Presented by: Terry Barr, Senior Director of Industry Research Knowledge Exchange Division,...
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Transcript of Presented by: Terry Barr, Senior Director of Industry Research Knowledge Exchange Division,...
Presented by: Terry Barr, Senior Director of Industry ResearchKnowledge Exchange Division, CoBank, ACBE-mail: [email protected]
14th Annual Farmer Cooperatives ConferenceNovember 3, 2011
Trends in the Global Marketplace: Volatility and Opportunity
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The near term outlook for the food, fiber and agriculture sector is strong but the drivers of that prosperity will change in the decade ahead!
In the past decade net cash income has averaged one-third higher than the previous decade, farm prices have reached record levels, land prices have increased over 80 percent and the value of exports has nearly tripled. And the sector has been resilient through a severe global recession!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The major drivers of this past decade have been: rapid growth in the ethanol industry weather the rapidly growing emerging markets,
particularly China, and the massive amounts of global liquidity
fostered by accommodative monetary policy and the extraordinary lack of fiscal discipline in the advanced economies.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The major drivers of this past decade have been: rapid growth in the ethanol industry weather the rapidly growing emerging markets,
particularly China, and the massive amounts of global liquidity
fostered by accommodative monetary policy and the extraordinary lack of fiscal discipline in the advanced economies.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The next decade will be dramatically different as the world confronts the fact that these drivers are not sustainable. At the same time the opportunity to position for that future has never been better. The cost of investment and debt capital is as cheap as we are likely to see for many decades.The future will be about the agility of balance sheets, management and farmer cooperative boards!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Commodity Markets Pressured Lower With Reduced Growth Prospects
0
100
200
300
400
500CRB Indexes (1967=00) (commodity futures)
Reuters/ Jefferies-CRB
58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Supply issues and liquidity seeking returns will drive commodity markets!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
* Currencies weighted by relative market importance to total U.S. trade.
70
80
90
100
110
120
130
140
150Indexes of major currencies/US$ (March 1973=100)
80 82 84 86 88 90 92 94 96 98 00 02 04 06 0874 76 78 10 12
From October 2010 …... -0.2%From 1997-03 average … . -28%
Dollar Erosion Has Boosted Foreign Buying Power and Commodity Prices
Weak dollar benefits exporters and sectors
facing import competition!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Deficits, Debt & Stagnation:Operation Twist and Fiscal Follies
Geopolitical challenges and energy:Arab Spring transitioning to Fall
Sovereign debt, defaults and Who Pays? China focus on inflation
and monetary tightening
A Lack of Confidence While Passing Through a Global Minefield
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Over the past few months virtually every major risk to the global economic recovery seems to have resurfaced and occupied the front page. Sovereign debt issues in Europe
and the United States, rising inflation in China, oil market volatility and deteriorating expectations for U.S. housing and job markets.
This will be like “Groundhog Day”!!!!!
No Confidence That U.S. or Europe Has Political Will for Needed Action
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Global Economy Facing Crisis of Confidence Regarding U.S. and Europe
-2
0
2
4
6
Percent change in annual world growth (purchasing-power parity rates)
Advanced countries Rest of world China India
Advanced economies accounted for over half of world growth rate from 1970 to 2008. From 2010 to 2016 they will account for less than one-third. This will be a world with a 2-speed recovery reliant on emerging markets!
Growth prospects in Europe and the U.S.
are weakening!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Agriculture Export Destinations Have Increasing Asian Flavor
1.China 2. Canada 3. Mexico 4. Japan 5. EU-27 6. South Korea 7. Hong Kong 8. Taiwan 9. Indonesia10. Turkey11. Egypt12. Philippines13. Thailand14. Viet Nam15. RussiaTotal all exports
19.518.517.014.010.5
6.53.33.53.02.92.82.01.51.51.4
137.0
Top 15 Markets 2012
1.Japan 2. Canada 3. EU-27 4. Mexico 5. South Korea 6. Taiwan 7. China 8. Hong Kong 9. Egypt10. Philippines11. Turkey12. Indonesia13. Russia14. Dominican Rep.15. Saudi ArabiaTotal all exports
9.37.56.56.32.52.01.51.21.10.90.70.70.70.50.5
50.8
Top 15 Markets 2000
Asian markets account for 43% of U.S. exports and occupy 9 of the top 15 market destinations. China has become the #1 market with Thailand and Viet Nam growing rapidly!
Bil. US$ Bil. US$
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0
15
30
45
60
75
90
105
120
135
150Billion dollars per fiscal year
Exports Imports Balance
U.S. Exports Provide Significant Boost to Agriculture Sector
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0
15
30
45
60
75
90
Billion dollars per fiscal year
High value products
Bulk commodities
High Value Products Lead Surge in U.S. Agriculture Exports
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Much of Global Trade Strength Linked to China
0
25
50
75
100
125
150Million metric tons or bales
Coarse grains
Wheat
Soybeans
Cotton40% to China
60% to China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Middle East and North Africa
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8Percent growth rate per year
Egypt
93-02 2005 2006 2007 2008 2009 2010 2011 20120
1
2
3
4
5
6
7Percent growth rate per year
Saudi Arabia
93-02 2005 2006 2007 2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8Percent growth rate per year
Middle East and N. Africa(5% GDP / 6% pop)
The Middle East-North Africa market represents 5 percent of world economy and 6 percent of world population. Oil and geopolitical instability characterize a region that may now be in transition and has future market potential!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Suez canal2 mil. barrels/daySUMED pipeline
2 mil. barrels/day
Straits of Hormuz16 mil. barrels/dayBahrain is home to
U.S. 5th Fleet
Strait of Bab el-Mandeb
3 mil. barrels/day
Middle East Turmoil Will Keep Oil Markets Unsettled Well into 2012
Saudi ArabiaRussiaIranUAENorwayKuwaitNigeriaAngolaAlgeriaIraqVenezuelaLibyaKazakhstanCanadaQatar
7,3227,1942,4862,3032,1322,1241,9391,8781,8071,7641,7481,5251,2991,1441,066
Top World Oil Exporters*
ExportsThousand barrels per day
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Oil Price Tracks Global Growth and U.S. Dollar During Turmoil
$10$20$30$40$50$60$70$80$90
$100$110$120$130$140Dollars per barrel; spot price West Texas Intermediate
Questions for oil:Middle East keeps uncertainties in the market.US dollar value still a factor.OPEC: limited output adjustmentsGlobal growth expectations are setting price expectations.a
2007 avg.$72
2008 avg.$100
2009 avg.$62
2010 avg.$79
2011 avg.$92
2012 avg.$90-95
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Asia- World’s Growth Engine
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 20120
5
10
15Percent growth rate per year
China (14% GDP / 20% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012
-6
-4
-2
0
2
4
Percent growth rate per year
Japan (6% GDP / 2% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8Percent growth rate per year
Asean-5
(pop= 533 million) Indonesia,Philippines,Malaysia,Thailand & Vietnam
93-02 2005 2006 2007 2008 2009 2010 2011 2012
0
2
4
6
8
Percent growth rate per year
Newly Industrialized Asian Economies (pop = 83 million)
Hong Kong, Singapore, S. Korea & Taiwan
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
China Has Made Inflation a Priority Issue for the Future
-2
0
2
4
6
8
10Percent (headline inflation)
China
Advanced economies
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Data source: International Monetary Fund, WEO
Monetary tightening to combat inflation and asset bubbles may slow growth! No new stimulus. Food price
inflation is priority issue.
13.4%+ food
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Latin America and Caribbean
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-1
0
1
2
3
4
5
6
7
8Percent growth rate per year
Brazil(3% GDP / 3% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 20120
2
4
6
8
10Percent growth rate per year
Argentina(0.8% GDP / 0.6% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-2
-1
0
1
2
3
4
5
6
7Percent growth rate per year
Latin America and Caribbean(9% GDP / 8% pop)The Latin America and Caribbean
market represents 9 percent of world economy and 8 percent of world population. Young populations and abundant natural resources make this region a significant competitor for the U.S., in both European and Asian markets.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Capital Flows to Latin America Boosted by Foreign Direct Investment
-4
-2
0
2
4
6
8Percent of GDP
FDI PFE PFD Other Total
2005 2006 2007 2008 2009 2010 2011
FDI: foreign direct investment; PEF: portfolio equity flows; PDF: portfolio debt flows.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
South American Expansion Setting Supply Tone in Oilseeds Market
0
50
100
150
200
250
Million metric tons
Brazil and Argentina
United States
World
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Euro Region Remains in Chaos(17 countries)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Euro zone Countries Have Significant Deficit and Debt Challenges
-30 -25 -20 -15 -10 -5 0
Data source: International Monetary Fund, WEO
Portugal
Fiscal deficit as percent of GDP
Ireland
Italy
Greece
Spain
200820092010
200820092010
200820092010
200820092010
200820092010
0 35 70 105 140Government debt as percent of GDP
Portugal
Ireland
Italy
Greece
Spain
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
European Government Bond Spreads Accelerate Efforts to Find Solution
0
1000
2000
3000
4000
5000
6000
7000
8000Basis points
Ireland
Greece
Portugal
2010 2011J F M A M J J A S O N D J F M A M J J A S O N D
Data source: International Monetary Fund, WEO
0
50
100
150
200
250
300
350
400
450
500Basis points
France
Italy
Spain
2010 2011J F M A M J J A S O N D J F M A M J J A S O N D
two-year yield spreads over German bunds
two-year yield spreads over German bunds
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Current Proposal
1. Voluntary reduction in private sector Greek debt held by private sector.
2. Recapitalize Euro zone banks to minimum 9% tier I capital.
3. Expand capacity of European Financial Stability Facility.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)Data source: International Monetary Fund, WEO
Total Greek debt = 340 bil. euros ($473 bil.)
Debt held by private sector = 200 bil.
Debt held by institutions = 140 bil.
Private sector takes voluntary 50% haircut = 100 bil. euros!
Voluntary reductions will not constitute a default in terms of
credit default swaps!
European Central Bank, IMF and others will not
take a haircut!
1. Voluntary Bank Losses Reduce Greek Debt by Only 30 Percent
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
30.0
26.2
14.8
8.8
7.8
5.2
4.1
3.6
2.9
1.4
Greece
Spain
Italy
France
Portugal
Germany
Belgium
Cyprus
Austria
Sweden
Data source: European Bank Authority
This requirement basically covers Greek haircut. Stress test by
European Bank Authority (EBA) does not assume EU recession or future defaults in other Euro zone
countries!
2. Recapitalize European Banks with 9% Tier I Capital Target
Estimated New Capital Required by European Banks = 106 bil. euros
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)Data source: International Monetary Fund, WEO
Total EFSF goal =1 trillion euros ($1.39 trillion) lending capacity
Current EFSF = 440 bil. 190-240 bil. euros
committed !
Provide partial protection (20%) for investors against any initial defaults of Euro zone country bonds.Create several funds seeded with EFSF money and solicit funds from outside investors.
3. Expand the Size of the European Financial Stability Facility
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Questions Will Remain
Will countries maintain fiscal disciplines? A referendum on the Euro versus austerity measures in early December or new elections!
Is the proposal big enough to address other defaults?
How will emerging recession in Europe impact numbers?
Will role of European Central Bank change under new Italian president?
Do the actions address the fundamental problems of fiscal discipline and the lack of competitiveness of member countries?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-5-4
-3-2
-10
12
34
Percent growth rate per year
Euro Countries(16% GDP / 5% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012
-2
-1
0
1
2
3
Percent growth rate per year
France(3% GDP / 1% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-5-4-3
-2-1012
34
Percent growth rate per year
Germany
(4% GDP / 1% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-5-4
-3-2
-10
12
3
4Percent growth rate per year
United Kingdom(3% GDP / 1% pop)
?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Central and Eastern Europe and Commonwealth of Independent States
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 2012
-5
0
5
Percent growth rate per year
Russia
93-02 2005 2006 2007 2008 2009 2010 2011 2012
-5
0
5
10
Percent growth rate per year
Commonwealth of Independent States
93-02 2005 2006 2007 2008 2009 2010 2011 2012-4
-2
0
2
4
6
Percent growth rate per year
Central and Eastern Europe(3.5% GDP / 2.6% pop)The Central and Eastern Europe
market represents 3.5 percent of world economy and 3 percent of world population. The Commonwealth of Independent States market represents 4.2 percent of world economy and 4.2 percent of world population.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Net Financial Flows to CIS and Central and Eastern Europe Still Weak
2004 2005 2006 2007 2008 2009 2010 2011 2012
-10
-5
0
5
Percent of GDP
Direct investmentPrivate portfolio flows
Private other flowsOfficial flows
Total flows
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
North America
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-3
-2
-1
0
1
2
3
4
Percent growth rate per year
Canada(2% GDP / 0.5% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-6
-4
-2
0
2
4
Percent growth rate per year
Mexico(2% GDP / 1.6% pop)
93-02 2005 2006 2007 2008 2009 2010 2011 2012-4
-3
-2
-1
0
1
2
3
4Percent growth rate per year
United States
(20% GDP / 5% pop)
The North American market represents 23 percent of world economy and 7 percent of world population.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Recovery Shaped by CautiousConsumer and Financial Headwinds
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
-2
0
2
4
6
Percent change Gross Domestic Product (Chained 2005$)
Recovery path dramatically different!
2011-12
growth
1.5-2.5%(Subdued,
Consumer
Capex)
This recession began in financial sector and the recovery is heavily reliant on a consumer
sector that is now facing significant challenges in debt, jobs and home prices!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
-8
-6
-4
-2
0
2
4
6
8Percent change in quarterly Gross Domestic Product (Chained 2005$)*
* Seasonally adjusted at annual rate2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20122010 2011
Double Dip Concerns Have Eased But Growth Remains Weak
3rd qtr was driven by consumer
saving less!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
50
60
70
80
90
100
110
120
130
140
150Percent (debt-to-income)
10
12
14
16
18
20
22
24
26
28
30Percent (debt-to-net worth)
Debt-to-Income
Debt-to-Net Worth
Consumption growth will track income growth unaided by credit
expansion. When will consumer be comfortable with debt level, job environment and home prices?
A Deleveraging Consumer Will Temper Potential Demand Growth
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
-750
-500
-250
0
250
500
Change in nonfarm payrolls (thousand)
Monthly change 12-month moving average
82 84 86 88 90 92 94 96 98 00 02* Busines cycle troughs: Nov 1982, March 1991, November 2001 and June 2009.
04 06 08 10
Unemployment rate = 9.1%Underemployment = 16.5%Participation rate= 64.2% Average duration= 40.3 weeks
Job Gains Remain Weak and Consumer is Uneasy With High Unemployment
103,000 jobs created in September!(137,000 in private sector)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Home Prices: Is the Decline Coming to an End?
75
100
125
150
175
200
225Monthly S&P/Case-Shiller 20-City Home Price Index
2001 2002 2003 2004 2005 2006 2007 2008 2009 20102000 2011
August prices were 3.8% below a year ago, 32% below the peak in 2006!
Is housing no longer an investment and being priced as shelter?
IL IN OH
PA
NY
NC
ND
SDMN
MIWI
WVVA
SC
GA
FL
ALMS
KY
TN
MO
IANE
KS
MT
WY
CO
NM
TX
OK AR
LA
UT
AZ
CA
NV
OR
WA
ID
MD
VT
NH
ME
MA
RI
DENJ
CT
AtlantaYear ago …….... -6%From peak .... -27%From 2000 …… +0%
Case-Schiller Home Price Indexes20-city (through August 2011):
Year ago ………….... -3.8%From peak ……….... -32% From Jan. 2000 …. +40%
Home Prices Continuing to Fall in Many Regions of the Country
CharlotteYear ago …….. -3%From peak .... -17%From 2000 …. +10%
Minneapolis Year ago …….. -9%From peak .... -35%From 2000 …. +12%
DallasYear ago …….... -2%From peak ..... -9%From 2000 …. +14%
Chicago Year ago …….... -6%From peak ..... -31%From 2000 …. +16%
Denver Year ago …….... -2From peak .... -12%From 2000 …. +22%
Seattle Year ago …….. -6%From peak .... -29%From 2000 …. +34%
PhoenixYear ago ………. -8%From peak .... -57%From 2000 ….. -1%
Los Angeles Year ago ………. -4%From peak .... -39%From 2000 …. +66%
DetroitYear ago ……… +2%From peak .... -44%From 2000 …. -29%
TampaYear ago ………. -6%From peak .... -47%From 2000 …. +28%
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Business Investment Lags Corporate Profit Growth; Housing Weak
91 93 95 97 99 01 0390 92 94 96 98 00 02 0504 06 07 08 09 10200
400
600
800
1000
1200
1400
1600
1800Billion dollars in profits; investment at annual rates
200
400
600
800
1000
1200
1400
1600
1800
Business fixed investment
Corporate profits (after tax)
Residential investment
11 12
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Economic Policy Transitions Will Create Headwinds for Recovery!
U.S. is proposing to undertake major policy reform:
Virtually every sector of the economy will be impacted and risk management and investment strategies will have to reflect the growing uncertainties
Financial sector Financial sector regulatory reform implementation
Energy sector Comprehensive energy policy/climate change ; transition from fossil fuels!
Immigration Reform groundwork being laid for 2012
Health care sector Uninsured, medicare / medicaid reform?
Regulatory oversight Clean air & water, Food safety
Deficit reduction
Tax policy; entitlement programs (including farm and food programs).
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Monetary Policy: Setting Stage for 2011 and Beyond
U.S. Federal Reserve
U.S. Treasury Department
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Federal Reserve Will ContinueTo Promote Growth into 2013
0
1
2
3
4
5
6
7
8
9Percent
10-year Treasuries
FederalFunds Rate
90 91 92 93 94 95 96 97 98 99 00 01 02 0403 05 06 07 0908 1210 11 13
Fed commits to holding rates low through mid-2013!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Federal Reserve Announces Operation Twist and More
Fed holds $515 billion in 0-3 year maturities; they will sell $400 billion and purchase longer term maturities. Likely purchase pattern:
Maturity Total outstanding Fed purchases6-7 years $353 bil. $140 bil.7-10 years $581 bil. $160 bil.10-30 years $521 bil. $100 bil.Total $1,455 bil. $400 bil.
Fed will sell $400 billion of short duration assets and replace with longer term maturities.
Reinvest the principal of maturing agency and agency-backed mortgaged backed securities (mbs) into longer term agency-backed mbs debt.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0
1
2
3
4
5
6Percent rate
June, 2011
June, 2009
10year
7year
5year
3yr
2yr
1yr
30year
20year
June, 2010
June, 2007
Week ending Oct. 21, 2011
Sept. 9, 2011
Operation Twist Has Been Offset By Global Financial Uncertainties
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Fiscal Policy: An Ongoing Debate for 2011, 2012, 2013…..
Congress
White House
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Budget Control Act Will Trim $2 Trillion From Future Budget Deficits
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
200
Deficit in billion dollars
-16
-14
-12
-10
-8
-6
-4
-2
0
2
-6%
-4.7% -3.6%
Reagan ClintonG. Bush
G.W. Bush
Source: Congressional Budget Office (August, 2011), BEA and Treasury Department and forecast
Deficit aspercentof GDP
Percent of GDP
Obama
-10.0%Assumptions: 4 year phase-out in Iraq/ Afghanistan Permanent extension of tax provisions
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Debt ceiling at $16.4-16.7 trillion
Congress approves Congress disapproves
President vetoes
By Dec. 31, 2011 Congress must vote up or down on joint committee plan
Implement Congressionally approved plan or by Jan 15, 2012 begin the sequestration process that will achieve $1.2-1.5 trillion in reductions over 10 years equally divided between domestic and defense national security spending. But cuts wouldn’t occur until 2013.
January 2013 ….. Debt ceiling would need to raised again by Congress, sequestration cuts would begin and
tax cuts would expire without Congressional action.
Super Committee, Lame Duck or 2012 Elections ????
November 2012 ….. Presidential and Congressional Elections
Is $2 trillion enough and does it address structural problem?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Economic Conditions Increasingly Diverse in Agriculture
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Grain Stocks Will Likely Continue to Decline in 2011/12
0
100
200
300
400
500Million metric tons of wheat & coarse grains
0
8
16
24
32
40Stocks-to-use percentage
World stocks Stock/use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Reduced Global Harvest Boosts Prospects for Wheat market
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Wheat Stocks Remaining Stable With Growing Demand
0
50
100
150
200
250Million metric tons of wheat
0
8
16
24
32
40Stocks as percent of use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
-25
0
25
50
75
100
125Million metric tons
Ending stocks
Domestic use
Production
Net exports
Rebound in FSU-12 Exportable Supplies Will Impact Wheat
Markets
28% of world trade
-29%
Increase in exportable supplies.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
0.0
0.5
1.0
1.5
2.0
2.5
3.0Billion bushels
Ending stocks
Total useProduction
U.S. Wheat Stocks to Decline as Drought Reduces Yields and Offsets Acreage Gains
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Corn Market Assesses 2011/12 Crop Prospects
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Coarse Grain Stocks Moving to Record Low Levels Relative to Use
0
10
20
30
40
50
60
70Percent (stocks as a percent of use)
U.S. World
Near record low stocks for both world &
U.S.!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Rate of Increase in Ethanol Slowing; Crop Size is Now Key Factor
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Billion bushels of corn
Feed and residual
Exports
Food, seed & industrial
Ethanol use is key driver!
(40% of use)(25% adjusted for
feed use)
Ethanol
DDG's
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Corn Stocks Remain Tight Throughout 2011/12
0
2
4
6
8
10
12
14Billion bushels
Production Total Use Free stks Gov't stks
Smaller corn crop will force usage below 13 billion
bushels!!Still need large 2012/13 crop!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Soybean Market Riding Export Wave to China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Continued Large Global Soybean Stocks Offset by China Demand
0
10
20
30
40
50
60
70Million metric tons of soybeans
0
5
10
15
20
25
30
35Stocks-to-use percentage
Ending stocks Stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
-75
-60
-45
-30
-15
0
15
30
45
60
75Million metric tons
Ending stocks
Domestic use
Production
Net exports
China’s Appetite for Soybeans is Major Market Driver
In last 10 years domestic consumption has tripled with no significant increase in domestic
production! Usage has increase by over 40% in last 4 years!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Soybean Stocks Limited by Strong Demand and Acreage Competition
0
1
1
2
2
3
3
4
4Billion bushels
Production Total Use Stocks
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Cotton Market Reflecting Low Stocks and China Appetite
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Cotton Stocks Rebounding But Supplies Still Tight
0
10
20
30
40
50
60
Million 480-pound bales of cotton
0
10
20
30
40
50
60
Stocks-to-use percent
Stocks Stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
-20
-10
0
10
20
30
40
50
60Million 480 lb. bales
Ending stocks
Domestic use
Production
Net exports
China Will Likely Rebuild Stocks in 2011/12 With Production Gains
45% of world trade
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat and Dairy Industries Squeezed by Two Volatile Forces
ExportMarkets
Export Reliance:Emerging marketsDisease (FMD)U.S. $ weaknessRising competitionTrade disputes
Feed Costs:Low stocksRising price volatilityYield/weather issuesEthanolU.S. $ weakness
Are balance Sheets Strong Enough with Sufficient Liquidity to Match Risks?
ExportMarkets
Export Reliance:Emerging marketsDisease (FMD)U.S. $ weaknessRising competitionTrade disputes
Feed Costs:Low stocksRising price volatilityYield/weather issuesEthanolU.S. $ weakness
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat Industry Sees Reduced Grain Harvests and Weak U.S. Economy!
0
5
10
15
20
25
30
35
40Billion pounds
Beef
Pork
Broilers - 1 % -4 to -5% + 1.0 % +1 to 2%
Change in 2011 2012 + 1.4 % 0 to 1%
BeefPork
Broilers
2008 2009 2010 2011 2012 + 3% -3.2% 1.3 % 0.7 % -1 to -2 %
Percent change in total meat output
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Export Market Will Be Key to Positive Returns Through 2012
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12-3
0
3
6
9
12
15
Billion pounds (red meat: carcass weight; poultry: ready-to-cook)
Imports Exports Balance
Export share of 2012 U.S. production Broilers ….. 18% Beef ………. 10% Pork ……… 22% All meat .......16%
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Red Meat Exports Continuing to Increase; Broilers Still Stagnant
Beef Pork Broilers0
1
2
3
4
5
6
7Billion pounds (2000-2012)
00 02 04 06 08 1210 00 02 04 06 08 1210 00 02 04 06 08 1210
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Milk Production Responding to Record Export Demand
120130140150160170180190200210220Million pounds milkfat basis
Commercial supply Commercial disappearance
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 1205
10
1520
25Ending stocks
Market keys 2011-12:Domestic consumer?International market volatility;Feed cost/liquidation
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Export Market Will Be Key to Sustaining Returns Through 2012
1999 2001 2003 2005 2007 2009 2011-1
0
1
2
3
4
5Billion dollars
Imports Exports Balance
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Milk Prices Boosted by U.S. Consumer and Strong Export Markets
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 118
10
12
14
16
18
20
22Dollars per hundredweight
Price support
All milk price
1 to 2 percent increases in milk production in 2011 and 2012 in the face of rising feed and forage costs and weaker economy could prove
challenging !
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Prices Received and Paid by Farmers Have Reached Record Levels
75
100
125
150
175
200
225Index (1990-92=100)
Prices received: crops
Prices paid*
*Prices paid commodities & services, interest, taxes and wage rates
Prices received: livestock
Sector is operating at higher price and cost levels with greater volatility …… more working
capital to play, less leverage permitted and more emphasis on well-defined risk
management policies!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 110
20
40
60
80
100
120Billion dollars
Net Farm Cash Income
Direct government payments*
* emergency payments are striped area of government payments)
Net cash income in agriculture is projected to reach $115 billion in 2011, an increase of 24% over the
record set in 2010!
Farm Income: Agriculture Continues Strong Performance
Record high
Presented by: Terry Barr, Senior Director of Industry ResearchKnowledge Exchange Division, CoBank, ACBE-mail: [email protected]
14th Annual Farmer Cooperatives ConferenceNovember 3, 2011
Trends in the Global Marketplace: Volatility and Opportunity