ben brown, agricultural business and policy extension food
TRANSCRIPT
Ben Brown,
Agricultural Business and Policy Extension
Food and Agricultural Policy Research Institute (FAPRI-MU)
In-Case you forgot- here iswhat happened in 2020
❖Phase 1 agreement with China in January created optimism.
❖Pandemic hit and changed some things❖What we eat and where we eat
❖The amount we drive
❖The general economy (millions of people out of work)
❖The federal budget- record levels of emergency spending
❖US Crops came in smaller than anticipated due to drought and derecho and China went on a late-year buying spree
It all started with some wind
Most Active Corn Contract Most Active Soybean Contract
August 10,
2020 Derecho
August 10,
2020 Derecho
The Grain Complex
May 2020
WASDE
August 2020
WASDE
February 2021
WASDE
Change,
May-Aug.
Change, Aug-
Feb.
Production (mil. bu.) 15,995 15,278 14,182 -717 -1,096
Beginning stocks 2,098 2,228 1,919 +130 -309
Exports 2,150 2,225 2,600 +75 +375
Feed, residual use 6,050 5,925 5,650 -125 -275
Ethanol, coproducts 5,200 5,200 4,950 0 -250
Other domestic use 1,400 1,425 1,425 +25 0
Ending stocks 3,318 2,756 1,502 -562 -1,254
Marketing year avg.
price ($/bu.)
3.20 3.10 4.30 -0.10 +1.20
The Oilseed Complex
May 2020
WASDE
August 2020
WASDE
February 2021
WASDE
Change, May-
Aug.
Change,
Aug.-Feb.
Production (mil. bu.) 4,125 4,425 4,135 +300 -290
Beginning stocks 580 615 525 +35 -90
Imports 15 15 35 0 +20
Exports 2,050 2,125 2,250 +75 +125
Crush 2,130 2,180 2,200 +50 +20
Other domestic use 135 140 125 +5 -15
Ending stocks 405 610 120 +205 -490
Marketing year avg.
price ($/bu.)8.20 8.35 11.15 +0.15 +2.80
Global Ending Stocks
900,000
950,000
1,000,000
1,050,000
1,100,000
1,150,000
1,200,000
15/16 16/17 17/18 18/19 19/20 20/21
Mill
ion M
etr
ic T
ons
Global Corn Production & Consumption
Production Consumption
280,000
290,000
300,000
310,000
320,000
330,000
340,000
350,000
360,000
370,000
380,000
15/16 16/17 17/18 18/19 19/20 20/21
Mill
ion M
etr
ic T
ons
Global Soybean Production & Consumption
Production Consumption
680,000
690,000
700,000
710,000
720,000
730,000
740,000
750,000
760,000
770,000
780,000
15/16 16/17 17/18 18/19 19/20 20/21
Mill
ion M
etr
ic T
ons
Global Wheat Production & Consumption
Production Consumption
Source: USDA FAS
Outline❖ Macro-economic Drivers
❖ February WASDE Key Points
❖ Demand Fundamentals
❖ 2021 Acreage
❖ Wrap-up
Money Flow Into Sector- USD❖ Inverse Relationship between Dollar and
Commodities
❖ The USD is the benchmark pricing
mechanism for most commodities.
❖ Commodities are global assets.
❖ New Administration is appealing to Congress for
more federal stimulus in 2021.
❖ Last five days- up and down
Data Source: Trading View
Money Flow Into Sector- TRCCI
Coca, 5.88%
Coffe, 5.88%
Copper, 5.88%
Corn, 5.88%
Cotton, 5.88%
Crude Oil, 5.88%
Gold, 5.88%
Heating Oil, 5.88%Live Cattle,
5.88%
Live Hogs, 5.88%
Natural Gas, 5.88%
Orange Juice, 5.88%
Platinum, 5.88%
Silver, 5.88%
Soybeans, 5.88%
Sugar, 5.88%
Wheat, 5.88%
Thomson Reuters Equal Weight Commodity Index
Agriculture, 47.0%
Metals, 23.5%
Energy, 17.6%
Livestock, 11.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Index Breakdown by Components
Money Flow Into Sector- TRCCI
Data Source: DTN ProphetX
Money Flow Into Sector- USD
Data Source: CFTC Weekly
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
800,000
Po
siti
on
(F
utu
res
On
ly)
Managed Money- All Positions Corn, Soybeans, Chiacgo HRW & SRW, and KC HRW Wheat- Jun 2006-Feb 9. 2021
COVID-19 Update
Daily U.S. Cases
Daily U.S. Deaths
Source: Center
for Disease
Control
▪ 57,970 cases on Tuesday
2/16
▪ 314,972 on 1/8
▪ 7-day average – 81,406
down 86%
▪ 1,396 deaths on Tuesday 2/16
▪ Total of 489,067 deaths
It’s not the 1980s, but…
• Things that are the same• “New Demand” USSR-Then, China Now
• “Plant Fence Row to Fence Row”, “Need bigger Tractors”
• Record Low Interest Rates
• Increasing Land Values
• During the 1980s farm financial crisis, the farm debt/asset ratio peaked at 22%
• It declined to half that level in 2012, but has been increasing since then
• But it is concerning that the debt/asset ratio continues to increase
0%
5%
10%
15%
20%
25%
1980 1986 1992 1998 2004 2010 2016 2022
U.S. farm debt/asset ratio
Debt/asset ratio
13Sources: USDA ERS (history) and FAPRI-MU, Jan. 2021
Summary of the Economy
Federal Reserve Assets on Balance Sheet
-4.0
-3.0
-2.0
-1.0
0.0
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Tri
llio
n d
olla
rs
Federal budget balance, fiscal year
Federal Reserve Assets on Balance SheetFederal Stimulus
❖ 4 Trillion allocated through 7 Pieces of Legislation
under President Trump
❖ Less than $1 trillion still unspent
❖ Congress appears to be on track to pass $1.9 trillion
under President Biden.
Federal Deficit
❖ 27.9 trillion-dollar national debt
❖ 127% of US Gross Domestic Product
❖ Annual deficit expected to be $2.3 trillion in 2021
Federal Reserve
❖ Federal Reserve Balance Sheet grew 76.8% in 2020
❖ Short-term interest rates expected to remain low
❖ Unemployment rates remain elevated (6.3% in Jan.)
❖ First times unemployment claims data- 848 k
❖ Continuous claims data at 4.494 million
❖ M1 Money (most liquid)- up 62%
❖ M2 Money (includes savings and deposits)- up 24%
❖ Velocity of Money lowest since records began in 1960
Source: St. Louis Fed
Current Issues: World Happenings
Chinese Phase 1 Ag Purchases
1,358
786 7891,054 1,088 1,028 1,095
1,987
2,846
4,806 4,886 4,712
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Mill
ion
Do
llars
Agricultural Trade with China- 2020 (US Export Reporting)
Actual 2020 Needed to hit Phase 1 2019-2019 Phase 1 Seasonal Pace
Data Source: USDA FSA GATS
Cumulative
Shortfall = 43%
20
,23
0.2
21
,39
4.5
19
,47
6.0
9,1
45
.3
13
,86
0.0
26
,43
4.5
0
5,000
10,000
15,000
20,000
25,000
30,000
Mill
ion
Do
llars
US Ag Exports to China- Annually
Phase 1 Trade Deal
Image Source: Peterson Institute for
International Economics based on
Chinese Customs Data released Jan. 20,
2021. USDA data Feb. 5th, 2021
Agriculture- China imports
show they reached 64% of their
target in 2020, but US imports
up 65% over 2019.
US export data show the
previous record of $that China
completed 82% of their
commitments
Energy- China
reached 39% of their
target.
US- 37% export value
Manufactured
Goods- China reached
60% of their target.
US exports – 57%
Uncovered Goods-
No set target, but
down 12% from 2017
levels.
Question becomes-
how does the Biden
Administration
respond?
African Swine Fever- this week
❖ African Swine Fever appears to be making
a come back in some parts of Asia with
new strains
❖ Some heard liquidation happening
(nothing like 2018)
❖ Improvements in China’s
commercialization of hog facilities and
better biosecurity measures seem to be
working.
❖ Something to keep a watchful eye on.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1,0
00 M
etri
c T
on
s
Chinese Soybean Meal Domestic Consumption
African Swine Fever
Weekly Soybean
meal crush
exceeded 2mmt 23
times in 2020. It
only did it 5 times
between 2017-
2019.
Chinese Corn Demand- Prices
Source: GNGOIC and USDA Seth MeyerLanded Does not include VAT or Tariff
What’s the Outlook With China
❖ Porcine epidemic diarrhoea (PED) and ASF starting to emerge again.
❖ Is China stock piling corn and soybeans or using it?
❖Chinese relations with Taiwan and ultimately the US involvement in that debate.
South American Production
49 48
126
133
0
20
40
60
80
100
120
140
Mill
ion
Met
ric
To
ns
Argentina and Brazil Soybean Production
Argentina Brazil
51 48
102
109
0
20
40
60
80
100
120
Mill
ion
Met
ric
To
ns
Argentina and Brazil Corn Production
Argentina Brazil
South American Weather- Arg.
Image Credit: StoneX
South American Weather- Brazil
Image Credit: StoneX
Brazil- Second Crop Corn
July Corn Futures in Brazilian Reais
Image Sources: USDA Outlook Forum, Seth Meyer
Commodity Markets
407.2
212.7
353.1
150
200
250
300
350
400
450
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Mill
ion
Ga
llon
s
Weekly Demand of Finished Motor Gasoline
5-Year Average
2019
2020
2021
Corn Demand- Gas Consumption
6% below year ago levels
Source: Energy
Information
Agency
Corn Demand- Ethanol Production
Source: Energy
Information
Agency
0
200
400
600
800
1,000
1,200
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Th
ousa
nd B
arre
ls /
Day
Us Weekly Ethanol Production
5-Year Average 2019 2020 2021
120
125
130
135
140
145B
illio
n G
allo
ns
Gasoline Consumption-Annual
Corn Demand- Ethanol Grind
12
12.5
13
13.5
14
14.5
15
Bill
ion
Gal
lon
s
Ethanol Consumption-Annual
Gasoline and Ethanol
0.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
13.5
15.0
0
15
30
45
60
75
90
105
120
135
150
2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025
Bill
ion
gal
lon
s (e
than
ol)
Bill
ion
gal
lon
s (g
aso
line)
Motor gasoline supply Ethanol domestic use
Source: Energy Information Administration and FAPRI-MU, Feb. 2021
Corn Demand- Exports
Source: Author
Calculation using USDA
FAS Data
0
500
1,000
1,500
2,000
2,500
3,000
Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Mill
ion
Bush
els
US Corn Export Commitments (Exports + Outstanding Sales)
2019/20 2020/21 5-Year average USDA
USDA- 2,600
Source: USDA FAS
❖ Currently 670 million bushels
above sales pace to hit USDA
Target
❖ Only 34% of current sales shipped
Soybean Demand- Exports
Soybean Demand- Crush❖ Second largest total
ever (Oct 20)- above
analyst expectations of
183.1 mil bu.
❖ New January record-
+7.8 mil bu. yoy
❖ Cumulative bushels
now stand at 896 mlb
for the year. +50 mil
bu. yoy
❖ USDA current
increase for 2020/21 is
an additional 35 mil.
Bu. Expectation is that
higher prices will ratio
domestic use.
185.2181
183.2 184.7
100
110
120
130
140
150
160
170
180
190
Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Mill
ion
Bu
sh
els
NOPA Soybean Monthly Crush - Feb. 16 Report
Previous 5-Yr Range 5-yr average 2019/20 20/21
Source: National Oilseed Processors Associations
Available Acres- 2021
319315.4 314.3
324.3 324.9 326.7319.1 319 318.3 319.3
302.6310.1
319
33.7
31.2 31.2
29.7 27 25.6
24.2 23.9 22.9 22.4
22
22
21
4.2
6.9 9.61.2 8.3 4.4
6.73.4
2.6 1.9
19.610.2
3.5
270
280
290
300
310
320
330
340
350
360
370
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021*
Millio
n A
cers
Expectations for Acres
Principal Crop CRP Prevent Plant Total
89.7
76.1
45.5
13.7
90.8
83.1
44.3
12.1
91.7
90.3
45.9
12.0
0
10
20
30
40
50
60
70
80
90
100
Corn Soybeans Wheat Upland cotton
Millio
n a
cres
Major Crop Acreage
2019 2020 2021
Winter Wheat Acres
Soybean Balance Sheet
Projected
Marketing year: 2018/19 2019/20 2020/21 2021/22
(million acres)
Planted area 89.2 76.1 83.1 90.3
Harvested area 87.6 74.9 82.3 89.1
(bushels per acre)
Yield 50.6 47.4 50.2 50.3
(million bushels)
Beginning stocks 438 909 525 121
Production 4,428 3,552 4,135 4,479
Imports 14 15 35 22
Total supply 4,880 4,476 4,695 4,622
❖ 2020/21 estimates should match
USDA’s Feb. WASDE
❖ The projected increase in acreage and
trendline yields results in a 344 mil. bu.
increase in projected 2021 production
❖ However, the sharp reduction in
beginning stocks means that projected
total supplies actually are smaller in
2021/22 than in 2020/21
Soybean Balance Sheet
Projected
Marketing year: 2018/19 2019/20 2020/21 2021/22
(million bushels)
Crush 2,092 2,165 2,201 2,230
Seed and residual 128 105 124 131
Exports 1,752 1,682 2,249 2,090
Total use 3,971 3,952 4,574 4,451
Ending stocks 909 525 121 170
Stocks/use ratio 22.9% 13.3% 2.7% 3.8%
(dollars per bushel)
Farm price 8.48 8.57 11.15 10.55
Loan rate 5.00 6.20 6.20 6.20
Reference price 8.40 8.40 8.40 8.40
❖ Figures for 2020/21 are all very
close to the February WASDE
from USDA
❖ Projections show an increase in
crush but a reduction in exports in
2021/22, due to an expected
increase in exports from S.
America
❖ Futures markets suggest higher
2021/22 prices, and Seth Meyer
projected a $11.25 soybean price at
USDA’s Ag. Outlook forum today
Sources: USDA WASDE and author projections, February 2021,
Soybean Prices
11.87
10.75
$10.55 $10.28
5
6
7
8
9
10
11
12
13
14
15
2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23
Do
llars
per
bush
el
USDA (feb.) Author (feb.) Nov. futures
Sources: USDA WASDE and author projections, February 2021, and CME Nov. futures, Feb. 18, 2021
Corn Balance Sheet
2020/21 estimates should match USDA’s
Feb. WASDE
❖ The projected increase in acreage and
trendline yields results in a 758 mil. bu.
increase in projected 2021 production
❖ However, the reduction in beginning
stocks means that projected total
supplies are only 341 million bushels
larger in 2021/22 than in 2020/21
Sources: USDA WASDE and author projections, February 2021
Corn Balance Sheet
❖ Figures for 2020/21 are all very close to
the February WASDE from USDA
❖ Projections show a recovery in ethanol
use, pushing 2021/22 FSI use. Exports
decline a little in 2021/22, and depend
on policy choices in China and
competitor supplies
❖ Futures markets suggest slightly higher
2021/22 prices, and Seth Meyer
projected a $4.20 corn price at USDA’s
Ag. Outlook forum today
Corn Balance Sheet
$4.10
4.59
0
1
2
3
4
5
6
7
8
2006/07 2008/09 2010/11 2012/13 2014/15 2016/17 2018/19 2020/21 2022/23
Do
llars
per
bush
el
USDA (Jfeb.) Author (feb.) Dec. futures
Sources: USDA WASDE and author projections, February 2021, and CME Dec. futures, Feb. 18, 2021, USDA at $4.20 yesterday
Wheat Balance Sheet
Projected
Marketing year: 2018/19 2019/20 2020/21 2021/22
(million acres)
Planted area 47.8 45.5 44.3 46.1
Harvested area 39.6 37.4 36.7 38.6
(bushels per acre)
Yield 47.6 51.7 49.7 49.7
(million bushels)
Beginning stocks 1,099 1,080 1,028 834
Production 1,885 1,932 1,826 1,920
Imports 135 105 120 123
Total supply 3,119 3,117 2,974 2,877
Projected
Marketing year: 2018/19 2019/20 2020/21 2021/22
(million bushels)
Food, seed, industrial 1,014 1,022 1,027 1,022
Feed and residual 88 101 123 108
Exports 937 965 989 962
Total use 2,039 2,089 2,140 2,092
Ending stocks 1,080 1,028 834 785
Stocks/use ratio 53.0% 49.2% 39.0% 37.5%
(dollars per bushel)
Farm price 5.16 4.58 4.99 5.16
Loan rate 2.94 3.38 3.38 3.38
Reference price 5.50 5.50 5.50 5.50
Note: Seth Meyer forecast a $5.50 price for 2021/22 yesterday at the USDA Ag. Outlook Forum
Key Take Aways❖ Macroeconomy
❖ The dollar seems to have stabilized
❖ COVID cases are dropping with a slight recovery in COVID deaths
❖ Large amounts of M1 money supply signaling pent up demand
❖ International
❖ Chinese ASF and PED cases worth monitoring
❖ Geopolitical tensions with Taiwan
❖ Biden does not seem to be blinking when it comes to China
❖ Corn
❖ Finally, a strong signal in gasoline improvement
❖ Corn export commitments need strength but are struggling with high prices.
❖ Soybeans
❖ Even record acreage of soybeans in 2021 the balance sheet remains “tight”
❖ Something will have happen:
❖ Cancelation of sales or rolling to next marketing year
❖ Lower domestic use
❖ Increased imports to the US
