Long-Term Ag. Outlook Webinar October 30, 2015

Transcription

1 Long-Term Ag. Outlook Webinar October 30, 2015

2 your ques-ons to Long-Term Ag. Outlook Webinar October 30, 2015

3 The State of the Agricultural Economy Short-run: The Farm Boom is Over Low Interest Rates Low Infla:on Long-run: 9+ Billion People Higher Infla:on Higher Interest Rates The Transi:on is Key: How does agriculture respond if infla:on moves faster than interest rates?

4 Infla-on and GDP Growth will Shape Agriculture PotenCal GDP PopulaCon How many people? Labor Force ParCcipaCon How many work? ProducCvity How well do they work? US GDP and PotenCal GDP Trillions of dollars GDPa PotenCal GDP-CBO 10.0 Source: CBO Source: Congressional Budget Office

5 Does Agriculture Face Interest Rate Risk? The Federal Reserve indicates that rates could rise in 2015 In the long run, normalizacon would add 3 to 4 percentage points to interest rates? How would a 3 to 4 percent point increase in rates affect the financial health of your business? Fed Funds Rate Source: Federal Reserve Bank, Board of Governors

6 Transforma-on of Developing Na-ons Over the next decade, global economic growth is expected to strengthen USDA expects populacon to rise in growing economies What is more important? PopulaCon or Income World Real GDP Growth (Annual percent change) What does the U.S. need to do to boost exports? Source: World Bank 0 World Africa South Asia China LaCn North Europe America America Source: USDA

7 The Exchange Rate Environment will Change China: a Consumer or a Producer Driven Economy? Consumers Producers Strong Currency Weak Currency What about other developing nacons?

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9 Low Prices and High Costs -World produccon greater than use -Growing inventories -Costs lag from high returns Dollar Cuts U.S. Ag Trade Weaker world demand due to: -Weak developing economy income growth -Strong U.S. dollar -Excess supplies of oil and general commodity weakness

10 How Strong are Farm Finances? Farm Debt Outstanding at Commercial Banks Percent change from previous year Non-real-estate Real Estate Source: Federal Reserve Bank, Kansas City, Ag Finance Data Book Source: FDIC, Call Report data

11 Dollars Per Acre $1,300 $1,100 $900 $700 $500 $300 $100 -$ = $678 Real U.S. Corn Revenue (+Insurance) Per Harvested Acre: 2015 = 100 Note: Government payments were very large at times in the 1982 to 2005 period, but not included here 1946 = $ = $ =$ = $1, = $ = $ = $ = $1, = $ = $372

12 Million 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 World Harvested ACRES 13 Major Crops Total: (Millions) 1972/73= 1, /82= 2, /07= 2, /03= 2, /16 = 2,323 05/06 = 2, Million acres added in 10 years 8% U.S. Gov't: Released 11 million acres from CRP (37 down to 26 million)

13 Cash Rent for West Central Indiana $350 $300 $ $200 $150 $100 $50 $ Source: Purdue Land Values Survey

14 $10,000 $9,000 $8,000 West Central Indiana Cash Rent and Farmland Price, 1960 to 2015 $300 $250 $7,000 $6,000 Farmland (lee axis) Cash Rent (right axis) $200 $5,000 $150 $4,000 $3,000 $100 $2,000 $1,000 $50 $ Source: Purdue Land Values Survey $0

15 35 Farmland Price to Cash Rent Mul-ple West Central Indiana, 1960 to Actual Price to Rent Average Price to Rent

16 Rota-on Corn, Dollars per Acre Market Revenue Variable Cost ContribuCon Margin $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 1,

17 Land values are based on expectacons. Cash rent or net return to land (dollars per acre) $200 $300 $400 $500 $600 $700 Capitalized Value Formula Cash rent or Net returns to land Expected Capitalization Rate Capitalization Rate (percent) 3% 6,667 10,000 13,333 16,667 20,000 23,333 4% 5,000 7,500 10,000 12,500 15,000 17,500 5% 4,000 6,000 8,000 10,000 12,000 14,000 6% 3,333 5,000 6,667 8,333 10,000 11,667 7% 2,857 4,286 5,714 7,143 8,571 10,000 8% 2,500 3,750 5,000 6,250 7,500 8,750

18 Projected ARC-CO Payments per Acre for Corn in Selected Indiana Coun-es Elkhart Jay Knox White $90 $80 $70 $60 $50 $40 $30 $20 $10 $

19 Earning per Acre in 2016 with Safety Net in Place 30% Lower Yield 20% Lower Yield 10% Lower Yield Base Yield 10% Higher Yield $50 $0 -$50 -$100 -$150 -$200 -$250 20% Lower Price 10% Lower Price Base Price 10% Higher Price 20% Higher Price

20 USDA Prices Paid Indices - All Produc-on Items 1973 to 2014 Declined in 1985, 1986, 1998, 1999, and g = 3.33%

21 Pounds Per Capita Per Capita Total Meats and Poultry Retail Weight: USDA Year

22 USDA Finished Steers Calves Hogs Milk Eggs Broilers Turkey

23 Join Us for our next Webinar on November 30, 2015 Capturing the Upside and Buffering the Downside on Your Farm Long-Term Ag. Outlook Webinar October 30, 2015