US and NC Outlook for Corn, Soybeans, and Wheat Nick Piggott Dept of Agricultural & Resource Economics North Carolina State University Email: [email protected] Presentation: 2018 Extension State Conference November 14, 2018 Raleigh, NC 2018F U.S. agricultural economy setting new lower levels from historical highs Income Statement U.S. Farm Sector 2011-2018F 2011 2012 2013 2014 2015 2016 2017F 2018F 2018F v. 2017F 2018F v. 2013 $ billion Cash Receipts Crops Livestock Direct Govt. Pay Farm-related income Gross Cash Income Cash Expenses
12.7 15.1 13.1 Selected ratios: Debt-to-equity Debt-to-asset Percent 14.5 12.7 12.7 11.3 12.8 11.4 13.3 11.7 Source: http://ers.usda.gov/data-products/farm-income-and-wealth-statistics/data-files-us-and-state-level-farm-income-and-wealth-statistics.aspx 15.5 13.4 2.7% 2.3% 21.1% 18.3% US agriculture is now experiencing a cost-price squeeze--a period of increasing costs and simultaneous decreasing prices. US Net Cash Income 2011-2018F 500 450 y = -5.507x + 451.5 Billions Dollars 400 350 y = 1.869x + 305.49
300 250 200 150 100 y = -7.3761x + 146.02 50 Gross Cash Income 0 2011 2012 2013 2014 2015 2016 2017F 2018F Year Cash Expenses NET CASH INCOME Trade Wars Implications for Agriculture In March 2018, U.S. imposes tariffs to protect U.S. manufacturing jobs (25% tariff on steel and 10% on aluminum) The response from the rest of the world has been tit-for-tat tariff increases on U.S. exports. A focus has been on the retaliation tariffs from China. U.S. agriculture in the spotlight for tariff retaliation China has threatened to impose a 25% tariff on 128 U.S. products in response to a U.S. proposal to impose a 25% tariff on imported products from China The Chinese list includes soybeans, wheat, corn, sorghum, and beef. Soybeans is the largest agricultural export from the United States to China. US soybean exports account for approximately 48% of total use annually. More than 60% of these exports are destined to China so the Chinese tariff on U.S. soybeans alone could generate major economic consequences for U.S. agriculture. China also imports significant quantities of wheat, sorghum, and corn from the United States. Extending the coverage of Chinese tariffs on these products could amplify the economic implications of Chinas retaliation policy for U.S. agriculture. US Soybean Exports By Destinition for 2017 --Total 55.5 MMT Egypt Bangladesh Pakistan Thailand Taiwan Indonesia Japan
Netherlands Mexico China 0.0 10.0 20.0 30.0 Million Metric Tons 40.0 Soybean Export Volume by Country What is a Tariff? Why Use Them? A tariff is a tax levied on an imported good. There are two types: A per unit tariff is a fixed charge for each unit$90 per metric ton of imported soybeans A proportion tariff (ad valorem) is levied as a proportion of the value of imports25% tariff on imported soybeans Why do countries impose tariffs? To raise revenuesmore prominent historically To alter the balance of trade. Tariffs make imports more expensive. o To protect and develop infant industries o To protect domestic employment from more competitive foreign products o Retaliation when a country thinks a trading partner has not played by the rules Tariffs: Winners and Losers Beneficiaries: Governments receive increased revenues Producers and workers in domestic industries enjoy reduced competition (inflated prices) Losers: Domestic consumersindividuals and businesses because of higher priced goods. Domestic exporters who experience retaliatory tariffs Economic welfarethere are deadweight losses from tariffs in the form of production and consumption efficiencies US Major Corn, Soybean, Wheat, and Cotton Acreage 1975-2018F 300
M 250 i l l 200 i o n 150 240.040 A 100 c r e 50 s 89.100 89.100 47.800 corn wheat soybean cotton 14.040 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
2007 2009 2011 2013 2015 2017 0 Year combined NC Major Row Crop Acreage: 2008-2018 Past 11 years reveals, over the pre- and post- feed grain initiative, a decline in total acres of 10.7%, with a decline in feed grain acres (19%). Corn acres have slightly increased 3.3% Wheat acreage has declined by 43.5% but this masks a significant run-up between 2010 and 2013 when wheat acres more than doubled but then significantly declined back to 2010 levels by 2017. Projections for 2018 show slight increase. Sorghum acreage increased by 25% this also masks that acreage spiked to 70K and 80K in 2012 and 2013 in the initial two years of the feed grain initiative Feed grain acres projected to increase by 5.1% in 2017 over 2018 levels NC Acres Planted 2008-2018 Crop 2008 2009 2010 2011 2012 2013 2014 CORN 900,000 870,000
2014 SORGHUMb 2015 2016 Feed Grains 2017 2018 Feeding the Tails and Feathers There are three primary sources of procuring feed grains to feed the tails and feathers: 1. Midwestern feed grains via rail was the traditional source and mode 2. Local feed grain production primarily corn, some winter wheat (about 80% is fed), and small amounts of sorghum via truck to various fed mills 3. Internationally, primarily South American and sometimes European feed grains via the Port of Wilmington In July 2002, Wilmington Bulk LLC opened an import-export grain terminal in Wilmington, NC Corn Production in US North Carolina Feed Grain Markets Feed Grain Deficit Around 50% Feed Grain/Livestock Corn Wheat (80% fed) Sorghum Total Hogs Broilers Layers Turkeys Cattle Total Acres (5 yr. aver. 2012-16)
886,000 740,000 52,142 Yield Bushel/Acre 126.6 53.2 55.0 GCAU FACTOR 2017 Annual Head 0.2285 9,000,000 0.0020 125,953,846 0.0217 0.0155 1.1055 15,143,000 10,307,692 830,000 Production (5yr average 2012-2016) Million Bushels 56 112.2 60 39.4 56 2.9 154.4 Lbs per Bushel 2017 GCAU Feed Demand in Bushels 2,056,500 171.6 251,908 21.0 328,603 159,769 917,533 3,714,313
Feed Grain Deficit Note: 1 GCAU=2.12 Metric tonnes (or 4,673.8 lbs) in 2017 (dry-weight quantity of feed consumed by an average milk cow); 1 bushel is 56 pounds 27.4 13.3 76.6 310.0 155.6 USDA SUPPLY/DEMAND BALANCE SHEET FOR CORN Acres Planted Acres Harvested Bu./Harvested Acre Beginning Stocks Production Total Supply Use: Feed and Residual Ethanol for fuel Exports Total Use (Demand) Ending Stocks Ending Stocks, % of Use U.S. Season Avg. Farm Price, $/ Bu. Source: USDA, WASDE November, 2018 2016/17 2017/18 2018/19F Million Acres 94.0 90.2 89.1 86.7 82.7 81.8 174.6 176.6 178.9 Million Bushels 1,737 2,293 2,140 15,148 14,604 14,626 16,942 16,934 16,816
Year Dollars Per Bushel 100.0 1,400 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Millions of Bushels 2,000 US Wheat Ending Stocks 1965/662018/19 1,800 1,600 Average 2013-2017= 910 million bushels
1,200 1,000 949 800 600 400 200 0 Year Wheat Futures W-Jul19 New crop winter wheat has given back $0.90/bu recentlydiscouraging planting. Market must strengthen to bid acres Final Thoughts Tariffs are trade distorting. Farmers are better off with trade not aid. Retaliator tariffs can be lose-lose as trade relationships that take years to establish can be decimated and are hard to rebuild. Lost agricultural exports to China will mostly be rerouted to other destinations limiting export impacts. World demand has not declined. Recent announcement of $12 billion aid package to offset tariffs is a short-term fix. Returning to free trade is a long term fix. Cost-price squeeze is impacting US agricultural economy Current and new crop futures charts reveal corn, soybean, and wheat markets are general trading sideways. As we approach planting early next year, look for upside breakouts in Jan-Mar, as corn and soybeans bid for acres. The massive soybean endingstocks will weigh on soybean prices. New Enterprise Budgets Posted Current Budgets: Planting Decision Tool Budget Comparison 2018 Crop Year of Crop Choices Given Current Market Conditions and Expected Yields Enter Average Land Rent Value Here
$82.63 $0.00 $39.65 $0.00 $76.18 $0.00 $87.47 $0.00 Total Fixed Costs Total Cost $82.63 $598.95 $82.63 $429.60 $39.65 $325.23 $76.18 $372.61 $87.47 $790.15 NET RETURNS TO FARMER AND RISK: $16.65 ($23.80) ($83.23) ($145.62) ($97.61) Total Variable Costs Return above Variable Costs *TRACTOR/MACHINERY
**OVERHEAD THANK YOU QUESTIONS? RECOMMENDED MARKETING STRATEGIES FOR DIFFERENT FUTURES PRICE AND BASIS RISK SITUATIONS Strong Current Basis Basis Contract Cash Forward Contract Low Current Futures Price High Current Futures Price Do Nothing Now Buy Put Option Futures Hedge or Buy Put Option Weak Current Basis Timeline for Corn and Soybeans Source: Swanson, K, J. Coppess, and G. Schnitkey. Trade Timeline and Corn and Soybean Prices. farmdoc daily (8): 141 , Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 31, 2018. Price Supply Pworld+T 1 3 2 Welfare Impact of a Tariff
T 4 Pworld Imports QD Demand QT Imports QD QT Tariff=(Pworld+T) Pworld = T Decline in Imports= (QT-QD) (QT-QD) = (QT-QT)+(QD - QD) Welfare Impacts Domestic Producers= +1 Government= +3 Consumers= -(1+2+3+4) Net Welfare= (1+3)- (1+2+3+4) = -(2+ 4)
Portfolio Modeling with Time Dependent Correlation Structure Computational Finance Rachel Chiu Sean Zeng Ricardo Affinito Sarah Thomas Dr. Katherine Ensor * * * Assume variance constant in time * * * * * * The first four models have been...
MINISTRY OF EDUCATION REGION 2 ... Territorial Education Officers of the Primary Unit Preliminaries Registration Devotional Exercise Welcome and Introduction Expectations Overview Purpose of Workshop To share experiences To collaborate in finding solutions to some of the challenges To develop...
The spring constants ki,j The weights ki,j are chosen to minimize angles distortion: Look at the edge (i, j) in the 3D mesh Set the weight ki,j = cot + cot Partition Compute Voronoi diagram on the mesh Compute induced...
Meteorology: Climate Climate is the third topic in the B-Division Science Olympiad Meteorology Event. Topics rotate annually so a middle school participant may receive a comprehensive course of instruction in meteorology during this three-year cycle.
cap reform 2014-2020potential impact on agricultural output from introduction of minimum payments. 6th march 2013. ... extensification of farm enterprise. ... cap reform 2014-2020 potential impact on agricultural output from introduction of minimum payments
ILP = Individual Learning Plan. ILPs provide students with a road map to the future and a record of the past. The ILP is a dynamic tool that maps academic plans, and reflects each student's unique set of interests, needs,...
The Economics Network provides a number of resources to help introduce students to university economics. These include: Some fun and interesting economic books and games A competition to get students to think more deeply on an emotive area of economics...
Ready to download the document? Go ahead and hit continue!