Long-Term Ag. Outlook Webinar October 30, 2015

Long-Term Ag. Outlook Webinar October 30, 2015

email your ques-ons to jmintert@purdue.edu Long-Term Ag. Outlook Webinar October 30, 2015

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?

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? 22.0 20.0 18.0 16.0 14.0 12.0 US GDP and PotenCal GDP Trillions of dollars GDPa PotenCal GDP-CBO 10.0 Source: CBO 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: Congressional Budget Office

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

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 12 10 8 6 4 2 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 1991-2000 2001-2010 2015-2024 Source: USDA

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?

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

12.0 7.0 How Strong are Farm Finances? Farm Debt Outstanding at Commercial Banks Percent change from previous year Non-real-estate Real Estate 12.0 7.0 2.0 2.0-3.0 2006 2007 2008 2009 2010 2011 2012 2013 2014-3.0 Source: Federal Reserve Bank, Kansas City, Ag Finance Data Book Source: FDIC, Call Report data

Dollars Per Acre $1,300 $1,100 $900 $700 $500 $300 $100 -$100 1917 = $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 = $694 1921 = $172 1931 =$113 1973 = $1,248 1960 = $442 1986 = $394 2010-13 = $926 2012 = $1,019 2014-18 = $688 2005 = $372

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= 1,872 1981/82= 2,115 1996/07= 2,104 2002/03= 2,033 2015/16 = 2,323 05/06 = 2,142 181 Million acres added in 10 years 8% U.S. Gov't: Released 11 million acres from CRP (37 down to 26 million)

Cash Rent for West Central Indiana $350 $300 $250 291 281 267 254 241 $200 $150 $100 $50 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Purdue Land Values Survey

$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 $0 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 Source: Purdue Land Values Survey $0

35 Farmland Price to Cash Rent Mul-ple West Central Indiana, 1960 to 2015 30 25 20 15 10 5 Actual Price to Rent Average Price to Rent 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

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 1,028 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 727

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

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 $0 2014 2015 2016 2017 2018

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

300 250 USDA Prices Paid Indices - All Produc-on Items 1973 to 2014 Declined in 1985, 1986, 1998, 1999, and 2002. g = 3.33% 200 150 100 50 0 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Pounds Per Capita 230 225 220 215 210 205 200 195 190 185 180 Per Capita Total Meats and Poultry Retail Weight: USDA 223 220 212 214 203 80 82 84 86 88 90 92 94 96 98 00 2 4 6 8 10 12 14 16 18 Year

13 14 15 16 USDA Finished Steers 500-550 Calves 126 155 149 136-147 174 252 248 190-210 Hogs 64 76 51 47-50 Milk 20.05 24 17 16-17 Eggs 125 142 195 164-178 Broilers 100 105 90 84-91 Turkey 100 108 117 110-119

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