College of Business Administration
Expectations for Nebraska Agriculture
presented to
Cooperatives for Tomorrow Seminar
February 4, 2015
Eric Thompson
Director, Bureau of Business Research
ethompson2@unl.edu
www.bbr.unl.edu
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College of Business Administration
Outline
• Macroeconomic factors and agriculture
• International demand
• The competitive position of Nebraska:
– Presence of agricultural production cluster
– (Relative) resilience to climate change
– Expansion of livestock production
• Economic Impacts from agriculture
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College of Business Administration
Summary
• Low interest rates and higher dollar
• Demand for agricultural goods will grow
faster than supply in the developing world
• Nebraska is well-positioned to captured
these export opportunities:
– Presence of agricultural production cluster
– (Relative) resilience to climate change
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College of Business Administration
Macroeconomic Factors
• The higher value of U.S. dollar
– Weaker economies in developing countries
– Relative strength of U.S. economy
– (Slow) tightening of U.S. monetary policy and
Quantitative Easing overseas
• Low interest rates sustained in the future
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College of Business Administration
The Value of the U.S. Dollar
Trade-Weighted Exchange Rate Index
Month
Jan 2014
July 2014
Sept 2014
Oct 2014
Nov 2014
Dec 2014
Jan 2015
Index Value (Jan 1997=100)
102.8
102.1
104.6
106.0
107.8
110.4
112.3
Source: Federal Reserve Bank of Saint Louis
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College of Business Administration
The Environment for Interest Rates
“There has been a change in the natural balance of
between savings and investment, leading to a decline in
normal real rate of interest.”
- Laurence Summers
Reasons for this:
1) Reduction in demand for debt financed investment –
large ventures (by market value) can be started at little
cost
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College of Business Administration
The Environment for Interest Rates
2) Declining population growth – older population which
borrows less
3) Rising income inequality- greater concentration of
income for top earners raises the propensity to save
4) Decline in the relative price of capital goods – less
borrowing
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College of Business Administration
The Environment for Interest Rates
5) Due to taxes, lower pre-tax interest rate in low inflation
environment
6) Central banks building reserves, especially in safe
dollars – willing to accept low interest rates.
I’ll add 7) – higher share of income growth in “saving”
nations (china, etc.) – also raises the propensity to save
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College of Business Administration
International Demand
Global Demand for Agricultural Imports
Referring to China, “With increasing production
constraints and strong demand growth, additional
agricultural imports may be anticipated”
- OECD/FAO Agricultural Outlook 2013-2022
“As the world’s population growth expands, the demand
for raw materials and manufactured goods seems likely
to continued to expand”
- The Rise of the Great Plains, Texas Tech University
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College of Business Administration
Global Demand for Agricultural Imports
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College of Business Administration
Global Demand for Agricultural Imports
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College of Business Administration
Global Demand for Agricultural Imports
Source: OECD and FAO Secretariats
Annual Imports of Coarse Grains (kt)
4,000
3,900
3,800
3,700
3,600
3,500
3,400
3,300
3,200
3,100
3,000
2013
2014
2015
2016
OECD
2017
2018
2019
2020
2021
2022
Developing Countries
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College of Business Administration
Competitive Position of Nebraska
Recent strength in the agricultural
production cluster should continue
The cluster will continue to attract more
investment
Portions of the region feature reliable
crop production (i.e., abundant
groundwater)
Relatively speaking, climate change
may benefit the Upper Midwest
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College of Business Administration
Competitive Position of Nebraska
Agricultural Production Cluster
#1 in irrigated acres with nine million acres
#1 in commercial red meat production
#1 (tied with Texas) for cattle-on-feed numbers
#2 in corn-based ethanol production
#3 in corn for grain production
#4 in soybean production
#5 in all hay production
#6 in all hogs and pigs, and
#7 in hog slaughtering
Source: Nebraska Department of Agriculture
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Agricultural Production Cluster
Golden Triangle
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Climate Change to Benefit Nebraska?
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College of Business Administration
Climate Change to Benefit Nebraska?
Change in Annual Returns to Crop Production (Millions $)
Region
ECH
CSIRO
CNR
Northern Plains
(KS, ND, NE, SD)
$1,254
$1,671
-$914
$255
$902
$1,001
-$37
-$2,165
-$2,112
-$4,053
Lake States
(MN, WI, MI)
Corn Belt
(IA, MO, IL, IN, OH)
$41
-$1,114
MIROC
ECH = modest change; CSIRO= modest change;
CNR= moderate, baseline scenario;
MIROC=most extreme temperature increase and precipitation decrease
Source: Malcolm et al. (2012), Agricultural Adoption to a Changing Climate, USDA
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College of Business Administration
Climate Change to Benefit Nebraska?
Percent Change in Acres in Production
Region
ECH
CSIRO
CNR
MIROC
Northern Plains
7% to 20%
(KS, ND, NE, SD)
7% to 20%
-7% to 7%
-7% to 7%
Lake States
(MN, WI, MI)
-7% to 7%
-7% to 7%
-7% to 7%
7% to 20%
Corn Belt
-7% to 7%
(IA, MO, IL, IN, OH)
-7% to 7%
-7% to 7%
-7% to 7%
ECH = modest change; CSIRO= modest change;
CNR= moderate, baseline scenario;
MIROC=most extreme temperature increase and precipitation decrease
Source: Malcolm et al. (2012), Agricultural Adoption to a Changing Climate, USDA
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College of Business Administration
Livestock Expansion?
Nebraska corn production
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College of Business Administration
Livestock Expansion?
Nebraska soybean production
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Trends in Annual Pig Crop, 2003-2012
Source: U.S. Livestock Industry Trends and Nebraska’s Role (Brooks et al., 2013)
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Trends in Cattle on Feed, 2003-2013
Source: U.S. Livestock Industry Trends and Nebraska’s Role (Brooks et al., 2013)
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Upper Midwest Agricultural Production Cluster
Farm Income
Farm Income Growth 2003-2012 (Billions of $)
Iowa
Kansas
Minnesota
Nebraska
North Dakota
South Dakota
341%
45%
353%
116%
176%
119%
United States
87%
Source: United States Department of Agriculture
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College of Business Administration
Implications: relative stability in land prices
Nebraska
Year
2009
2010
2011
2012
2013
2014
2015
2016
Annual
Farm Income
$3.2 billion
$3.9 billion
$7.3 billion
$5.3 billion
$8.4 billion
$5.3 billion
$4.9 billion
$4.9 billion
Average Value of
Farm Land Per Acre
$1,340
$1,520
$1,940
$2,590
$3,050
Sources: USDA and UNL Department of Agricultural
Economics
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College of Business Administration
Economic Impact of Nebraska
Agriculture Production Complex
Components of Complex:
Agricultural Production and Related Manufacturing,
Wholesaling and Transportation
Economic Impact
27% of Nebraska Value-Added
25% of Nebraska Income
24% of Nebraska Employment
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College of Business Administration
Economic Impact of Nebraska
Agriculture Production Complex
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College of Business Administration
Economic Impact of Nebraska
Agriculture Production Complex
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College of Business Administration
Economic Impact of Nebraska
Agriculture Production Complex
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College of Business Administration
Summary
• Low interest rates and higher dollar
• Demand for agricultural goods will grow
faster than supply in the developing world
• Nebraska is well-positioned to captured
these export opportunities
• Large economic impacts
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