the effect of the drought on food prices and availability todd davis senior economist agricultural...

The Effect of the Drought on Food Prices and Availability

Todd Davis

Senior Economist

Agricultural Outlook Forum 2013: Managing Risk in the 21st Century

Outline Drought and Effect on Crop and Livestock Production

Farm Price Impact on Consumer Expenditures

Policies Providing a Farm Safety-Net

Ripped from the Headlines ***

• Why Iowa's drought is a global problemCNN Money.com – August 9, 2012

• Severe Drought Seen as Driving Cost of Food UpNY Times.com – July 25, 2012

• Historic drought to bring higher food prices, experts sayFox News.Com – July 17, 2012

*** The July WASDE was released on 7/11/12 and the August WASDE on 8/10/12

For Some States, 2013 could be the Third Consecutive Drought Year

Source: NOAA

Source: NOAA

Source: NOAA

* Wyoming and Nebraska facing worst drought in 117 years

Source: NOAA

JANUARY 1 TOTAL CATTLE INVENTORYU.S., Annual

80

90

100

110

120

130

140

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013

Mil. Head

C-N-0102/04/13

-1.6 Percent2013 = 89.3 Million Head

Livestock Marketing Information CenterData Source: USDA-NASS

CATTLE ON FEEDUS Total, Monthly

9.5

10.0

10.5

11.0

11.5

12.0

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Mil. Head

Avg.2007/11

2012

2013

C-N-1001/26/13Livestock Marketing Information Center

Data Source: USDA-NASS

DECEMBER 1 ALL HOGS AND PIGSU.S. Inventory

45

48

51

54

57

60

63

66

69

72

1987 1990 1993 1996 1999 2002 2005 2008 2011

Mil. Head

H-N-0812/28/12Livestock Marketing Information Center

Data Source: USDA-NASS

DECEMBER 1 HOG BREEDING HERDU.S. Inventory

5.0

5.5

6.0

6.5

7.0

7.5

1987 1990 1993 1996 1999 2002 2005 2008 2011

Mil. Head

H-N-0912/28/12Livestock Marketing Information Center

Data Source: USDA-NASS

BROILER-TYPE HATCHING LAYERS Average Number On Hand During Month

49

50

51

52

53

54

55

56

57

58

JAN MAR MAY JUL SEP NOV

Million

Avg.2006-10

2011

2012

01/24/13Livestock Marketing Information CenterData Source: USDA-NASS

2013 Winter Wheat Seedings

Source: USDA-NASS

2012 2013 Change February 16, 2013Drought Percentile

U.S. Winter Wheat 41,324 41,820 +496Kansas 9,500 9,300 -200 5thTexas 5,700 5,800 +100 16th Oklahoma 5,400 5,500 +100 9thColorado 2,350 2,200 -150 9thMontana 2,300 2,100 -200 9thWashington 1,700 1,650 -50 91stNebraska 1,380 1,480 +100 0South Dakota 1,320 1,200 -120 7thMissouri 790 1,000 +210 29th

---------- Thousand Acres ----------

About 21.78 million Acres seeded in states with 10th Percentile or less (52% of Winter Wheat Seedings)

Corn, Soy and Wheat Production from 1996-2017 (P)

Source: USDA-NASS, USDA-ERS

Biological Lag of Rebuilding Herds / Flocks

How do Farm Prices Impact Consumers’ Food Expenditures?

Source: USDA: ERS

Source: USDA: ERS

Since 1993, Farm & Agribusiness share of the food dollarhas declined from $0.145 to $0.101 with an average of $0.124

Source: USDA: ERS

% of Disposable Income Spent on Food

1970 13.9%1980 13.2%1990 11.5%2000 9.9%2011 9.8%

At home is 5.7%

Source: USDA: ERS

Per Capita Daily Food Expenditures (2005 Dollars)

1970: $6.54/day

2011: $10.22/day

Source: USDA: ERS

% of Household Expenditures on Food Worldwide

United States 6.7

Egypt 43.6Ukraine 38.2Russia 31.2Mexico 22.7China 21.3Argentina 21.2Brazil 15.9Japan 14.7Canada 9.7

US has Lowest Expenditures of 84 countries

% Household Expenditures Spent on Food in 2011

Risk Management Tools to Help Farmers Continue to Produce

Example: Return over Variable Costs with RP Insurance for an Iowa Corn Farm

Note: APH Yield = 180 bpa; Projected Price = $5.75; 85% Coverage Level

Source: Iowa State University Extension Budgets for 2013

Variable Costs = $405/acre and Cash Rent = $276/acre

Harvested Yield ROVC RP Total171 $9 $191 $200162 -$27 $227 $200153 -$63 $263 $200144 -$100 $299 $200135 -$136 $336 $200126 -$172 $372 $200117 -$208 $408 $200

Harvest Price = $4.03

Policies Providing a Safety-Net

• Crop Insurance is the Foundation for a Farmer’s safety-net

• A new Farm Bill will provide policy certainty to producers, lenders, and other participants in the supply chain

• Given the drought maps, would you invest $681/acre in corn without the security provided by crop insurance?

Summary

• Farmer’s share of the food dollar is small and declining

• Drought impact on livestock sector is significant and often over-looked by media

• When U.S. returns to near-trend yields and stocks rebuild, poultry and pork have capacity to expand faster than beef• Relatively more expensive beef than

pork/chicken• Loss of beef market-share

Thank You for Your Attention!