THINKING ABOUT AGRICULTURE
ON THE HIGH PLAINS
DARREN HUDSON, COMBEST ENDOWED CHAIR
TEXAS TECH UNIVERSITY
FCC ANNUAL MEETING
MARCH 28, 2016
LET’S START WITH A QUESTION
• WHAT DO YOU THINK IS THE SINGLE MOST CRITICAL ISSUE FACING AGRICULTURE TODAY AND
OVER THE NEXT 10 YEARS?
OVERVIEW
• MACROECONOMICS
• DOLLAR APPRECIATION
• INTEREST RATE INCREASES
• ENERGY PRICES
• GENERAL ECONOMIC CHANGES
• COTTON OUTLOOK
DOLLAR APPRECIATION
The dollar value index over the last 4 years compared with the
commodity price index over the last year.
INTEREST RATES
A long way to go to pre-recession levels…but,
borrowing decisions are made “at the margin,” not the
level of interest rates.
MONEY VELOCITY AND SUPPLY
MV=PY; why we have no substantial inflation
OIL PRICE ASSUMPTION GOING FORWARD
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2015
2016
2017
2018
2019
2020
IHSGI
USDA/FAPRI
2021
2022
2023
2024
2025
TAKE-AWAY FROM MACRO ENVIRONMENT
• CURRENCY APPRECIATION WILL FAVOR WEAKER COMMODITY PRICES IN THE U.S., OTHER THINGS
EQUAL
• INTEREST RATES (AND SO BORROWING COSTS) WILL RISE…BUT HOW FAST? WITH LOWER
COMMODITY PRICES AND WEAKER FARM POLICY, BORROWING CAPACITY WILL BE CURTAILED;
PRODUCERS WILL ALSO BE LOOKING TO SAVE DOLLAR WHERE THEY CAN ON INPUTS
• IF THE SQUEEZE CONTINUES, THERE WILL BE EXITS FROM FARMING; SOME OF YOUR PATRONS WILL
PROBABLY NOT BE HERE IN 5 YEARS
• TO EXACERBATE THE ISSUE, ENERGY COSTS, WHICH HAVE BEEN A COST SAVINGS OF LATE, WILL
SLOWLY RISE AGAIN
COTTON OUTLOOK
US COTTON ACRES AND PRODUCTION
thousand acres
thousand bales
16,000
25,000
14,000
20,000
12,000
10,000
15,000
8,000
10,000
6,000
4,000
5,000
2,000
0
0
Acres
Production
EXPORTS AND A-INDEX PRICE
thousand bales
cents/lb
20,000
180
18,000
160
16,000
140
14,000
120
12,000
100
10,000
80
8,000
60
6,000
40
4,000
20
2,000
0
0
Exports
A-index
US STOCKS AND FARM PRICE
thousand bales
cents/lb
12,000
100
90
10,000
80
70
8,000
60
6,000
50
40
4,000
30
20
2,000
10
0
0
Stocks
US Farm Price
CHINA
80,000
1,000 bales
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Production
Consumption
Imports
Stocks
INDIA
40,000
1,000 bales
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Production
Consumption
Exports
WORLD
160,000
1,000 bales
Cents/lb. 180
160
140,000
140
120,000
120
100,000
100
80,000
80
60,000
60
40,000
40
20,000
20
0
0
Production
Consumption
Trade
Stocks
A-index
TAKEAWAYS
• STAGNANT TO SLIGHTLY INCREASING PRICES
• CONSUMPTION EXCEEDING PRODUCTION, BUT FED BY EXISTING STOCKS
• SOME RECOVERY IN THE US, BUT ONLY SMALL IN THE NEAR TERM