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Transcript of Crop and Policy Outlook Pat Westhoff Food and Agricultural Policy Research Institute (FAPRI) ...
Crop and Policy Outlook
Pat WesthoffFood and Agricultural Policy Research Institute
(FAPRI)www.fapri.missouri.edu
Presentation to the St. Louis AgriBusiness ClubMay 9, 2005
Agenda
Crop market outlook Highlights from our DC briefing book What’s happened since we prepared the
baseline Budget news and possible impacts WTO news and possible impacts
U.S. Crop Yields per Acre
667072344.2
33.9
14243.2
160
42.5
835
6942
70
80
90
100
110
120
130
Corn (bu) Soybean (bu) Wheat (bu) Cotton (lb) Rice (lb)
Per
cent
of
pre-
2004
Rec
ord
2003 2004
Crop Prices
2.32 2.42 2.13 2.19
5.53
7.34
5.104.72 4.99
3.56 3.40 3.35 3.21 3.24
1.94
0
1
2
3
4
5
6
7
8
2002/03 2003/04 2004/05 2005/06 2006/07
Marketing Year
Dol
lars
per
Bus
hel
Corn Soybeans Wheat
Crop Prices
2.32 2.42 2.13 2.19
5.53
7.34
5.104.72 4.99
3.56 3.40 3.35 3.21 3.24
1.94
0
1
2
3
4
5
6
7
8
2002/03 2003/04 2004/05 2005/06 2006/07
Marketing Year
Dol
lars
per
Bus
hel
Corn Soybeans Wheat
April USDA estimates for 2004/05
Soybeans: $5.25-$5.55
Wheat: $3.35-$3.45
Corn: $2.00-$2.10
Crop Prices: What Has Changed?
Biggest change: stronger soybean prices Lower-than-expected Brazilian production (10
mmt less than we had assumed) Relatively strong demand Commodity fund behavior?
Smaller upward revision in corn prices Mostly due to early season farm prices >
market prices (because farmers contracted at high prices)
Fundamentals have actually been weaker than anticipated for corn (exports down, stocks up)
Variable Production Expenses
144160 166 170
75 80 82100 100
6070 74 77 77
172
0
50
100
150
200
2002/03 2003/04 2004/05 2005/06 2006/07
Marketing Year
Dol
lars
per
Acr
e
Corn Soybeans Wheat
Actual 2005 corn costs will be higher
U.S. Land Use (p. 33)2004 Actual
2005 FAPRI
2005 Intentions
Corn 80.9 81.0 81.4
Soybeans 75.2 72.9 73.9
All Wheat 59.7 58.1 58.6
Upland Cotton 13.4 13.7 13.5
Sorghum 7.5 8.2 7.4
Rice 3.3 3.2 3.4
5 Other Crops* 12.8 13.6 13.6
Hay Harvested 61.9 62.7 62.9
Conservation Reserve
34.9 35.8 35.8 (?)
11 Crops + Hay + CRP
349.6 349.1 350.6*Barley, oats, sunflowers, peanuts, and canola
Interest Rate on AAA Bonds
5.0
5.5
6.0
6.5
7.0
7.5
8.0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Per
cent
Government Outlays
0
5
10
15
20
25
30
35
40
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Fiscal Year
Bill
ion
Dol
lars
Total Mandatory Net CCC
Net Farm Income
30
40
50
60
70
80
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Calendar Year
Bill
ion
Dol
lars
Crop Outlook Summary
Big 2004 crops led to lower prices for many crops and higher CCC outlays
Outlook for 2005/06 hinges on size of this year’s crop and any demand surprises
Farm income is likely to fall from record-breaking 2004 levels
Budget News
Budget Resolution has been approved By Sept. 16, Ag. Committees to make cuts
of $3.0 billion over 5 years (FY 2006-2010) Compares to $7.5 billion in agricultural
program cuts in President’s budget Cuts can come from variety of programs
Farm commodity programs Crop insurance, export credits, conservation Food stamps NOT from discretionary programs like WIC, USDA
salaries, most ag. research, PL 480
Farm Program Cuts Hard to predict where cuts will occur
How much in farm program cuts vs. other? What will be mix of farm program cuts?
For point of reference only: President’s budget proposed withholding 5%
of crop payments starting in 2006/07 CBO said that would save $2.7 billion over 5
years (close to the $3.0 billion target) FAPRI estimates that would cut Missouri
payments by a total of $106 million over the 2006/07-2009/10 crop years
Other Possible Farm Program Cuts
President’s budget proposed limiting availability of loan program benefits
Only get loans on 85% of direct payment yield Would have been a big deal in years with high yields
and low prices (e.g., 2004 corn yield: 160 bu/a.; 85% of DP yield: 87 bu/a.)
USDA said would save only $1.1 billion (they assume relatively high prices, so few loan benefits to begin with)
We estimated this would save $7.2 billion (by looking at range of 500 possible outcomes)
CBO said $5.1 billion (their approach is more like ours) Appears unlikely to be considered by Ag. Committees
Other Possible Farm Program Cuts
Payment limitations President’s budget proposes $250,000
overall limit per person, tighter rules Sen. Grassley has similar bill Would affect cotton and rice far more than
other crops Unlikely to be included in Ag. Committee
bills But could be included in Senate bill by floor
amendment Cuts in target prices, loan rates, direct
payment rates, ???
Why Reconciliation Bills Are Special Reconciliation bill will include cuts in
many programs (not just Ag.) and tax cuts as well—balance of interests
Unlike other legislation, cannot be filibustered in Senate Thus takes 51 votes to approve, not 60
required for most controversial bills Means it could pass with no Democratic
support Makes moderate Senate Republicans key 3 Senate R’s (of 55) voted against resolution
(Chafee, DeWine, Voinovich); no D’s supported
WTO Issues: Cotton Case U.S. has lost WTO case on cotton
subsidies—and the appeal, too Panel ruling suggests U.S. should
Change Step 2 program and export credit guarantee program by July
And make changes so marketing loans and CCPs don’t increase U.S. cotton production
Panel logic would suggest other programs are also vulnerable to WTO challenge
WTO Issues: Cotton Case What will U.S. do to respond?
USDA looking at changes in Step 2 and export credits—but no public decision yet
Step 2 changes almost certain to require Congressional action
And changes in marketing loans or CCPs would clearly require Congressional action
Not at all clear that Congress will make changes even if Administration requests
Could have major implications for WTO talks, etc.
WTO Issues: Doha Talks
Doha Round is at critical phase (again) In Ag., main issues are increased market
access (U.S. demand) and reduced farm subsidies (Brazil, India, etc. demand)
If no breakthrough soon, may be tough to complete overall agreement in 2006
Trade Promotion Authority expires in 2007 Many see this as deadline for agreement Not clear Congress would extend authority
Additional Slides
Corn Returns (p. 10)
0
50
100
150
200
250
300
350
400
450
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year Crop Harveted
Dol
lars
per
Acr
e
Market LDP Other Payments Variable Expenses
Soybean Returns (p. 20)
0
50
100
150
200
250
300
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year Crop Harvested
Dol
lars
per
Acr
e
Market LDP Other Payments Variable Expenses
Upland Cotton Returns (p. 28)
0
100
200
300
400
500
600
700
800
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year Crop Harvested
Dol
lars
per
Acr
e
Market LDP Other Payments Variable Expenses
Selected Government Payments (p. 50)
0
5
10
15
20
25
1998 2000 2002 2004 2006 2008 2010 2012 2014
Year Crop Harvested
Bill
ion
Dol
lars
AMTA/Direct Payments Marketing Loans CCPs Market Loss
Prices Paid by Farmers (p. 52)
80
90100
110
120130
140
150
160170
180
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Calendar Year
Inde
x, 1
990-
1992
=10
0
Fertilizer Fuel
Net Farm Income and Government Payments (p. 54)
0
10
20
30
40
50
60
70
80
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Calendar Year
Bill
ion
Dol
lars
Net Farm Income Government Payments