BILLION BUSHELS. CORN USE FOR ETHANOL INCREASED 400%. 300 290 280 2012 Drought Implied Trends from CBO Baseline 2012 Drought Ethanol Production (Mil Gallons) 270 260 250 240 230 220 Sep 03, 2010 Dec 03, 2010 Mar 03, 2011 Jun 03, 2011 Sep 03, 2011 Dec 03, 2011 Mar 03, 2012 Jun 03, 2012 Sep 03, 2012 Dec 03, 2012 Mar 03, 2013 Jun 03, 2013 Sep 03, 2013 Dec 03, 2013 Mar 03, 2014 Jun 03, 2014 Sep 03, 2014 Dec 03, 2014 Mar 03, 2015 Source: EIA
TRENDS IN GRAIN CONSUMING ANIMAL UNITS. ASCENDING POPULATION OF HOGS AND CHICKEN, DOWNWARD SLOPING TREND IN ALL CATTLE. 140 120 100 Chickens (R) Chicken (R) Cattle Cattle and (L) Calves (L) 10,000 9,000 8,000 7,000 Million Head 80 60 Hogs (L) Hogs (L) 6,000 5,000 4,000 Million Head 40 20 Dairy Cows (L) Dairy Cows (L) 3,000 2,000 1,000 0 Source: USDA 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 0
8.5 BILLION YOUNG CHICKENS SLAUGHTERED DURING 2014, >350 MILLION LAYERS IN U.S. Animal Concentration in S. East, w/ Heavy Concentration in Chesapeake Bay Watershed
ASCENDING DEMAND FOR HOGS PRESENTS COMPETITION FOR LIVESTOCK FEED, >65 MIL. HOGS IN U.S. Animal Concentration in Midwest and Southeast
ALL CATTLE AND CALF 2015 INVENTORY (EXC. MILK) 80.5 MILLION HEAD, ENDS 10 YR DECLINE IN INVENTORY Animal Concentration in West, Midwest and Northeast
DAIRY COW NUMBERS STEADY AT > 9 MILLION HEAD ANIMAL PRODUCTIVITY INCREASING Animal Concentration in West, Upper Midwest, and Northeast
CATTLE AND HOG INVENTORY CONCENTRATED IN MIDWEST AND UPPER MIDWEST NEAR CORN BELT. POULTRY CONCENTRATION IN S. EAST. -- DAIRY FARM OPERATIONS OUTSIDE UPPER MIDWEST MAY SEEK ALTERNATIVE FEED INGREDIENTS AND/OR SOURCE FROM CORN BELT.
MPP-DAIRY: 2/3 OF U.S. IS SHORT ONE OR MORE OF FEED RATION INGREDIENTS
HIGHER USE IN ETHANOL MAKES CORN PRICE MORE SENSITIVE TO SUPPLY SHOCKS. DURING 2012 DROUGHT CORN USE IN ALL CATEGORIES RATIONED. 25,000 20,000 2012 Drought Implied Trends from CBO Baseline Mil. Bu. 15,000 10,000 Livestock Feed & Residual 5,000 Ethanol - 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23 Marketing Year Ethanol Exports Feed and Residual Food, Seed, and Industrial Ending Inventory *Author's Calculations Source: USDA, CBO, & Author s Calculations 2024/25 2026/27 2028/29 2030/31 2032/33 2034/35 2036/37 2038/39 2040/41 2042/43 2044/45 2046/47 2048/49
BY 2050, U.S. SOYBEAN CONSUMPTION COULD EXCEED 4 BIL BU. DOMESTIC CRUSH AND EXPORTS ARE THE LARGEST CATEGORIES AT >2 BIL. BU. EACH. 7,000 Actual Consumption CBO Forecast to 2025/26 MY Implied Trends from CBO Baseline 6,000 5,000 Mil. Bu. 4,000 3,000 2,000 1,000 Crush Exports - 2002/03 *Author's Calculations 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23 Marketing Year Exports Seed Crush Ending Inventory Feed and Residual Source: USDA, CBO, & Author s Calculations 2024/25 2026/27 2028/29 2030/31 2032/33 2034/35 2036/37 2038/39 2040/41 2042/43 2044/45 2046/47 2048/49
CHINESE DEMAND REPRESENT EQUIVALENT OF 60 MILLION ACRES WORLDWIDE, IMPORT 20 MIL. U.S. ACRES (1 BBU) 1,800 1,600 1,400 U.S. Exports to China U.S. Exports to Rest of World Percentage of U.S. Exports to China (Right Axis) 100% 80% Million Bushels 1,200 1,000 800 600 400 200 60% 40% 20% - 1966-1967 1968-1969 1970-1971 1972-1973 1974-1975 1976-1977 1978-1979 1980-1981 1982-1983 1984-1985 1986-1987 1988-1989 1990-1991 1992-1993 1994-1995 1996-1997 1998-1999 2000-2001 2002-2003 2004-2005 2006-2007 2008-2009 2010-2011 2012-2013 2014-2015* 0% Source: USDA, FGIS & FAS *Marketing year to date (March 19, 2015) Marketing Year
WINDSHIELD SURVEY: 1/4 OF EVERY SOYBEAN ACRE PRODUCED IN 2014 NEEDED FOR CHINESE DEMAND 60 Bushels Per Acre Equivalent 50 40 30 20 10 35.0 Non Chinese Consumption U.S. Exports to China 36.7 38.1 38.1 34.3 35.4 37.5 34.1 29.7 36.4 38.1 37.4 33.9 30.6 33.2 31.8 30.4 29.7 30.2 35.2 0 0.3 0.9 0.8 0.8 2.3 2.7 2.1 3.9 4.2 5.8 5.0 5.5 7.8 9.1 10.8 11.7 11.5 10.1 13.1 12.6 *Author s Calculations Based on USDA FGIS Marketing Year
CHINESE DOMINANT U.S. EXPORT PARTNER AT >65%, NEXT CLOSEST IS MEXICO AT <5% 70% 60% 50% U.S. Soybean Export Partners and Share of 2014-15 Marketing Year Exports Mainland China, 65.4% 40% 30% 20% Mexico, 4.6% 10% 0% CHINA MAIN MEXICO NETHERLANDS CHINA T INDONESIA JAPAN SPAIN TURKEY VIETNAM EGYPT CANADA THAILAND KOREA REP PORTUGAL BANGLADESH COLOMBIA RUSSIA UN KINGDOM GERMANY MALAYSIA SAUDI ARABIA TUNISIA COSTA RICA ISRAEL PHILIPPINES PERU MOROCCO FRANCE PAKISTAN VENEZUELA GUATEMALA CUBA PANAMA NICARAGUA BARBADOS NORTH KOREA INDIA HONG KONG BURMA CHILE Source: USDA FGIS
GDP GROWTH IN CHINA PROJECTED TO SLOW TO UNDER 7% BY 2017. Chinese Gross Domestic Product in Current U.S. Dollars and Annual Growth Rate, 1990-2013 Chinese GDP, Current US Bil$ 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Chinese GDP (L) GDP Growth Rate (R) 50% 40% 30% 20% 10% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GDP Growth Rate Year Source: The World Bank
IMPLICATIONS ON SOYBEAN MEAL PRICES. TIGHTER SUPPLIES AND COMPETITION WITH EXPORTS. SOYBEAN CRUSH 1,850 2013 Low Stocks at End of Year 1,800 2012 Drought 1,795 Million Bushels 1,750 1,700 1,703 1,689 1,734 1,650 1,648 1,600 2010-11 2011-12 2012-13 2013-14 2014-15 Marketing Year Source: USDA WASDE
TO MEET INCREASED GLOBAL DEMANDS FOOD PRODUCTIVITY NEEDS TO GROW 70%-110% Most Land Area for Crop Production is Available in Developing Countries U.S. 360 Mil. Acres. < 10% of World Harvested Acres Source: FAO, UN 2015
ACRES MAY SHIFT, BUT LAND AREA IS FINITE Area Harvested (Million Acres) 3,000 2,500 2,000 1,500 1,000 500 0 Harvested Acres Worldwide, All Grains and Oilseeds 1960-2014 1960/1961 1962/1963 1964/1965 1966/1967 1968/1969 1970/1971 1972/1973 1974/1975 1976/1977 1978/1979 1980/1981 1982/1983 1984/1985 1986/1987 1988/1989 1990/1991 1992/1993 1994/1995 1996/1997 1998/1999 2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011 2012/2013 2014/2015 World United States Foreign 2.4 Billion Acres Harvested Worldwide in 2014/15 +35% Since 1960 U.S. Approximately 10% of Worldwide Acres Source: USDA
369% GROWTH IN OILSEED ACRES IN PRODUCTION Area Harvested (Million Acres) 500 450 400 350 300 250 200 150 100 50 0 Harvest Acres Worldwide, Corn 1960-2014 1964 U.S. 21% 2014 U.S. 19% U.S. + 12 Mil. Acres +175 Mil. Acres 1960/1961 1964/1965 1968/1969 1972/1973 1976/1977 1980/1981 1984/1985 1988/1989 1992/1993 1996/1997 2000/2001 2004/2005 2008/2009 2012/2013 World United States Foreign 350 300 250 200 150 100 50 0 1964/1965 Harvest Acres Worldwide, Soybeans 1960-2014 1964 U.S. 50% 2014 U.S. 29% U.S. +53 Mil. Acres 1968/1969 1972/1973 1976/1977 1980/1981 1984/1985 1988/1989 1992/1993 +229 Mil. Acres 1996/1997 2000/2001 2004/2005 2008/2009 World United States Foreign 2012/2013 Source: USDA
IN THE U.S. LAND USE FOR CORN AND SOYBEAN PRODUCTION HAS GROWN BY 40 MILLION ACRES SINCE 1996 FREEDOM TO FARM ACT (1996 FARM BILL) -- 20 MILLION OF THOSE ACRES ADDED DURING RENEWABLE FUELS ERA (DEC 2006+)
BIOFUELS DROVE RECENT GROWTH IN CORN ACRES, CORN PRICE DOUBLED AND ADDED 8 MIL. AC. Source: USDA
SOYBEAN PRICE DRIVEN BY INCREASED CHINESE DEMAND, 12 MIL. ACRES ADDED Source: USDA
350 TO 360 MILLION ACRES IN CROPLAND (+/-2% YOY) U.S. NEEDS TO BE COMPETITIVE IN PRODUCTIVITY Million Acres 370 360 350 340 330 320 Principal Crops 70 60 50 40 30 20 CRP and Prevented CRP Prevented 370 360 350 340 330 320 Total 310 10 310 300 0 300 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2007 2008 2009 2010 2011 2012 2013 2014 2015* Crop 2007 2008 2009 2010 2011 2012 2013 2014 2015* Principal Crops 320.4 325.6 319.0 315.4 314.3 324.3 329.9 326.9 324.8 CRP 36.8 34.6 33.7 31.2 31.2 29.7 27.1 25.6 24.3 Prevent Plant 1.6 1.7 4.2 6.9 9.6 1.2 8.3 4.4 0 Total 358.8 361.9 356.9 353.5 355.1 360.3 356.9 356.9 349.1 Source: USDA
MARGINAL LAND MOVED INTO CORN PRODUCTION
MARGINAL LAND MOVED INTO SOYBEAN PRODUCTION
GENETIC IMPORVEMENTS IN CORN HAVE RESULTED IN YIELD INCREASES OF 3 ½ BUSHELS PER ACRE (BPA) IN RECENT YEARS. -- MONSANTO PROJECTIONS INCLUDE 300 BPA BY 2030 WITH ACHIEVEABLE GOALS OF 500 BPA.
U.S. AVERAGE CORN YIELD WAS A RECORD IN 2014. MULTIPLE PROJECTIONS ARE FOR +/- 224 BPA BY 2050. Yield (Bushels Per Acre) 250 200 150 100 50-1960/61 1964/65 1968/69 1972/73 1976/77 1980/81 1984/85 1988/89 1992/93 Source: USDA, CBO, & Author s Calculations 1996/97 2000/01 2004/05 2008/09 2012/13 Marketing Year 2014 RECORD: 171 BPA E(2050): 224 BPA 2016/17 2015 PROJ. 164 BPA 2020/21 2024/25 CBO Forecast USDA 2 bpa above CBO FAPRI 1-3 bpa below CBO 2028/29 2032/33 2036/37 2040/41 2044/45 2048/49
3 ½ BPA YOY IN GENETIC IMPROVEMENTS BRINGS U.S. AVERAGE CLOSE TO 300 BPA BY 2050 300 Projected Yield with 3 ½ YOY BPA Increase Yield (Bushels Per Acre) 250 200 150 100 50 Trend Yield (2050): 224 BPA - 1960/61 1964/65 1968/69 1972/73 1976/77 1980/81 1984/85 1988/89 1992/93 1996/97 2000/01 2004/05 2008/09 2012/13 2016/17 2020/21 2024/25 2028/29 2032/33 2036/37 2040/41 2044/45 2048/49 Source: USDA & Author s Calculations Marketing Year
ELUSIVE 500 IS UNLIKELY ON U.S. SCALE ABSENT SIGNIFICANT EFFICIENCY GAINS Yield (Bushels Per Acre) 600 500 400 300 200 100-1960/61 1964/65 1968/69 1972/73 1976/77 1980/81 1984/85 Source: USDA & Author s Calculations 1988/89 1992/93 1996/97 2000/01 2004/05 2008/09 2012/13 Marketing Year Monsanto Projection for 300 BPA by 2030 2016/17 2020/21 2024/25 500 BPA by 2050 Projected Yield with 10 YOY BPA Increase +94% 2028/29 2032/33 2036/37 3 ½ BPA YOY +64% 2040/41 Trend +31% 2044/45 2048/49
1960, 275 MIL. ACRES NEEDED TO PRODUCE TODAY S CROP. BY 2050 U.S. COULD CREATE 16+ MIL. ACRES 300 250 Million Acres 200 150 100 83 Mil. Acres Produced Record 14.2 Bil. Bu. in 2014 50-1960/61 1964/65 1968/69 1972/73 1976/77 1980/81 1984/85 Source: USDA & Author s Calculations 1988/89 1992/93 1996/97 2000/01 2004/05 2008/09 2012/13 Marketing Year 67 Million Acres w/ Trend Yield Equivalent to Creating 16 Million Acres 2016/17 2020/21 2024/25 2028/29 2032/33 2036/37 2040/41 2044/45 2048/49
CONSISTENT CORN ACREAGE LEADS TO A NUMBER OF POTENTIAL SUPPLY OUTCOMES. 18 TO 20 BBU 45,000 40,000 35,000 41 Bil. Bu. 10 BPA YOY Million Bushels 30,000 25,000 20,000 15,000 10,000 Record 14.2 Bil. Bu. Produced in 2014 20 Bil. Bu. +30% FROM 14/15 18.5 Bil. Bu Trend 5,000 0 1975/76 1978/79 1981/82 1984/85 1987/88 1990/91 1993/94 1996/97 1999/00 2002/03 2005/06 2008/09 2011/12 2014/15 2017/18 2020/21 2023/24 2026/27 2029/30 2032/33 2035/36 2038/39 2041/42 2044/45 2047/48 Source: USDA & Author s Calculations Marketing Year
WITH SUCH HIGH LEVELS OF CONSUMPTION, MODERATE YIELD SHOCKS LIKELY TO RESULT IN STRONG CORN PRICE SPIKES 25,000 20,000 Trend Consumption/Supply Growth May Lead to Stocks-To-Use Ratios Below 10% 2010-2013 Stocks-To-Use <10% Mil. Bu. 15,000 10,000 5,000-2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23 Marketing Year Ethanol Exports Feed and Residual Food, Seed, and Industrial Ending Inventory *Author's Calculations Source: USDA, CBO, & Author s Calculations 2024/25 2026/27 2028/29 2030/31 2032/33 2034/35 2036/37 2038/39 2040/41 2042/43 2044/45 2046/47 2048/49
U.S. CORN SUPPLY HAS EXPERIENCED THREE BELOW TREND-YIELD CROPS IN RFS ERA, EACH W/ PRICE SPIKE. 16 14 2006 RFS Era Begins 2010-2012 Below Trend Corn Crops 2013, 2014 Big Crops MPP Ration Value ($/hundredweight) 12 10 8 6 4 2 - Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Hay Ration SBM Ration Corn Ration Source: USDA
POPULATION OF 9 BILLION, REALLY? MOST OF THE GROWTH IN GLOBAL POPULATION IS PROJECTED TO OCCUR IN AFRICA. SIGNIFICANT ECONOMIC DEVELOPMENT NEEDED TO BECOME MAJOR IMPORTERS. RENEWABLE FUEL MANDATES ADVANCED BIOFUELS COULD SPUR SOYBEAN DEMAND. COULD DEMAND BE SUSTAINED WITHOUT MANDATES? INFRASTRUCTURE FOR CORN ETHANOL PRODUCTION IN PLACE.
YIELD GROWTH COULD SLOW CHALLENGES FOR INCREASED PRODUCTIVITY INCLUDE CLIMATE CHANGE, GRAIN YIELD STAGNATION, AND LIMITATION OF MARGINAL LAND AREAS. GETTING TO ELUSIVE 500-BUSHEL CROPS FACTORS DRIVING IMPROVEMENT INCLUDE GENETIC IMPROVEMENTS IN SEED, VARIABLE RATE SEEDING, & TECHNOLOGICAL CHANGE IN FARM EQUIPMENT ETC.
2015-2016 MARKETING YEAR EXPECTATIONS: CORN: 1.4 MIL FEWER ACRES IN 15/16 THAN 2014. 89.2 MILLION ACRES W/ 164 BPA. STRONG CONSUMPTION COULD LEAD TO HIGHER PRICES. SOYBEANS: 934K MORE ACRES IN 15/16. 84.6 MILLION ACRES W/ 44.3 BPA. CONSUMPTION DECLINES FOLLOWING RECORD EXPORT YEAR COULD LEAD TO LOWER PRICES. WHAT IF U.S. HAS ANOTHER BIG CROP YEAR?
CAN DAIRY FOLLOW GRAIN S PATTERN? U.S. DAIRY EXPORTS UP +268% SINCE 2000. 42% OF GROWTH CAME FROM CHINA & S.E. ASIA. Finished Products Exported in Million Pounds 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 U.S. Dairy Exports to Southeast Asia U.S. Dairy Exports to China U.S. Dairy Exports to Rest of World Percentage of U.S. Exports to China & S.E. Asia (Right Axis) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: USDA FGIS
QUESTIONS 22 ND NATIONAL WORKSHOP FOR DAIRY ECONOMISTS & POLICY ANALYSTS APRIL 30, 2015 JOHN NEWTON UNIV. OF ILLINOIS JCNEWT@ILLINOIS.EDU #NWDEPA15
APPENDIX 22 ND NATIONAL WORKSHOP FOR DAIRY ECONOMISTS & POLICY ANALYSTS APRIL 30, 2015 JOHN NEWTON UNIV. OF ILLINOIS JCNEWT@ILLINOIS.EDU #NWDEPA15
ILLINOIS & IOWA WITH >60% LAND AREA IN CORN OR SOYBEAN PRODUCTION
CROSS-COMMODITY SUBSIDIZATION - DECOUPLING KEEP BASE ACRE $, SWITCH TO CORN/BEAN ROTATION (-5 MIL. ACRES)
HIGHER RETURNS IN CORN/BEANS PULLED ACRES OUT OF WHEAT (-4 MIL. ACRES)
LAND IN CRP WAS 35 MIL. ACRES IN 2005, DROPPED 10 MIL. ACRES BY 2014
U.S. AVERAGE SOYBEAN YIELD WAS A RECORD IN 2014. MULTIPLE PROJECTIONS ARE FOR +/- 60 BPA BY 2050. Yield (Bushels Per Acre) 60 55 50 45 40 35 30 25 20 1960/61 1964/65 1968/69 1972/73 1976/77 1980/81 1984/85 1988/89 1992/93 Source: USDA, CBO, & Author s Calculations 1996/97 2000/01 2004/05 2008/09 2012/13 Marketing Year 2014 RECORD: 47.8 BPA E(2050): 58 BPA 2016/17 2015 PROJ. 44.3 BPA 2020/21 2024/25 CBO Forecast 2028/29 2032/33 2036/37 2040/41 2044/45 2048/49