Economic Update: Managing Risk
in a Deleveraging and Rebalancing
Global Economy
13th Annual Farmer Cooperatives Convention
December 6-7, 2010
Presented by:
Terry N. Barr, Senior Director of Industry Research
Knowledge Exchange Division, CoBank, ACB
E-mail: tbarr@cobank.com
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
The Emerging Business
Environment Will Include ……..
• Continuing volatility … meaning more working capital,
lower acceptable levels of leverage and mandatory
well-defined strategies for risk management.
• Increasing costs from regulatory compliance and
declining support from federal programs.
• More challenging access to capital markets with
broader risk analysis, including counterparty.
• Changing U.S. consumer behavior & demographics.
• Growing trade dependency (more risk & volatility)
•Increasing consolidation and realignment of supply
chains. Domestic integrated into global chains.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Labor Force Growth is Driver of Future
Growth and Potential Trade Issues
Million people in the 15-64 age group
1200
Brazil
China
1000
800
600
400
200
India
Mexico
Russia
U.S.
W. Europe
1. A labor force of 1.7
billion workers must be
integrated into the global
economy!
2. A consumer base of 1.7
billion people with more
purchasing power must
also be integrated!
Source: UN population database
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
20
50
20
40
20
30
20
20
20
10
20
00
19
90
19
80
19
70
19
60
19
50
0
Asia Becoming More Significant
Factor in Balancing Global Growth
P ercent change in annual world growth (purchasing-power parity rates)
Advanced countries
6
Rest of world
China
India
4
2
0
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
12
10
08
06
02
04
00
98
96
92
94
90
88
86
82
84
80
78
76
70
-2
72
74
Advanced economies accounted for over half of
world growth rate from 1970 to 2008. From 2010
to 2012 they will account for less than one-third!
Dollar Erosion Has Boosted Foreign
Buying Power and Commodity Prices
Indexes of major currencies/US$ (March 1973=100)
150
Competitive devaluations
and protectionism will be
significant issues in 2011-12!
140
130
120
110
100
90
80
From March 2009 ………. -14%
From 1997-03 average … -28%
70
74
76
78
80
82
84
86
88
90
92
94
96
98
00
* Currencies weighted by relative market importance to total U.S. trade.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
02
04
06
08
10
The U. S. Transition
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Recovery Shaped by Cautious
Consumer and Financial Headwinds
P ercent change Gross Domestic P roduct (Chained 2005$)
Consumer holds the key to
the pace of this recovery!
6
4
2
0
-2
75
77
79
81
83
85
87
89
91
93
95
97
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
99
01
03
05
07
09
11
Continued High Unemployment and
Excess Capacity in Labor Markets
P ercent rate of unemployment
Av erage weeks of unemployment
12
36
This transition required
5 years with average
growth rate of 4.5%!
Recessions
10
30
8
24
6
18
4
12
unemployment rate
2
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
12
6
Fiscal and Monetary Policy: Setting
Stage for 2011 and Beyond
Congress
White House
Federal Reserve
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
What Will Election Mean For The
Evolving Business Environment?
Lame duck session:
 Tax extenders
 2011 budget spending
New 2011 Congress ?
 Deficit reduction will
dominate Congress through
session. Policy changes
through funding levels.
• Spending cuts
• Revenue increases
• No farm bill but change
through budget cuts!
Regulatory activities:
Agenda may accelerate!
Food safety, environment,
nutrition, etc.
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)
Smaller Than Expected 2010 Crops
Lead Grain Stocks Lower
Million metric tons of wheat & coarse grains
S tocks-to-use percentage
500
40
400
32
300
24
200
16
100
8
W orld stocks
Total stocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
0
70
0
Acreage Shifts Will Favor Corn But
Weather / Input Costs Will Play Role!
2007
2008
2009
2010
2011
Change
10 to 11
----------------- million acres -----------------
Corn
93.5
86.0
86.5
88.2
90-93
+1 to +4
Soybeans
64.7
75.7
77.5
77.7
76-79
-2 to +1
Wheat
60.5
63.2
59.2
53.6
56-58
+2 to +4
Upland Cotton
10.8
9.3
9.2
11.0
12-13
+1 to +2
7 other crops*
20.2
23.7
20.8
21.2
20-21
-1 to 0
Hay harvested
61.0
60.1
59.8
59.7
60-61
+0 to +1
CRP
36.8
34.6
33.7
31.3
31
-1 to 0
5.0
7.1
4.7
2.8
Double crops
Total acreage 349.2
348.6
346.4
343.4
4-5
346-349 0 to +2
* Barley, oats, sorghum, rice, sunflowers, peanuts and canola
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
+1 to +2
Key Crop Input Prices Set Globally and
Likely to Remain Volatile
Index (1990-92=100)
700
600
500
Feed
Nitrogen
Potash & Phosphate
China has increased loans to their
agricultural sector, particularly
sectors with supply shortages!
400
300
200
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
100
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 Rebounding
Million metric tons of wheat
200
150
100
50
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
08
10
04
06
00
02
96
98
92
94
88
90
84
86
80
82
76
78
72
74
0
Declining FSU-12 Wheat Production
Driving Markets
Million metric tons
125
Domestic use
100
75
28% of world
trade
Production
50
25
Ending stocks
0
(25)
Net exports
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
Rebound in Global Wheat production
Could Push U.S. Stocks Higher in 2011
Billion bushels
3.0
Total use
Production
2.5
2.0
1.5
1.0
0.5
Ending stocks
0.0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
98
00
02
04
06
08
10
U.S. Corn Market Riding the
Ethanol Wave
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Corn Stocks Remain Tight Even With
Large Harvest
Billion bushels
14
P roduction
Total Use
Free stks
Gov 't stks
12
10
8
Nearly 40 percent of the crop is
utilized for ethanol.
Total corn use is now over
13.5 billion bushels!!
6
4
2
0
75
77
79
81
83
85
87
89
91
93
95
97
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
99
01
03
05
07
09
11
Ethanol Increases Continue to
Drive Corn Markets
Billion bushels of corn
7.0
Feed and residual
DDG's
6.0
5.0
Ethanol use is
key driver!
(38% of use)
4.0
3.0
2.0
Exports
1.0
Food, seed & industrial
Ethanol
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
0.0
Corn Prices Rally Strongly into 2011
Dollars per bushel (monthly prices receiv ed by farmers, USDA)
$6.00
$5.00
Season average
price levels
$4.00
Corn price
$3.00
$2.00
Loan rate
$1.00
$0.00
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
Soybean Market Riding Export
Wave to China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Global Trade Remains Strong
Million metric tons or bales
150
Wheat
125
100
Coarse grains
75
60% to
China
50
Soybeans
25
Cotton 39% to
China
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
0
South American Crop Size Will set
Tone for 2010 and 2011 Cropyears
Million metric tons
250
200
World
150
100
50
United States
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
06
08
02
04
98
00
94
96
90
92
86
88
78
80
74
76
70
72
82
84
Brazil and Argentina
0
Sharply Larger Global Soybean Stocks
Weighing on Markets
Million metric tons of soybeans
S tocks-to-use percentage
70
35
E nding stocks
S tocks-to-use
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
08
06
04
02
00
98
96
0
94
0
92
5
90
10
88
10
86
20
84
15
82
30
80
20
78
40
76
25
74
50
72
30
70
60
U.S. Soybean Stocks Limited by Strong
Demand and Acreage Competition
Million bushels
3,500
Production
Total Use
Stocks
3,000
2,500
2,000
1,500
1,000
500
0
79
81
83
85
87
89
91
93
95
97
99
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
01
03
05
07
09
11
Soybean Prices Reflect Increasing
Pressures From Larger Supplies
Dollars per bushel (monthly prices receiv ed by farmers, USDA)
$14
Season average
price levels
$12
$10
Soybean price
$8
$6
Loan rate
$4
$2
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
Cotton Market Riding Export
Wave to China and Low Stocks
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
World Cotton Stocks Beginning
Rapid Adjustment
S tocks-to-use percent
Million 480-pound bales of cotton
60
60
50
50
40
40
30
30
20
20
10
10
S tocks-to-use
S tocks
0
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
0
Increased Acreage and Output in
2011 Would Still Leave Stocks Low
Million 480 pound bales
P roduction
Total Use
72
80
25
S tocks
20
15
10
5
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
78
76
74
70
0
Cotton Prices Sharply Higher
As Global Stocks Decline
Cents per pound (monthly prices receiv ed by farmers, USDA)
90
80
Upland cotton price
70
60
Loan rate
50
40
30
20
80
82
84
86
88
90
92
94
96
98
00
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
02
04
06
08
10
Livestock, Dairy and Poultry
Can Domestic Meat and Dairy Industry Bid
Grain Out of Ethanol and Export Sectors?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat Industry Will Be Cautious
About Expansion in 2011-12
Billion pounds
40
35
30
Broilers
Change in
2011
2010
0 to +2%
+ 3.1 %
Beef
- 0.4 %
- 3.0 %
Pork
Broilers
-1 to -3%
0 to 3%
25
Beef
20
Pork
15
10
Percent change in total meat output
2007
+2.2%
5
2008
+ 3%
2009
-3.2%
2010
0.2 %
2011
0 to 1 %
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
08
10
06
02
04
98
00
96
92
94
88
90
86
82
84
78
80
76
74
0
Higher Broiler Shipments in 2011
Will Boost Meat Exports
Billion pounds (red meat: carcass weight; poultry: ready-to-cook)
15
Imports
E xports
Balance
Export share of
2011 U.S. production
 Broilers ….. 18%
 Beef ………. 9%
 Pork ……… 20%
 All meat .......16%
Dairy (fat)… 3%
12
9
6
3
0
-3
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
Meat Exports at Plateau Following
Strong Upward Trend
Billion pounds (1999-2011)
7
6
5
4
3
2
1
0
99
02
03
05
07
Beef
09
11
99
02
03
05
07
09
11
Pork
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
99
02
03
05
07
Broilers
09
11
Broiler Industry Gauging 2011
Exports, Consumers and Feed Costs
Ratio: pounds of broiler feed equal in v alue to 1 lb. of liv e broilers
9
8
7
6
5
4
3
87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
quarterly data
* Number of pounds of Broiler Grower Feed equal in value to 1 lb. Broilers, live weight.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Cow Calf Returns Likely to Remain
Positive As Inventory Continues Decline
Million head
Dollars per cow
200
125
150
120
Cow-calf returns
100
115
50
110
0
105
-50
100
95
-100
Cattle inventory
19
89
19
87
19
85
19
83
19
81
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
20
07
20
09
20
11
(January 1)
-150
Data source: Livestock Marketing Information Center; USDA, NASS
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
90
Ability to Pass Increased Costs to
Consumer Will Set Cattle Prices
Dollars per cwt.
140
500-600 lb
steer calves
130
120
700-800 lb
feeder steers
110
100
90
80
Fed steers
70
60
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
19
88
19
86
19
84
19
82
50
Data source: Livestock Marketing Information Center; USDA, NASS
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
International Dairy Product Prices:
Oceania
U.S . dollars per metric ton
6000
5000
4000
3000
2000
1000
butter
skim milk powder
Chedddar cheese
0
2001
2002
2003
2004
2005
2006
2007
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2008
2009
2010
2011
Dairy Sector Challenged by Volatility
in Product and Feed Prices
Dollars per hundredweight
20
Increasing
competition in a
smaller global
marketplace!
18
16
All milk price
14
12
10
Price support
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
11
09
07
05
03
01
99
97
95
93
91
89
87
85
83
81
79
77
8
Milk Production Potential Likely to
be Limited by Feed Cost Escalation
Million pounds milkfat basis
220
210
Commercial supply
Commercial disappearance
200
190
180
170
160
Market keys 2011-12:
Domestic consumer?
International market
volatility;
Feed costs
150
140
130
120
25
Ending stocks
20
15
10
5
0
80
82
84
86
88
90
92
94
96
98
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
00
02
04
06
08
10
Agriculture Sector Rebounding
Sharply in 2010-11
Index (1990-92=100)
200
Prices paid*
180
160
Prices received: crops
140
120
100
Prices received: livestock
*Prices paid commodities & services, interest, taxes and wage rates
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
19
92
80
Farm Income: Agriculture
Continues Strong Performance
Billion dollars
100
Record high
Net cash income in agriculture is now
averaging around $80 billion a year
compared with an average of $60 billion for
Net Farm Cash Income
the previous decade….. but more volatility!
80
60
40
20
Direct government payments*
0
75
77
79
81
83
85
87
89
91
93
95
97
* emergency payments are striped area of government payments)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
99
01
03
05
07
09
11
Farm Debt Leveraging Has Not
Followed Land Prices Higher
Billion dollars
Billion dollars
500
2500
Change 1970-1980
Assets ... +259%
Debt ....... +235%
Change 1980-1990
Assets ... -16%
Debt ....... -19%
Change 1990-2000
Assets ... +43%
Debt ....... +25%
Change 2000-2010
Assets ... +74%
Debt ....... +43%
2000
400
1500
300
Farm assets
(left scale)
200
1000
Farm debt
(right scale)
100
500
0
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
0
We May All Have to Get Out and
Push But Opportunities Abound!
The Road Ahead
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)