Pat Westhoff (westhoffp@missouri.edu) FAPRI at the University of Missouri

(www.fapri-mu.org)

Southern Legislative Conference Memphis, Tennessee July 17, 2011

Current situation and how we got here

Commodity markets

Farm sector

Policy

Where we might be going and why

Your questions

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l 10

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Do

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per

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shel

Soybeans Corn

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Cotton

Source: USDA’s National Agricultural Statistics Service, Agricultural Prices

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Source: USDA’s National Agricultural Statistics Service, Agricultural Prices; USDA’s July 2011 World Agricultural Supply and Demand Estimates for 2010/11

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Steers Chicken Hogs

Sources: USDA’s National Agricultural Statistics Service, Agricultural Prices; USDA’s July 2011 World Agricultural Supply and Demand Estimates for 2011

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Milk

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Gross income Expenses

Sources: USDA’s Economic Research Service, February 2011

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2001 2003 2005 2007 2009 2011

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Do

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Corn

Gov'tpayments

Marketsales

Variableexpenses

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Cotton

Gov'tpayments

Marketsales

Variableexpenses

Source: FAPRI-MU baseline, January 2011. Payments include direct payments, marketing loan benefits, countercyclical payments and ACRE payments. Assumes one acre of base for each acre planted and harvested.

Weather Global economy

Economic growth here and abroad

Exchange rates

Energy markets

Oil prices

Biofuels

Policies And much more

Source: USDA’s Crop Production, July 2011

Reduced 2010 U.S. corn crop

Reduced 2010 wheat crops in Russia and Ukraine

Reduced 2011 wheat crop in Canada

Reduced 2011 cotton crop in the U.S.

Poor 2011 pasture conditions in the U.S. 0

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2009 2010 2011

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acr

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U.S. cotton area

Abandoned

Harvested

Source: USDA’s WASDE, July 2011

Source: Author calculations based on data from IHS Global Insight, January 2011

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Meat production

Chicken

Beef

Pork

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Feed use

Soymeal

Corn

Source: USDA PSD Online, July 2011

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Marketing year (U.S. begins in September)

U.S. exports

Brazil exports

China imports

Source: USDA PSD Online, July 2011

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bal

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Cotton use

Use Production End. Stocks

Source: USDA PSD Online, July 2011. Note: U.S. exports of all cotton for 2010/11: 14.5 million bales.

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Cotton imports

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2004 2006 2008 2010 2012 2014

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ba

rre

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WTI price

Sources: Energy Information Administration for history, WTI crude oil June contracts, July 13, 2011

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shel

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Ethanol & coproducts

Other domestic

Exports

Source: USDA’s WASDE, July 2011 and previous issues

Policies have affected commodity markets

U.S. biofuel policy, conservation reserve, more

Foreign trade policies have made international market prices more volatile (export bans, etc.)

Several key U.S. policy debates

Biofuel policy—end of tax credits?

Budget policy—end of direct payments?

Farm bill

Receipts: $2.162 trillion. Sum of Social Security, Medicare, Medicaid and defense: $2.183 trillion.

Commodity market outlook

Depends on weather, global economy, etc.

Average prices likely to be above pre-2007 levels for most commodities

Expect continued volatility

2010/11 (USDA, July)

2011/12 (USDA, July)

2012-15 average (FAPRI-MU, Mar.)

Corn per bu. $5.15 - $5.35 $5.50 - $6.50 $4.70

Soybeans per bu. $11.35 $12.00 - $14.00 $11.48

Wheat per bu. $5.70 $6.60 - $8.00 $5.46

Upland cotton per lb. $0.82 $0.90 - $1.10 $0.74

Rice per cwt $12.50 $13.20 - $14.20 $12.44

Sources: USDA’s World Agricultural Supply and Demand Estimates, July 2011 and FAPRI-MU’s US Baseline Briefing Book, March 2011. Note: FAPRI-MU plans to prepare a baseline update after August crop reports are released.

2011 (USDA, July)

2012 (USDA, July)

2013-16 average (FAPRI-MU, Mar.)

Fed steers per cwt $111 - $114 $111 - $120 $109

Barrows & gilts per cwt $63 - $65 $62 - $67 $57

Wholesale chickens per lb. 81¢ - 84¢ 82¢ - 89¢ 92¢

Milk per cwt $20.00-$20.30 $17.75-$18.75 $19

Sources: USDA’s World Agricultural Supply and Demand Estimates, July 2011 and FAPRI-MU’s US Baseline Briefing Book, March 2011. Note: FAPRI-MU plans to prepare a baseline update after August crop reports are released.

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Refiners’ acquisition price

Average #1 #479

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U.S. corn yield

Average #1 #479

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Corn price

Average 90% 10%

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Actual #1 #479

Policy outlook

Current debt limit debate could be critical

Reports that negotiators sought $34 billion in farm program savings over 10 years

Direct payment program at risk

Ethanol tax credit ($0.45/gallon) due to expire at end of 2011, proposals to eliminate immediately

Major choices could be made long before 2012 farm bill is written

Billion dollars

Social security 701

Medicare 520

Medicaid 273

Defense 689

Unemployment insurance 159

SNAP (food stamps) 70

Child nutrition (school lunch, etc., but not WIC) 17

Mandatory agricultural programs 15

Net interest 197

All other net outlays 815

Net federal outlays 3,456

FY 2012-FY2021 net outlays

Commodity programs $61 billion

Crop insurance $77 billion

Conservation programs $63 billion

Supplemental Nutrition Assistance Program $691 billion

Child nutrition programs $241 billion

Notes: Estimates for farm and conservation programs are from CBO’s March 2011 baseline, and the nutrition program estimates are from CBO’s January 2011 baseline. Commodity Credit Corporation net outlays include commodity programs, export programs, one major conservation program (the conservation reserve program) and some other miscellaneous programs. CBO projects that net CCC outlays will total $97 billion over the FY 2012-FY 2021 period. Mandatory conservation program spending includes $39 billion in Natural Resources Conservation Service programs (EQIP, CSP, WRP, etc.) and $24 billion in CCC-funded programs (mostly CRP). Crop insurance spending by the Federal Crop Insurance Corporation reflects both premium subsidies to agricultural producers and program delivery costs.

Source: Update of “Crop Insurance: Background Statistics on Participation and Results,” FAPRI-MU report #10-10, Table 2 (http://www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_10_10.pdf) using Jan. 2011 FAPRI-MU stochastic baseline figures.

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Corn Soybeans Wheat Cotton Rice

Crop insurance

Commodity programs

Market sales

Note: Assumes one acre of base for each acre harvested. In reality, base acreage can be very different than harvested acreage.

Only modest impacts on commodity markets

Bigger impacts on

farm income, farm program outlays, land values

See FAPRI-MU report #08-11 at our website, www.fapri-mu.org

Average 2012-20 impact compared

to current law

Commodity prices <2% change

Farm program payments

-$2.0 billion to -$4.6 billion

Net farm income -$1.9 billion to -$3.2 billion

Farm real estate values

-1.8% to -2.7%

Consumer food expenditures

<0.1% change

Note: Ranges reflect different assumptions about whether producers would choose to enroll in the ACRE program if direct payments are eliminated.

Higher commodity prices caused by Weather

Oil prices

World economic growth

Much more

Expect continued market volatility

Budget concerns will play key role in farm policy debates

FAPRI-MU website: www.fapri-mu.org

To contact me:

573-882-4647

westhoffp@missouri.edu