4. Market & Policy Volatility: Fasten Your Seat Belts
VISULIZE ACTIVITIES WITH TIMELINES!
BEFORE NOW FUTURE
China impact Volatility Risk Mgmt.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
5. Obama and Election Impacts
Turning to the center
1 Changes: White House
✓ 2 State of Union address
Obama FY ‘12 budget
3 Congress: Fewer moderates
4 Gridlock: Halting Obama
– Or: Growth & Budget Cuts
6. The New House
GOP controls with net gain of 63 seats
-- Leaders:
GOP: Boehner
Dems: Pelosi
-- ‘New’ approach:
* Committee chairs: Power
- Markup sessions
- Floor amendments
7. House Committee Leaders
New players, different approaches
1 Ways and Means: Dave Camp (Mich.)
• Tax Issues - Trade Policy
2 Budget: Paul Ryan (Wis.)
• Key role in coming budget-cut proposals
Ag: Frank Lucas (Okla.) – 14 Dems lost; No GOP
✓ 3 •Direct payments - conservation - equity - regs
Appropriations: Hal Rogers (Ky.)
4
•No longer fun panel – cuts ahead
Energy and Commerce: Fred Upton (Mich.)
5
• Supported proposed cut in ethanol payment rate
8. New Senate
Dems still in control, but weakened majority
Same leaders:
Dems: Reid GOP: McConnell
Election Math:
* 2012: Dems: 23 seats; GOP: 10
-- 8 Ag members up, only 1 GOP (Lugar)
-- Dems: Conrad, Stabenow, Nelson,
Brown, Casey, Klobuchar, Gillibrand
* 2014: Dems: 20; GOP: 13
9. New Leader for Senate Ag Panel
Impact of Sen. Lincoln’s reelection loss
New Chair
Past two farm bills
Stabenow (Mich.)
pushed fruit, vegetable
funding
Ranking GOP
Other commodities in
Roberts (Kan.) Mich.: Sugar beets,
corn, soybeans, wheat,
Keys dairy
No./So. coalition Up for reelection in ‘12
- Conrad (N.D.)
11. U.S. National Debt
In dollars and percent of GDP
Trillions of dollars Percent of GDP
20 Eisenhower 120
G.W. Bush
Carter
Johnson
H.W. Bush
Nixon / Ford
Kennedy
Reagan
Clinton
Obama
Truman
Roosevelt
18 108
16 96
14 84
12 72
10 60
8 48
6 36
4 24
National debt Percent of GDP
2 12
0 0
40
50
60
70
80
90
00
10
20
45
55
65
75
85
95
05
15
12. Passing Spending Cuts Will be Difficult
Eventually most programs will face cuts
FY 2009 FY 2015
23%
$1,058 bil.
35% Discretionary
$1,246 bil. 19% and other
mandatory
21%
Discretionary
and other Social Social
mandatory Security Security
Medicare / Defense
Medicaid
19%
Medicare /
Medicaid
Defense 21% Net
Net Interest
Interest 25%
19%
5% 12%
Source: Congressional Budget Office, August 2010
13. Projected 10-Year Costs of Ag Programs
Only 2.15% of all federal government spending
FY 2009 FY 2015
23%
$1,058 bil.
35% Discretionary
$1,246 bil. 19% and other
mandatory
21%
Discretionary
and other Social Social
mandatory Security Security
Medicare / Defense
Medicaid
19%
Medicare /
Medicaid
Defense 21% Net
Net Interest
Interest 25%
19%
5% 12%
Source: Congressional Budget Office, August 2010
22. General Overview
• Extremely tight grain and oilseed fundamentals
• 2010 US production hurt by adverse August
• Shortfalls in world wheat production
• La Nina undermines Argentine crops
• Strong demand
– High livestock and petroleum prices making it difficult to
ration usage despite historically high grain prices
• Minimal 2010/11 corn and soybean ending stocks
• Intense competition for 2011 acreage
– Outcome of South American crops and Chinese demand
will determine how intense
• Limited prospects for stock building in 2011/12
even with trend yields
23. Grains Outlook
• Grain shortages in 2010/11 due to FSU drought, hot US 2010 August,
strong bio-energy demand, record Chinese soybean imports
– US and world stocks reduced to critically low levels for corn and oilseeds:
wheat stocks relatively adequate
– High gasoline prices and ethanol tax credit extension cause corn ethanol
demand surge
– Argentine 2011crops struggling with sporadic drought
– US summer corn and soy supplies extremely tight
• Price highs supported by central bank inflationary monetary policy
and economic recovery
– Demand rationing difficult with ethanol and China leading
• Global crop production rebound in 2011 essential
– US 2011 acreage battle as cotton demand rebounds; soy could fall short
– La Nina Pacific weather cycle positive for N. Hemisphere crops
– FSU crop yields should rebound from 2010 extreme drought
• Prices likely to remain high and volatile until fall harvests in hand
– Extreme spring and summer volatility expected as weather reaction
– Late planting, summer heat, etc.
• Economic excess in China, US could lead to next burst price bubble
24. Dairy Summary
• Milk production growth has topped out globally for this cycle, and
growth will be slowing worldwide. A lack of rain in New Zealand and
Argentina, too much rain in Australia, blizzards in Europe, and $6.50 corn in
the US are slowing milk production growth.
• Prices on the world market have responded to the lower supply by
shooting higher, and the next chance to bring those back down will be when
the new production season ramps up in New Zealand in August. US prices
have been along for the ride despite adequate inventories of most dairy
products (the exception being butter).
• US butter and cheese prices have jumped too high too fast and could
retrace a bit over the next two-three months before turning back higher
again. Prices for the various powders will trend higher until September or
October when the world market will potentially come under pressure.
25. Uneven Global Economic Rebound
Contains Downside Risks
Percent change in annual world growth (purchasing-power parity rates)
Advanced countries Rest of world China India
6
4
2
0
Advanced economies accounted for over half of
world growth rate from 1970 to 2008. From 2010
-2
to 2012 they will account for less than one-third.
70
72
78
80
82
88
90
92
98
00
02
08
10
12
74
76
84
86
94
96
04
06
26. Dollar Erosion Has Boosted Foreign
Buying Power and Commodity Prices
Indexes of major currencies/US$ (March 1973=100)
150
Competitive devaluations
140
and protectionism will be
130 significant issues in 2011-12
120
110
100
90
80
From March 2009 ………. -14%
70 From 1997-03 average … -28%
74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
* Currencies weighted by relative market importance to total U.S. trade.
27. Oil Price Recovery Will Track Global
Rebound and U.S. Dollar into 2011
Dollars per barrel; spot price West Texas Intermediate
$140
Questions for oil: 2009 avg.
$130
Middle East keeps uncertainties in the 2008 avg. $62
$120 market. $100
$110 US dollar value still a factor.
OPEC: limited output adjustments
$100 Global recovery will set pace of price
$90 rebound.
2007 avg.
$80 $72
$70 2011-12 avg.
$60 $90-100
$50
$40
2010 avg.
$30 $79
$20
$10
19 1
20 1
20 1
19 6
19 7
19 8
19 9
19 0
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 2
20 3
20 4
20 5
20 6
20 7
20 8
20 9
20 0
12
9
0
1
8
8
8
8
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
0
0
0
1
19
28. Strong Fourth Quarter in U.S. Signals
Momentum For 2011 First Half
2009 ----------- 2010 ----------- 2011
IV I II III IV I
---------- Percent change at annual rate ----------
Real Gross Domestic 5.0 3.7 1.7 2.6 3.2 4.0
Product (GDP) ---------- Percent change from year earlier ----------
0.2 2.4 3.0 3.2 2.8 2.9
Percent points of contribution at annual rate:
Personal Consumption 0.7 1.3 1.5 1.7 3.0 2.1
Fixed investment - 0.1 0.4 2.1 0.2 0.5 0.6
Nonresidential -0.1 0.7 1.5 0.9 0.4 0.8
Residential 0.0 -0.3 0.5 -0.8 0.1 -0.2
Change in Inventories 2.8 2.6 0.8 1.6 -3.7 2.0
Net exports 1.9 -0.3 -3.5 -1.7 3.4 -0.1
Government spending -0.3 -0.3 0.8 0.8 -0.1 -0.6
29. Annual Sources of Growth: U.S. Economy
Forecast
2006 2007 2008 2009 2010 2011
---------- Percent change at annual rate ----------
Real Gross Domestic 2.7 2.0 0.0 -2.6 2.9 3.1
Product (GDP) ---------- Percent change 4th qtr-to-4th qtr ----------
From 1998-2007 2.4 2.3 -2.8 0.2 2.8 3.2
over 75% of growth was
personal consumption Percent points of contribution at annual rate:
Personal Consumption 2.0 1.7 -0.2 -0.8 1.3 2.3
Fixed investment 0.4 -0.3 -1.0 -2.7 0.5 1.0
Nonresidential 0.8 0.8 0.0 -2.0 0.5 0.9
Residential -0.5 -1.1 -1.0 -0.7 -0.1 0.1
Change in Inventories 0.1 -0.2 -0.5 -0.6 1.4 0.0
Net exports -0.1 0.6 1.2 1.1 -0.5 -0.1
Government spending 0.3 0.3 0.5 0.3 0.2 -0.1
30. Major Changes in the
February WASDE
World / U.S. Wheat/ Soybean and Cotton Largely Unchanged
Coarse Grain Stocks:
World ….. -4.7 mmt
U.S. ……. -1.8 mmt (70 million bushels) (price range $5.05-5.75/bu.)
(2010 ending stocks estimated 675 mil. bu.; Avg trade estimate = 725)
Foreign … -2.9 mmt (Brazil … -1.5 mmt; Mexico …. -0.5 mmt)
Small increases in meat and milk production for 2011.
Significant changes in prices:
Steers ……… + $3 /cwt. ………. ($102-109 / cwt.)
Hogs ………. + $4 /cwt. ………. ($58-61 / cwt.)
Broilers …. - 1 cent/lb. ………. (80-85 cents/ lb.)
Milk ……… + $1.60 / cwt. …….. $17.70-18.40 / cwt.)
36. World Wheat Stocks Fall As
Global Production Declines
Million metric tons of wheat Stocks as percent of use
250 40
200 32
150 24
100 16
50 8
0 0
72
78
80
82
88
90
92
98
00
02
08
10
74
76
84
86
94
96
04
06
37. Declining FSU-12 Wheat
Production Driving Markets
Million metric tons
125
Domestic use
100
75
Production
27% of
50
world trade
25
Ending stocks
0
(25) Net exports
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
38. Rebound in Global Wheat Production
Could Push U.S. Stocks Higher in 2011
Billion bushels U.S. Winter wheat seedings: +3.7 mil. acres (+10%)
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
02
04
06
08
10
39. Sharply Reduced Coarse Grain
Stocks Push Markets Higher
Percent (stocks as a percent of use)
70
What if China develops U.S. World
60 even a small appetite
for corn in 2011-12?
50
40
Lowest in
over 50 years
30
20
10
0
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
40. Corn Stocks Remain Tight
Even With Large Harvest
Billion bushels
14
Production Total Use Free stks Gov't stks
12
10
8
Nearly 40 percent of the crop
6
is utilized for ethanol.
Total corn use is now over
4
13.5 billion bushels.
(need 89 mil. acres at trend yield)
2
0
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
41. Corn Acreage and Yields Will
be Strategic in 2011
2011 Corn Planted Acreage (Mil. Acres)
88 89 90 91 92 93
Harvested Acreage
81 82 83 84 85 86 Need
Billion bushels
yield of
154 12.47 12.63 12.78 12.94 13.09 13.24 160 or
160 12.96 13.12 13.28 13.44 13.60 13.76 above
even with
161 13.04 13.20 13.36 13.52 13.69 13.85
92-93
162 13.12 13.28 13.45 13.61 13.77 13.93 million
Yield 163 13.20 13.37 13.53 13.69 13.86 14.02 acres
164 13.28 13.45 13.61 13.78 13.94 14.10
165 13.37 13.53 13.70 13.86 14.03 14.19
166 13.45 13.61 13.78 13.94 14.11 14.28
167 13.53 13.69 13.86 14.03 14.20 14.36
42. South American Crop Size Will Set
Tone for 2010 - 2011 Crop Years
Million metric tons
250
200
World
150
100
50 United States
Brazil and Argentina
0
70
72
76
78
80
82
86
88
90
92
96
98
00
02
06
08
10
74
84
94
04
43. Continued Large Global Soybean
Stocks Offset by China Demand
Million metric tons of soybeans Stocks-to-use percentage
70 35
Ending stocks Stocks-to-use
60 30
50 25
40 20
30 15
20 10
10 5
0 0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
44. China’s Appetite for Soybeans
is Major Market Driver
Million metric tons
75
Domestic use
60
45
30 Production
15
0
Ending stocks
-15
-30
In last 10 years domestic consumption
has tripled with no significant Net exports
-45 increase in domestic production.
-60 Increase of 8-9 mmt. in 2009 & 2010.
-75
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
45. U.S. Soybean Stocks Limited by Strong
Demand and Acreage Competition
Million bushels
3,500
Production Total Use Stocks
3,000
2,500
2,000
1,500
1,000
500
0
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
46. Meat Industry Will Be Cautious
About Expansion in 2011-12
Billion pounds
40
Change in
2010 2011
35
Broilers + 4.0 % 0 to +2%
Beef +1.3 % -1 to -2% Broilers
30
Pork - 2.4 % 0 to 1%
25
Beef
20
Pork
15
10 Percent change in total meat output
5
2007 2008 2009 2010 2011
+2.2% + 3% -3.2% 1.3 % -1 to 1 %
0
88
90
92
98
00
02
08
10
78
80
82
04
06
84
86
94
96
74
76
47. Export Market Will Be Key to Positive
Returns Through Mid-2011
Billion pounds (red meat: carcass weight; poultry: ready-to-cook)
15
Imports Exports Balance
12
Export share of
2011 U.S. production
9 Broilers ….. 18%
Beef ………. 9%
Pork ……… 21%
6
All meat .......16%
3
0
-3
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
51. Milk Feed Ratios Likely To Be
Pressed Lower in 2011
Quarterly ratio: pounds of feed equal to value of one pound of all milk
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
quarterly data
* Number of pounds of 16% protein Mixed Dairy Feed (C51/S8/AH41) equal in value to 1 lb all milk.
53. Farm Income: Agriculture
Continues Strong Performance
Billion dollars
100
Net cash income in agriculture is now Record high
averaging around $80 billion a year
80
compared with an average of $60 billion for
Net Farm Cash Income
the previous decade….. but more volatility
60
40
20
Direct government payments*
0
75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
* emergency payments are striped area of government payments)