Trends in the Global Marketplace:
Volatility and Opportunity
14th Annual Farmer Cooperatives Conference
November 3, 2011
Presented by:
Terry Barr, Senior Director of Industry Research
Knowledge Exchange Division, CoBank, ACB
E-mail: tbarr@cobank.com
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
CRB Indexes (1967=00) (commodity futures)
500
Reuters/ Jefferies-CRB
400
300
200
100
Supply issues and liquidity seeking returns will
drive commodity markets!
0
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
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Dollar Erosion Has Boosted Foreign
Buying Power and Commodity Prices
Indexes of major currencies/US$ (March 1973=100)
150
140
130
120
110
100
90
80
70
Weak dollar benefits
exporters and sectors
facing import competition!
74
76
78
80
82
84
86
88
From October 2010 …... -0.2%
From 1997-03 average … . -28%
90
92
94
96
98
00
02
* Currencies weighted by relative market importance to total U.S. trade.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
04
06
08
10
12
A Lack of Confidence While Passing
Through a Global Minefield
Deficits, Debt & Stagnation:
Operation Twist and Fiscal Follies
Sovereign debt, defaults
and Who Pays?
China focus on inflation
and monetary tightening
Geopolitical challenges and energy:
Arab Spring transitioning to Fall
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
No Confidence That U.S. or Europe
Has Political Will for Needed Action
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”!!!!!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Global Economy Facing Crisis of
Confidence Regarding U.S. and Europe
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
Growth prospects in
Europe and the U.S.
are weakening!
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 2016 they
will account for less than one-third. This will be a world
with a 2-speed recovery reliant on emerging markets!
U.S. Agriculture Export Destinations
Have Increasing Asian Flavor
Top 15 Markets 2012
1.China
2. Canada
3. Mexico
4. Japan
5. EU-27
6. South Korea
7. Hong Kong
8. Taiwan
9. Indonesia
10. Turkey
11. Egypt
12. Philippines
13. Thailand
14. Viet Nam
15. Russia
Total all exports
Bil. US$
19.5
18.5
17.0
14.0
10.5
6.5
3.3
3.5
3.0
2.9
2.8
2.0
1.5
1.5
1.4
137.0
Top 15 Markets 2000
Bil. US$
9.3
1.Japan
7.5
2. Canada
6.5
3. EU-27
6.3
4. Mexico
2.5
5. South Korea
2.0
6. Taiwan
1.5
7. China
1.2
8. Hong Kong
1.1
9. Egypt
0.9
10. Philippines
0.7
11. Turkey
0.7
12. Indonesia
0.7
13. Russia
14. Dominican Rep. 0.5
0.5
15. Saudi Arabia
50.8
Total all exports
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!
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
U.S. Exports Provide Significant
Boost to Agriculture Sector
Billion dollars per fiscal year
150
E xports
135
Imports
Balance
120
105
90
75
60
45
30
15
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
70
0
High Value Products Lead Surge
in U.S. Agriculture Exports
Billion dollars per fiscal year
90
High value products
75
60
45
30
15
Bulk commodities
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
0
Much of Global Trade
Strength Linked to China
Million metric tons or bales
150
Wheat
125
100
Coarse grains
75
60% to
China
Soybeans
50
25
Cotton
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
70
72
0
10
40% to
China
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)
Percent growth rate per year
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!
Percent growth rate per year
(5% GDP / 6% pop)
8
Middle East and N. Africa
7
6
5
4
3
2
1
0
93-02
2005
2006
2007
2008
2009
2010
2011
2012
2010
2011
2012
Percent growth rate per year
8
7
Egypt
7
Saudi Arabia
6
6
5
5
4
4
3
3
2
2
1
1
0
0
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
2008
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
Middle East Turmoil Will Keep Oil
Markets Unsettled Well into 2012
Top World Oil Exporters*
Thousand barrels per day
Exports
Saudi Arabia 7,322
7,194
Russia
2,486
Iran
2,303
UAE
2,132
Norway
2,124
Kuwait
1,939
Nigeria
1,878
Angola
1,807
Algeria
1,764
Iraq
1,748
Venezuela
1,525
Libya
Kazakhstan 1,299
1,144
Canada
1,066
Qatar
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Suez canal
2 mil. barrels/day
SUMED pipeline
2 mil. barrels/day
Straits of Hormuz
16 mil. barrels/day
Bahrain is home to
U.S. 5th Fleet
Strait of
Bab el-Mandeb
3 mil. barrels/day
Oil Price Tracks Global Growth and
U.S. Dollar During Turmoil
Dollars per barrel; spot price W est Texas Intermediate
$140
$130
$120
$110
$100
$90
$80
Questions for oil:
Middle East keeps uncertainties in the
market.
US dollar value still a factor.
OPEC: limited output adjustments
Global growth expectations are setting
price expectations.a
2008 avg.
$100
2009 avg.
$62
2012 avg.
$90-95
2007 avg.
$72
$70
2011 avg.
$92
$60
$50
$40
$30
2010 avg.
$79
$20
19
8
19 6
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
0
20 8
0
20 9
1
20 0
1
20 1
12
$10
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)
Per cent gr owth r ate per year
(6% GDP / 2% pop)
(pop = 83 million)
Newly Industrialized Asian Economies
Japan
4
Per cent gr owth r ate per year
8
Hong Kong, Singapore, S. Korea & Taiwan
2
6
0
4
-2
2
-4
0
-6
93-02
2005
2006
2007
2008
Percent growth rate per year
15
2009
2010
2011
93-02
2012
(14% GDP / 20% pop)
China
2006
2007
2008
Percent growth rate per year
8
7
6
10
2005
2009
2010
2011
2012
(pop= 533 million)
Indonesia,Philippines,Malaysia,Thailand & Vietnam
Asean-5
5
4
3
5
2
1
0
0
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
2008
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
2010
2011
2012
China Has Made Inflation a
Priority Issue for the Future
Percent (headline inflation)
10
8
Monetary tightening to combat
inflation and asset bubbles may slow
growth! No new stimulus. Food price
inflation is priority issue.
13.4%+ food
6
China
4
2
0
Advanced economies
-2
2002
2003
2004
2005
2006
2007
2008
2009
Data source: International Monetary Fund, WEO
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2010
2011
Latin America and Caribbean
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
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.
Percent growth rate per year
8
(3% GDP / 3% pop)
Percent growth rate per year
Latin America and Caribbean
6
5
4
3
2
1
0
-1
-2
93-02
2005
2006
2007
2008
Percent growth rate per year
10
2009
2010
2011
2012
(0.8% GDP / 0.6% pop)
Argentina
Brazil
7
(9% GDP / 8% pop)
7
8
6
5
6
4
3
4
2
1
2
0
0
-1
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
2008
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
2010
2011
2012
Capital Flows to Latin America
Boosted by Foreign Direct Investment
Percent of GDP
8
FDI
P FE
P FD
Other
Total
6
4
2
0
-2
I
II
III
IV
I
II
III
IV
I
II
III
IV
I
II
III
IV
I
II
III
IV
I
II
III
IV
FDI: foreign direct investment; PEF: portfolio equity flows; PDF: portfolio debt flows.
I
II
III
IV
-4
2005
2006
2007
2008
2009
2010
2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
South American Expansion Setting
Supply Tone in Oilseeds Market
Million metric tons
250
World
200
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
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
Portugal
2008
2009
2010
Ireland
2008
2009
2010
Greece
2008
2009
2010
Spain
-20
Italy
2008
2009
2010
Greece
-25
Ireland
2008
2009
2010
Italy
-30
Portugal
-15
-10
-5
Fiscal deficit as percent of GDP
0
Spain
0
35
70
105
Government debt as percent of GDP
Data source: International Monetary Fund, WEO
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
140
European Government Bond Spreads
Accelerate Efforts to Find Solution
Basis points
Basis points
8000
500
7000
two-year yield spreads
over German bunds
Greece
450
two-year yield spreads
over German bunds
Italy
400
6000
350
5000
Spain
300
4000
250
200
3000
150
2000
Portugal 100
1000
Ireland
0
France
50
0
J F M A M J J A S O N D J F M A M J J A S O N D
2010
2011
J F M A M J J A S O N D J F M A M J J A S O N D
2010
Data source: International Monetary Fund, WEO
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2011
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)
1. Voluntary Bank Losses Reduce
Greek Debt by Only 30 Percent
Total Greek debt = 340 bil. euros ($473 bil.)
Debt held by institutions = 140 bil.
European Central Bank,
IMF and others will not
take a haircut!
Debt held by private sector = 200 bil.
Private sector takes voluntary
50% haircut = 100 bil. euros!
Voluntary reductions will not
constitute a default in terms of
credit default swaps!
Data source: International Monetary Fund, WEO
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2. Recapitalize European Banks
with 9% Tier I Capital Target
Estimated New Capital Required by European Banks = 106 bil. euros
Greece
30.0
26.2
Spain
Italy
14.8
France
8.8
Portugal
7.8
5.2
Germany
4.1
Belgium
Cyprus
Austria
Sweden
3.6
2.9
1.4
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!
Data source: European Bank Authority
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
3. Expand the Size of the European
Financial Stability Facility
Total EFSF goal =1 trillion euros ($1.39 trillion) lending capacity
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.
Current EFSF = 440 bil.
190-240 bil. euros
committed !
Data source: International Monetary Fund, WEO
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)
Percent growth rate per year
(16% GDP / 5% pop)
Euro Countries
4
Percent growth rate per year
(4% GDP / 1% pop)
4
3
3
2
2
1
?
0
-1
1
0
-1
-2
-2
-3
-3
-4
-4
-5
Germany
-5
93-02
2005
2006
2007
2008
Percent growth rate per year
2009
2010
2011
2012
(3% GDP / 1% pop)
France
3
93-02
2005
2006
2007
2008
Percent growth rate per year
2009
2010
2011
2012
(3% GDP / 1% pop)
4
United Kingdom
3
2
2
1
1
0
-1
0
-2
-1
-3
-2
-4
-5
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2008
2009
2010
2011
2012
Central and Eastern Europe and
Commonwealth of Independent States
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
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.
Percent growth rate per year
6
(3.5% GDP / 2.6% pop)
Central and Eastern Europe
4
2
0
-2
-4
93-02
2005
2006
2007
2008
2009
2010
2011
2012
Percent growth rate per year
Percent growth rate per year
Russia
10
Commonwealth of Independent States
5
5
0
0
-5
-5
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
2008
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
2010
2011
2012
Net Financial Flows to CIS and Central
and Eastern Europe Still Weak
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
North America
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Percent growth rate per year
(20% GDP / 5% pop)
4
The North American market
represents 23 percent of
world economy and 7 percent
of world population.
United
States
3
2
1
0
-1
-2
-3
-4
93-02
Percent growth rate per year
(2% GDP / 0.5% pop)
Canada
4
2005
2006
2007
2008
Percent growth rate per year
2009
2010
2011
2012
(2% GDP / 1.6% pop)
Mexico
4
3
2
2
1
0
0
-2
-1
-4
-2
-6
-3
93-02
2005
2006
2007
2008
2009
2010
2011
2012
93-02
2005
2006
2007
2008
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
2010
2011
2012
Recovery Shaped by Cautious
Consumer and Financial Headwinds
P ercent change Gross Domestic P roduct (Chained 2005$)
6
4
2
0
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!
-2
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
05
07
09
11
Double Dip Concerns Have Eased
But Growth Remains Weak
P ercent change in quarterly Gross Domestic P roduct (Chained
2005$)*
rd
3 qtr was
driven by
consumer
saving less!
8
6
4
2
0
-2
-4
-6
-8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
* Seasonally adjusted at annual rate
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
A Deleveraging Consumer Will
Temper Potential Demand Growth
Percent (debt-to-income)
150
140
130
120
Percent (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?
30
28
Debt-to-Income
26
24
110
22
100
20
90
18
80
16
Debt-to-Net Worth
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
06
08
02
04
98
00
94
96
90
92
10
86
88
50
82
84
12
78
80
60
74
76
14
70
72
70
Job Gains Remain Weak and Consumer
is Uneasy With High Unemployment
103,000 jobs created in September!
(137,000 in private sector)
Change in nonfarm payrolls (thousand)
500
250
0
-250
Unemployment rate = 9.1%
Underemployment = 16.5%
Participation rate= 64.2%
Average duration= 40.3 weeks
-500
Monthly change
-750
82
84
86
88
90
92
94
12-month moving average
96
98
00
02
04
* Busines cycle troughs: Nov 1982, March 1991, November 2001 and June 2009.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
06
08
10
Home Prices: Is the Decline
Coming to an End?
Monthly S &P /Case-S hiller 20-City Home P rice Index
225
200
175
150
125
August prices were 3.8% below a year
ago, 32% below the peak in 2006!
100
Is housing no longer an investment and being priced as shelter?
75
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Home Prices Continuing to Fall in
Many Regions of the Country
WA
OR
Seattle
Year ago …….. -6%
From peak .... -29%
MT
From 2000 …. +34%
MN
ID
WY
CA
Minneapolis
Year ago …….. -9%
From peak .... -35%
ND
From 2000 …. +12%
Denver
NVago …….... -2
Year
UT-12%
From peak ....
From 2000 …. +22%
Los Angeles
Year ago ………. -4%
From peak .... -39%
From 2000 …. +66%
AZ
SD
Detroit
Year ago ……… +2%
From peak .... -44%
From 2000 …. -29%
NH
VT
NY
WI
MI
NE
ME
PA
IA
MA
RI
Charlotte
CT
Year ago …….. -3%
IN
OH
Dallas
NJ
IL
CO
From
peak
.... -17%
Chicago
Year agoKS
…….... -2%
WV
VA 2000DE
From
…. +10%
From peak ..... -9% MO Year ago …….... -6%
KY
MD
From peak ..... -31%
From 2000 …. +14%
NC
TN…. +16%
From 2000
OK
NM
AR
SC
Phoenix
GA
Year ago ………. -8%
MS
AL
Atlanta
From peak .... -57% TX
LA
Year ago …….... -6%
From 2000 ….. -1%
From peak .... -27%
FL
Case-Schiller Home Price Indexes
20-city (through August 2011):
Year ago ………….... -3.8%
From peak ……….... -32%
From Jan. 2000 …. +40%
Tampa
Year ago ………. -6%
From peak .... -47%
From 2000 …. +28%
From 2000 …… +0%
Business Investment Lags Corporate
Profit Growth; Housing Weak
Billion dollars in profits; inv estment at annual rates
1800
1600
1800
Business fixed
investment
1600
1400
1400
1200
1200
1000
1000
Corporate
profits (after tax)
800
800
600
600
400
Residential
investment
200
400
200
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 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:
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).
Virtually every sector of the economy will be impacted and risk management
and investment strategies will have to reflect the growing uncertainties
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Monetary Policy: Setting Stage for
2011 and Beyond
U.S. Treasury Department
U.S. Federal Reserve
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Federal Reserve Will Continue
To Promote Growth into 2013
Percent
9
8
10-year Treasuries
Fed commits to holding rates
low through mid-2013!
7
6
5
4
3
2
Federal
Funds Rate
1
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Federal Reserve Announces
Operation Twist and More
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.
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 purchases
6-7 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.
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Operation Twist Has Been Offset By
Global Financial Uncertainties
Percent rate
6
June, 2007
5
June, 2009
4
June, 2010
June, 2011
3
Sept. 9, 2011
2
Week ending Oct. 21, 2011
1
0
1 2 3
yr yr yr
5
7
year year
10
year
20
year
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
30
year
Fiscal Policy: An Ongoing
Debate for 2011, 2012, 2013…..
White House
Congress
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Budget Control Act Will Trim $2
Trillion From Future Budget Deficits
Deficit in billion dollars
200
Reagan
Percent of GDP
G.
Bush
Clinton
G.W. Bush
Obama
2
0
0
-200
-2
-400
-4
-4.7%
-600
-6%
-800
-3.6%
-6
Deficit as
percent
of GDP
-8
-1000
-1200
-1400
-10
Assumptions:
 4 year phase-out in Iraq/ Afghanistan
 Permanent extension of tax provisions
-12
-10.0%
-14
Source: Congressional Budget Office (August, 2011), BEA and Treasury Department and forecast
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
21
17
19
13
15
09
11
05
07
01
03
97
99
93
95
89
91
85
87
-16
81
83
-1600
Super Committee, Lame Duck or
2012 Elections ????
By Dec. 31, 2011 Congress must vote up or down on joint committee plan
Congress approves
Congress disapproves
President vetoes
Debt ceiling at $16.4-16.7 trillion
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.
November 2012 ….. Presidential and Congressional Elections
January 2013 ….. Debt ceiling would need to raised again by
Congress, sequestration cuts would begin and
tax cuts would expire without Congressional action.
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
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
Million metric tons of wheat
S tocks as percent of use
250
40
200
32
150
24
100
16
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
0
76
0
74
8
72
50
Rebound in FSU-12 Exportable
Supplies Will Impact Wheat Markets
Increase in
exportable supplies.
Million metric tons
125
Domestic use
-29%
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
00
02
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
04
06
08
10
U.S. Wheat Stocks to Decline as Drought
Reduces Yields and Offsets Acreage Gains
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
98
00
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
02
04
06
08
10
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
P ercent (stocks as a percent of use)
70
U.S.
World
60
50
Near record
low stocks for
both world &
U.S.!
40
30
20
10
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
68
66
64
62
60
0
Rate of Increase in Ethanol Slowing;
Crop Size is Now Key Factor
Billion bushels of corn
7.0
Feed and residual
DDG's
6.0
5.0
Ethanol use is
key driver!
(40% of use)
4.0
(25% adjusted for
feed use)
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 Stocks Remain Tight
Throughout 2011/12
Billion bushels
14
P roduction
Total Use
Free stks
Gov 't stks
12
10
8
Smaller corn crop will force
usage below 13 billion
bushels!!
Still need large 2012/13 crop!
6
4
2
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
75
0
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
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
China’s Appetite for Soybeans
is Major Market Driver
Million metric tons
75
Domestic use
60
45
30
Production
15
0
Ending stocks
-15
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!
-30
-45
-60
Net exports
-75
80
82
84
86
88
90
92
94
96
98
00
02
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
04
06
08
10
U.S. Soybean Stocks Limited by Strong
Demand and Acreage Competition
Billion bushels
4
Production
Total Use
Stocks
4
3
3
2
2
1
1
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
75
0
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
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
China Will Likely Rebuild Stocks in
2011/12 With Production Gains
Million 480 lb. bales
60
Domestic use
50
40
Production
30
20
10
Ending stocks
0
45% of world trade
-10
Net exports
-20
80
82
84
86
88
90
92
94
96
98
00
02
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
04
06
08
10
Meat and Dairy Industries
Squeezed by Two Volatile Forces
Feed Costs:
Feed Costs:
Export
Export
Reliance:
Reliance:
Low stocks
Low stocks
Rising price
Rising
volatility
price volatility
Yield/weather
Yield/weather
issues issues
EthanolEthanol
U.S. $ weakness
U.S. $ weakness
Emerging
Emerging
markets
markets
Disease
Disease
(FMD)(FMD)
U.S. $ U.S.
weakness
$ weakness
RisingRising
competition
competition
Trade Trade
disputes
disputes
Export
Export
Markets
Markets
Are balance Sheets Strong
Enough with Sufficient Liquidity to Match Risks?
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
Meat Industry Sees Reduced Grain
Harvests and Weak U.S. Economy!
Billion pounds
40
35
30
Broilers
Change in
2012
2011
0 to 1%
+ 1.4 %
Beef
-1%
Pork
+ 1.0 %
Broilers
-4 to -5%
+1 to 2%
25
Beef
20
Pork
15
Percent change in total meat output
10
2008
+ 3%
5
2009
-3.2%
2010
1.3 %
2011
0.7 %
2012
-1 to -2 %
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
12
06
08
02
04
98
00
94
96
90
92
86
88
82
84
78
80
74
76
0
Export Market Will Be Key to Positive
Returns Through 2012
Billion pounds (red meat: carcass weight; poultry: ready-to-cook)
Imports
15
12
9
6
E xports
Balance
Export share of
2012 U.S. production
 Broilers ….. 18%
 Beef ………. 10%
 Pork ……… 22%
 All meat .......16%
3
0
-3
80
82
84
86
88
90
92
94
96
98
00
02
04
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
06
08
10
12
Red Meat Exports Continuing to
Increase; Broilers Still Stagnant
Billion pounds (2000-2012)
7
6
5
4
3
2
1
0
00
02
04
06
08
Beef
10
12
00
02
04
06
08
Pork
10
12
00
02
04
06
08
Broilers
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
10
12
Milk Production Responding
to Record Export Demand
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 cost/liquidation
150
140
130
120
25
Ending stocks
20
15
10
5
0
80
82
84
86
88
90
92
94
96
98
00
02
04
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
06
08
10
12
Export Market Will Be Key to
Sustaining Returns Through 2012
Billion dollars
5
Imports
E xports
Balance
4
3
2
1
0
-1
1999
2001
2003
2005
2007
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
2009
2011
Milk Prices Boosted by U.S. Consumer
and Strong Export Markets
Dollars per hundredweight
1 to 2 percent increases in milk
22
production in 2011 and 2012 in the
face of rising feed and forage costs
20
and weaker economy could prove
challenging !
18
All milk price
16
14
12
10
Price support
8
79
81
83
85
87
89
91
93
95
97
99
01
03
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
05
07
09
11
Prices Received and Paid by Farmers
Have Reached Record Levels
Index (1990-92=100)
225
Sector is operating at higher price and cost
levels with greater volatility …… more
working capital to play, less leverage
permitted and more emphasis on welldefined risk management policies!
200
175
Prices paid*
Prices received: crops
150
125
100
Prices received: livestock
*Prices paid commodities & services, interest, taxes and wage rates
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
12
11
20
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
75
Farm Income: Agriculture
Continues Strong Performance
Billion dollars
120
100
80
Record high
Net cash income in agriculture is
projected to reach $115 billion in
2011, an increase of 24% over the
record set in 2010!
60
Net Farm Cash Income
40
20
Direct government payments*
0
75
77
79
81
83
85
87
89
91
93
95
97
99
01
* emergency payments are striped area of government payments)
Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
03
05
07
09
11
Trends in the Global Marketplace:
Volatility and Opportunity
14th Annual Farmer Cooperatives Conference
November 3, 2011
Presented by:
Terry Barr, Senior Director of Industry Research
Knowledge Exchange Division, CoBank, ACB
E-mail: tbarr@cobank.com