Ag Outlook Webinar · Ag Outlook Webinar, May 15, 2020 Beef & Pork Production Declined Sharply in...

May 15, 2020

Ag Outlook Webinar

James Mintert, Director, Center for Commercial Agriculture

Michael Langemeier, Associate Director, Center for Commercial Agriculture

Ag Outlook Webinar, May 15, 2020

Beef & Pork Production Declined Sharply in AprilBut Showed Signs of Rebounding Recently

0.700.750.800.850.900.951.001.051.101.151.20

01/11 02/29 04/18 06/06 07/25 09/12 10/31 12/19

Billion Pounds

Week Ending

U.S. Total Beef and Pork ProductionWeekly, Federally Inspected Plants

201920205 Yr Avg

Source: USDA & LMIC


And Poultry Production Has Rebounded

0.85

0.95

1.05

1.15

1.25

1.35

1/11 2/29 4/18 6/6 7/25 9/12 10/31 12/19

Billion Lbs

Week Ending

U.S. Total Poultry ProductionWeekly, Federally Inspected Plants

2019 2020 5 Yr Avg

Source: USDA & LMIC Purdue Center for Commercial Agriculture


Annual Retail Meat Supplies Tighten Compared to 2019But Expected to Remain Ample

195

200

205

210

215

220

225

230

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

Pounds

Year

Annual Red Meat & Poultry Supplied to U.S. ConsumersPer Capita, 1990-2020

Purdue Center for Commercial AgricultureSource: USDA & LMIC, 2020 USDA Forecast


Wholesale Pork Values Rose Sharply As Pork Production Declined

50

60

70

80

90

100

110

120

JAN APR JUL OCT

$ Per Cwt.WEEKLY PORK CUTOUT VALUE

Avg. 2014-18 2019 2020

Source: USDA-AMS, Compiled by LMIC


Hog Prices Bottomed in April & Have Climbed Sharply Over Last 4 Weeks

40

50

60

70

80

90

100

JAN APR JUL OCT

$ Per CwtBASE SLAUGHTER HOG PRICES

National, Weighted Average Carcass Price, Weekly

Avg. 2014-18 2019 2020

Source: USDA-AMS & LMIC


Slumping Beef Production Pushed Boxed Beef Values Up Sharply

200

250

300

350

400

450

500

JAN APR JUL OCT

$ Per Cwt.

BOXED BEEF CUTOUT VALUE

Choice 600-900 Lbs., Carcass, Negotiated, Weekly

Avg. 2014-18 2019 2020



Fed Cattle Prices Up Nearly $10 Since Bottoming in April

95100105110115120125130135140145

JAN APR JUL OCT

$ Per Cwt.

SLAUGHTER STEER PRICES

5 Market Weighted Average, Weekly

Avg. 2014-18 2019 2020



USDA Forecasts Record Large Corn Production in 2020Assumes Farmers Follow Planting Intentions & Trend Yields

15.15

14.6114.34

13.66

15.99

10

11

12

13

14

15

16

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

Total U.S. Corn Production

Source: USDA-WASDE Purdue Center for Commercial Agriculture


Planting Intentions & Trend Yield Would Push 2020 Soybean Production Up 16% From 2019

4.43

3.56

4.12

2.5

3.0

3.5

4.0

4.5

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

U.S. Soybean Production



2nd Largest Corn Acreage in Post WWII Era

97.30

89.70

96.99

70

75

80

85

90

95

100

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Million Acres

Harvest Year

U.S. Corn Planted Acreage

Source: USDA WASDE & Prospective Plantings Purdue Center for Commercial Agriculture

2/3 of corn acreage estimated to have been planted as of Sunday, 5.10.20


2020 Soybean Planting Intentions7.4 Million Acres Above 2019’s Acreage

89.2

76.1

83.5

60

65

70

75

80

85

90

95

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Million Acres

Harvest Year

U.S. Soybean Planted Acreage

Source: USDA Purdue Center for Commercial Agriculture

38% of soybean acreage estimated to have been planted as of Sunday, 5.10.20


March Planting Intentions vs. What Farmers Actually Plant

March Planting Intentions

• Corn: 97 million acres

• Soybeans: 83.5 million acres

• But conditions have changed since March 1st

• Will farmers alter their plans from March intentions?


Soybean to Corn Price RatioIllinois Cash Prices, Weekly, January – May 2020

2.002.102.202.302.402.502.602.702.802.90

01/0

2/20

01/0

9/20

01/1

6/20

01/2

3/20

01/3

0/20

02/0

6/20

02/1

3/20

02/2

0/20

02/2

7/20

03/0

5/20

03/1

2/20

03/1

9/20

03/2

6/20

04/0

2/20

04/0

9/20

04/1

6/20

04/2

3/20

04/3

0/20

05/0

7/20

Source: LMIC

Ratio

Prices have shifted in favor of soybeans since late winter

How Many Acres Intended for Corn Will Shift to Soybeans?


What About Demand for Corn? How Long Will Weak Demand Environment Persist

Key Corn Demand Issues

1. Ethanol Demand

2. Export Demand

3. Feed Demand


Ethanol Margins Have Been Improving Since Late March…Will They Continue to Improve?

$0.36

($0.12)

$0.16

($0.20)

($0.10)

$0.00

$0.10

$0.20

$0.30

$0.40

9/3/19 10/3/19 11/2/19 12/2/19 1/1/20 1/31/20 3/1/20 3/31/20 4/30/20

$/Gallon

Date

Estimated Daily Ethanol Plant MarginsReturn Over Operating Costs, $/Gallon of Ethanol

September 3, 2019-May 8, 2020

Source: CARD, Iowa State University Purdue Center for Commercial Agriculture


USDA Reduced Expected Corn Usage for Ethanol in 2019But Forecasts A Recovery in Ethanol Demand During 2020 Crop Year

During 2020 Marketing Year?

4.955.20

0.0

1.0

2.0

3.0

4.0

5.0

6.0

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

Corn Used for Ethanol

Source: USDA WASDE Purdue Center for Commercial Agriculture


Weak Ethanol Demand Pressured Corn Basis Levels Lower


USDA Projecting 2019 Crop Exports Will Fall 14% Below 2018’s & Then Rebound

Above 2018’s in 2020 Crop Year…Implies Demand Recovery in Importing Countries

2.44

2.07

1.78

2.15

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

U.S. Corn Exports .



USDA Projecting Strong Feed Demand for Both 2019 & 2020 Crops

6.16

4.32

5.70

6.05

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

00 02 04 06 08 10 12 14 16 18 20

Billion bu.

Harvest Year

U.S. Feed & Residual Corn Usage

Source: USDA WASDE


Corn SummaryCorn Production in 2020 Likely To Set A New Record

Ethanol Demand Collapsed in March-April, How Rapidly Will It Recover?

• Weak Ethanol Demand Could Linger Until Economy Shows Signs of Recovery

2019 Crop Exports Forecast to Fall 14% Below 2018’s

• USDA’s Forecast of 21% Increase in Exports During 2020 Crop Year Could Be Optimistic

Big Question Marks Surround Rate of Export Recovery and Ethanol Usage


Rising Ending Stocks Spells Weaker Prices$3.20 2020 MYA Price Forecast, Lowest MYA Since 2006

Weak Ethanol Demand Could Push 2019 Carryover Up Near 17%

15%

22%

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

0%

3%

6%

9%

12%

15%

18%

21%

24%

10 11 12 13 14 15 16 17 18 19 20

$/bushel% of Usage

Harvest Year

Corn Price vs. U.S. Ending Stocks . Ending Stocks as % of Total Usage .

Corn Ending StocksCorn Avg Farm Price

Source: USDA WASDE


What About Demand for Soybeans? Uncertain International Trade Environment Is Key

Key Soybean Demand Issues

1. Export Demand

2. Crush Demand


USDA Expects Soybean Exports to Rebound in 2020 to Near 2 Billion Bushels22% Increase From 2019 Crop Year’s Forecast

2.13

1.751.68

2.05

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Crop Year

U.S. Soybean Exports

Source: USDA Purdue Center for Commercial Agriculture


Soybean Summary

• 2020 Could Be Largest Crop Since 2015

• Exports Running Below Pace Needed to Hit Target

• Domestic Crush Demand Supported By Large Livestock Inventories

• USDA Forecasting Strong Recovery in 2020 Crop Year Exports…Will Export Demand Be That Strong?


$4.00

$5.50

$7.00

$8.50

$10.00

$11.50

$13.00

$14.50

0%

5%

10%

15%

20%

25%

05 07 09 11 13 15 17 19

MYA PriceStocks %

Year

Soybean Price vs. Ending StocksEnding Stocks as a % of Total Usage

Ending Stocks (%)

Avg Farm Price

Source: USDA,WASDE Purdue Center for Commercial Agriculture

2019 Ending Stocks Could Be Larger Than Projected Previously$8.20 MYA Projection for 2020 Is Lowest MYA Since 2006

Will Exports Recover Enough to Push Carryover Down in 2020?


Net Return ProjectionsDefinitions

• Net Farm Income– Gross revenue minus cash expenses and depreciation; excludes operator and

family labor, and opportunity costs

• Net Return to Land– Gross revenue minus cash expenses (except rent), depreciation, and opportunity

costs (except opportunity cost on owned land)

• Earnings– Gross revenue minus cash expenses, depreciation, and opportunity costs


-$200-$150-$100

-$50$0

$50$100$150$200$250$300

07 08 09 10 11 12 13 14 15 16 17 18 19P 20P

Net Farm Income Sources, Corn/Soybean Rotation ($ per Acre)West Central Indiana Case Farm

Government Payments Crop Insurance Crop Net Returns Net Farm Income

Estimated 2020 Gov’t Payments Does Not Include Possible COVID-19 Payments


33

-110-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019P2020P

Difference in Earnings per AcreWest Central Indiana (Corn Minus Soybeans)


Estimated ARC-CO and PLC Payments per AcreWhite County, Indiana

Corn: PLC

2019: $13

2020: $65

Soybeans: ARC-CO

2019: $28

2020: $14


Contribution Margin

• Gross Revenue – Variable Production Costs

• Same as Return Over Variable Cost


2020 Budget Comparisons for CornSource: Purdue Crop Cost & Return Guide

Budget Item January 2020($ per acre)

May 13, 2020($ per acre)

Difference($ per acre)

Crop Revenue $781 $675 -$106

ARC-CO/PLC $6 $40 $34

Combined Revenue $787 $715 -$72

Variable Costs $436 $434 -$2

Contribution Margin $351 $281 -$70

ARC-CO/PLC Payments are based upon base acres and are assumed to be the same for corn and soybeans


2020 Budget Comparisons for SoybeansSource: Purdue Crop Cost & Return Guide

Budget Item January 2020($ per acre)

April 20, 2020($ per acre)

Difference($ per acre)

Crop Revenue $579 $533 -$46

ARC-CO/PLC $6 $40 $34

Combined Revenue $585 $573 -$12

Variable Costs $247 $244 -$3

Contribution Margin $338 $329 -$9

ARC-CO/PLC Payments are based upon base acres and are assumed to be the same for corn and soybeans


Corn Prices Required to Produce Per Acre Returns Equivalent to SoybeansSoybean Price Low Productivity

(C=133; SB=44)Avg. Productivity(C=165; SB=54)

High Productivity(C=198; SB=65)

$7.50 $3.75 $3.66 $3.52$8.00 $3.92 $3.82 $3.68$8.50 $4.08 $3.99 $3.85$9.00 $4.25 $4.15 $4.01$9.50 $4.41 $4.32 $4.17

Soybeans More Profitable vs. Continuous Corn in Eastern Corn Belt


Corn Prices Required to Produce Per Acre Returns Equivalent to SoybeansSoybean Price Low Productivity

(C=141; SB=44)Avg. Productivity(C=176; SB=54)

High Productivity(C=211; SB=65)

$7.50 $3.42 $3.34 $3.21

$8.00 $3.58 $3.49 $3.36

$8.50 $3.73 $3.64 $3.52

$9.00 $3.89 $3.80 $3.67

$9.50 $4.04 $3.95 $3.83

Soybeans Look More Attractive Than Rotation Corn in Eastern Corn BeltWill Farmers Shift Some Acreage Intended for Corn to Soybeans


$0$50

$100$150$200$250$300$350$400$450$500

07 08 09 10 11 12 13 14 15 16 17 18 19 20P

Cash Rent and Net Return to Land, West Central IndianaNet Return to Land Cash Rents

May 15, 2020

Next Ag Outlook WebinarJune 12, 2020

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