Global Economy and Agriculture in Transition
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Global Economy and Agriculture in Transition presented by Terry Barr with CoBank at the 2013 Agri-Growth Council Annual Meeting and Speakers Conference.

Global Economy and Agriculture in Transition presented by Terry Barr with CoBank at the 2013 Agri-Growth Council Annual Meeting and Speakers Conference.

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  • OCT 2013
  • Sept 2013; II 2013 data
  • OCT.2013 release; August data
  • OCT 2013
  • SEPT 2013
  • OCT 2013
  • Oct. 16
  • SEPT 2013
  • SEPT 2013
  • SEPT 2013
  • SEPT 2013
  • JUNE 2013
  • SEPT 2013
  • SEPT 2013
  • SEPT 2013
  • SEPT 2013
  • AUGUST 2013
  • AUGUST 2013

Transcript

  • 1. The Global Economy and Agriculture in Transition Terry Barr, CoBank
  • 2. U.S. Economy and Agriculture Faced Significant Turmoil Over The Past Decade … What Transitions Are Ahead?
  • 3. A Fragile Global Economy Will Experience Subpar Growth With Greater Role for Emerging Markets Percen t ch an g e i n an n u al w o rl d g ro w th (p u rch asi n g -p o w er p ari ty rates) Rising Economic Policy Middle Turmoil Realignment Class 2009-13 2014-18 2004-08 6 ??? Avg.=4.5% Avg.=2.9% 4 2 0 18 14 16 10 12 06 08 India 02 04 C hina 98 00 94 96 R e s t of w orld 86 88 82 84 78 80 74 76 70 72 A dv a nc e d c ount rie s 90 92 -2
  • 4. Global Economic Transitions, A New Energy Paradigm and Building Grain Stocks Will Force Market Realignments Rising Economic Policy Global Turmoil Realignment Middle class 2009-13 2014-18 Ag ri cu l tu re co mmo d i ty i n d ex (2005= 100) 250 200 ? 150 100 Old Normal 50 0 Data source: World bank 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 12 14 16 18
  • 5. Global Economy Struggling With Major Unresolved Strategic Issues and Evolving Geo-political Realignments Europe: Debt/deficits/austerity; Merkel victory sets stage; ECB forward guidance and Shinzo Abe whatever Prime Minister it takes! Out of recession but ….. Japan: devaluation; central bank QE Angela Merkel actions; debt and Xi Jinping German Chancellor consumption tax; New President of China U.S.: Policy inaction more stimulus? limits growth; China: Leadership debt/deficit debate transition; slower Mario Draghi Christine Legarde MothercontinueBlack Nature & for ECB President Managing Director IMF may exports limit growth; Swans U.S. President years; immigration, transition to consumer Emerging markets health care, farm bill, sector as driver; Brazil weakening as trade etc. pending; Federal vulnerable shadow Fracking /horizontal and capital flows slow Reserve tapering. India banking system. drilling bring new Russia Emerging markets Ben Bernanke John Boehner energy paradigm!. Majority Leader FED President Harry Reid Senate Leader
  • 6. Euro Region Struggling to Transition German elections clear way for potentially significant policy changes in 2014 but progress will be slow! New capital infusions needed! Angela Merkel German Chancellor Mario Draghi ECB President Christine Legarde Managing Director IMF
  • 7. Euro Region Struggling to Transition Monetary Union Fiscal Union Banking Union No shortcut Reality is 2-3 year transition with expanded ECB role! Major structural reform will be required in labor markets. Countries must forfeit significant sovereignty on banking and fiscal decisions to permit the transition from a monetary union to a fiscal and banking union!
  • 8. Japan Tries Abeconomics Prime Minister Shinzo Abe “new policy directions” Competitive devaluations; Bank of Japan pushes QE; Government debt requires consumption tax next year; stimulus to offset taxes
  • 9. Japan and Brazil Have Dramatic Currency Realignments That Enhances Their Competitiveness Indexes of currencies/US$ with January 1999=100 Braz il index 50 100 60 120 70 140 80 160 90 180 100 200 110 220 120 240 130 260 140 S. Korea China Japan Braz il Euro 280 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) Currency changes Oct 2012 to Oct. 2013 Japan -24% China +3% Euro +6% S. Korea +4% Brazil -8%
  • 10. Can China’s Leadership Transition to Consumer-Led Economy and Maintain Political Control November 9th 3rd Plenum of communist party • Rural land reform and agricultural mechanization • Financial reform and banking • Energy sector (oil & gas) • Pollution cleanup and policy Xi Jinping New President of China
  • 11. Chinese Growth Likely to Remain Subdued As Export Markets Remain Weak Percen t g ro w th rate p er year 15. 0 14. 2 Fiscal stimulus may be needed to stay above 7%! 12. 7 12. 5 11. 3 10. 0 10. 4 9. 8 9. 6 9. 3 9. 2 7. 8 7. 6 2012 2013 7. 5 7. 3 5. 0 2. 5 0. 0 93-02 2005 2006 2007 2008 2009 2010 2011 2014
  • 12. Growth in the Emerging Market Countries Has Shifted as Trade and Capital Flows Slow Brazil India Russia
  • 13. U.S. Economy Can’t Build Any Momentum U.S. President Ben Bernanke FED President John Boehner Majority Leader Harry Reid Senate Leader Deficit / Debt and Major Policy Issues Require Balancing Austerity with Growth and Jobs and Removing Pressure on Monetary Policy
  • 14. U.S. Policy Inaction Creates Business Strategy of Domestic Cost Control and International Expansion Financial sector Financial sector regulatory reform implementation Energy sector New energy paradigm; Fracking technology changes landscape! Reassessment / infrastructure!! Immigration Reform groundwork being laid for 2014? Health care sector Affordable Care Act, Medicare / Medicaid reform? Regulatory oversight Clean air & water, Food safety Deficit reduction Changing tax policy and entitlement programs (including farm and food programs). Virtually every sector of the economy will be impacted and risk management and investment strategies cannot deal with uncertainties. Companies can measure and adjust to risk based on a set of rules. Can’t assess uncertainty!
  • 15. U. S. Economic Recovery Remains Subdued by Historical Standards Percent change in real GDP Average growth: 1980-89= 3.2% 1990-99= 3.2% 2000-09= 1.8% 2010-13= 2.2% 8 6 4 2 0 -2 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
  • 16. Debt-to-Income Dramatically Improved But Consumer Still Cautious on Credit Card Debt Percent (debt-to-income) 140 130 120 110 100 90 Percent (net worth-to-income) Consumption growth will track income growth with slow credit expansion. Consumer seems more comfortable with debt level and home prices are up 13% from year earlier. But jobs and income growth are issues? 1120 Debt-to-Income 1040 960 880 800 720 80 640 70 560 60 480 Net Worth-to-income 14 12 10 08 06 04 02 00 98 96 94 92 90 88 86 84 82 80 78 76 74 72 400 70 50
  • 17. Consumers Cautious Attitude Regarding Credit Card Usage Will Limit Spending Gains Billion dollars (c hang e in 3-m onth m ov ing av erag e of c onsum er rev olv ing c redit) 10 5 0 -5 -10 The change in 3-month moving average of revolving credit has remained weak! (Note the 1980-82 recession experience) 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
  • 18. Home Prices Edge Steadily Higher But Price Momentum May Be Slowing Mo n th l y S&P/ Case-Sh i l l er 20-Ci ty Ho me Pri ce I n d ex 225 200 175 150 125 100 75 August housing prices were 12.8% above a year ago but 20% below peak. 19th consecutive monthly increase after declines in previous 20 months! 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  • 19. September Job Gains Weaker Than Expected; Unemployment Rate Improves Change in nonfarm payrolls (thousand) 500 148,000 jobs created in September! (126,000 in private sector) (averaged 185,000 for last 12 months) 250 0 -250 Unemployment rate = 7.2 % Underemployment = 13.6 Participation rate = 63.2% -500 Monthly change 12-month moving average -750 82 84 86 88 19 90 92 94 96 98 00 02 04 06 08 10 12 14
  • 20. Corporate Profits Slowing; But Investment and Housing Have Good Potential Into 2014 Bi l l i o n d o l l ars i n p ro fi ts; i n vestmen t at an n u al rates 2000 2000 Business fixed investment 1800 1800 1600 1600 1400 1400 Corporate profits (after tax) 1200 1200 1000 1000 800 800 600 600 Residential investment 400 400 200 200 1999 2001 2003 2005 2007 2009 2011 2013
  • 21. Energy Sector Realignments Could Be Major Impetus for Economic Growth and Jobs
  • 22. Policy Paralysis Is Limiting Growth! White House U.S. Treasury Department U.S. Federal Reserve Congress
  • 23. Kick the Can to 2015 or Lay Groundwork for Long Term Budget Agreement? The government will reopen and will be funded though Jan. 15, 2014 at current levels. The Federal debt ceiling is raised until Feb. 17, 2014. A House-Senate committee will issue a budget resolution by Dec.13, 2013. Unclear whether the budget resolution will focus on replacing sequester with alternative budget cuts or defining a long term budget agreement. The 2014 Congressional elections will play a role.
  • 24. Budget Debate Will Not End This Year! Long Term Budget Challenges Remain Defi ci t i n b i l l i o n d o l l ars 200 Reagan G. Bush Percent of GDP Clinton G.W. Bush Obama 2 0 0 -200 -2 -400 -600 -6% -800 -1000 -1200 -1400 -4 -2.4% -6 -5.3% Deficit as percent of GDP -8 Assumptions:  phase-out in Iraq/ Afghanistan American Taxpayer Relief Act of 2012  Sequestration -10 2013 Deficit estimate -11% -14 21 23 17 19 13 15 09 11 05 07 01 03 97 99 93 95 89 91 85 87 -16 81 83 -1600 -12 Source: Congressional Budget Office (September, 2013), BEA and Treasury Department and forecast
  • 25. Monetary Policy Uncertainties Continue U.S. Federal Reserve U.S. Treasury Department
  • 26. Federal Reserve Will Continue To Promote Growth and Employment in 2014-15 But Tapering? Percent 9 8 7 Federal Reserve actions:  Extend near-zero rate guidance to mid-2015. 10-year Treasuries  Total of $85 bil. per month in purchases in 2013.  6.5 % target unemployment; inflation below 2%! 6 5 4 3 2 Federal Funds Rate 1 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 26
  • 27. Federal Reserve Will Continue To Promote Growth and Employment in 2014-15 But Tapering? Chart source: Cumberland Advisors
  • 28. Yield Curve Moves on Expectations of Tapering in The Near Future Percent rate 6 5 Jan, 2007 Jan, 2010 4 Jan, 2008 Oct. 2013 Jan, 2011 + 75 basis pts. 3 Jan. 2013 2 Jan, 2012 1 0 1 2 3 yr yr yr 5 year 7 year 10 year 20 year 30 year
  • 29. World’s Central Banks Are in Uncharted Waters But How Will Global Unwinding Work? Bank of England Bank of Japan U.S. Federal Reserve Bank European Central Bank
  • 30. World’s Central Banks Are in Uncharted Waters: Zero Interest Rates, $6 Trillion Added to Balance Sheets How do they unwind in a coordinated manner? Chart source: Cumberland Advisors
  • 31. U.S. Dollar Has Gained Steadily Since 2011 and Future Path is Linked to Mix of Global Policy Actions Inde x e s of ma jor c urre nc ie s /U S$ ( Ma rc h 1 9 7 3 = 1 0 0 ) 150 From 2002 to 2011 ………....... -38 % From August 2011 bottom to October 2013 ……….… +10 % 140 130 120 110 100 90 80 70 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 * Currencies weighted by relative market importance to total U.S. trade. 04 06 08 10 12 14
  • 32. Transitioning from Tight Supplies to Building Stocks, Lower Feed Costs and More Global Competition
  • 33. Global Economic Transitions, A New Energy Paradigm and Building Grain Stocks Will Force Market Realignments Rising Economic Policy Global Turmoil Realignment Middle class 2009-13 2014-18 Ag ri cu l tu re co mmo d i ty i n d ex (2005= 100) 250 200 ? 150 100 Old Normal 50 0 Data source: World bank 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 12 14 16 18
  • 34. A Recovery in Global Grain Stocks Will Require Two Years of Large Harvests; Volatility Remains Mi l l i o n metri c to n s o f w h eat & co arse g rai n s Sto cks-to -u se p ercen tag e 500 One good harvest will not remove volatility! 40 400 32 300 24 200 16 100 8 W o rl d sto cks Sto ck/ u se 34 14 10 12 06 08 02 04 98 00 94 96 90 92 86 88 82 84 78 80 74 76 0 70 72 0
  • 35. Global Coarse Grain Supplies Have Been Driven By Foreign Production Increases Million metric tons of coarse grains 1000 900 800 Since 2007 non-U.S. coarse grain production has been volatile but above the 2007/08 level every year and may be 20% above in 2013/14! 700 Non-U.S. coarse grain output 600 500 400 300 Since 2007 U.S. grain production has been at or below the 2007/08 level every year but may be 5% above in 2013/14! 200 U.S. coarse grain output 14 10 12 06 08 02 04 98 00 94 96 90 92 86 88 82 84 78 80 74 76 70 72 100
  • 36. Other Countries Have Stepped Up to Provide Coarse Grains to the Export Market Million metric tons of coarse grains 80 70 U.S. 60 50 40 30 Other major non-U.S. exporters* 20 FSU-12 10 Brazil 0 87 89 91 93 95 97 99 * Argentina, Australia, Canada and South Africa 36 01 03 05 07 09 11 13
  • 37. Sharp Recovery in Feed Use and Exports Is Key Boost to Corn Demand in 2013/14 Billion bushels change : Year-over year of corn 7. 0 6. 0 5. 0 20122013 Corn price … +12% - 31% Feed use ….. 0% + 14% Exports ……. - 52% + 67% Ethanol ……. - 7% + 5% Feed and residual DDG's 4. 0 3. 0 Exports 2. 0 1. 0 Food, seed & industrial Ethanol 37 14 10 12 06 08 02 04 98 00 94 96 90 92 86 88 82 84 78 80 74 76 70 72 0. 0
  • 38. Global Soybean Stocks Reflect Record World Crops in 2012/13 and 2013/14 Mi l l i o n metri c to n s o f so yb ean s Sto cks-to -u se p ercen tag e 80 40 En d i n g sto cks Sto cks-to -u se 10 10 5 0 0 38 10 12 20 06 08 15 02 04 30 98 00 20 94 96 40 90 92 25 86 88 50 82 84 30 78 80 60 74 76 35 70 72 70
  • 39. China Demand Remains Major Focus of Grain, Oilseed and Cotton Markets 27% to N. Africa & Middle east Million metric tons or bales 175 150 Wheat 125 100 66% to China Coarse grains 75 Soybeans 25 Cotton 06 08 02 04 98 00 94 96 90 92 86 88 82 84 78 80 74 76 70 72 0 29% to China 10 12 50
  • 40. Low Cattle Inventory, Record Exports and Declining Feed Costs Spur Meat and Dairy Sectors
  • 41. Liquidation Phase of Cattle Cycle Signaling Less Beef Output; Turnaround in 2015-16? Million head of inventory Billion pounds 130 32. 5 January 1 Cattle inventory 120 30 110 27. 5 100 25 90 22. 5 Beef production lowest since 1952 41 13 11 09 07 05 03 01 99 97 95 93 91 89 87 85 83 81 79 77 75 20 73 80
  • 42. Beef Exports Limited by Reduced Production; Pork and Broiler Exports Rising Billion pounds (2000-2014) 8 Export share of 2013 U.S. production  Broilers ….. 20%  Beef ………. 9%  Pork ……… 22%  All meat .......18%  Dairy (skim) ..16% 7 6 5 4 3 2 1 0 01 03 05 07 09 11 Beef 13 01 03 05 07 09 11 13 01 03 P ork Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 42 05 07 09 11 Broilers 13
  • 43. U.S. Nonfat Dry Milk and Cheese Exports Have Risen Rapidly As World Markets Grow Thousand metric tons (2004-2013) 500 400 300 200 100 0 04 06 08 10 12 Nonfat dry milk 04 06 08 10 Cheese 12 04 06 08 10 12 Butter Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 43 04 06 08 10 12 Dry whole milk
  • 44. Protein and Dairy Complexes Responding to Lower Feed Costs and Strong Demand Billion pounds of milk Billion pounds of meat 40 240 Broilers Percent change in total meat output 2010 2011 2012 2013 2014 1.3% 0.7% 0.2% 1% 0 to +1 35 210 Milk 30 25 180 150 Beef 20 120 Pork 15 90 Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 44 60 30 0 14 12 10 -5 to -6% +3 to +4% +1 to +2% 08 -1.2% +0.6% +0.7% 06 98 96 92 90 88 86 84 82 80 78 76 74 0 94 Pork Milk 04 5 02 Broilers Beef 00 10 Production Change 2013 2014 +2.0% +2 to +3%
  • 45. Lower Crop Prices and Stronger Livestock Prices Bringing Needed Realignment But Costs Rising Index (1990-92= 100) 250 Sector is operating at higher price and cost levels with greater volatility …… more working capital to received: crops Prices play, less leverage permitted and more emphasis on well-defined risk management policies! 225 200 175 Prices paid* 150 125 100 Prices received: livestock 13 20 12 11 20 20 10 20 09 20 08 20 07 06 20 20 05 20 04 20 03 20 02 01 20 20 00 20 99 19 98 19 97 19 96 19 95 19 94 19 19 93 75 *Prices paid commodities & services, interest, taxes and wage rates Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary) 45
  • 46. Farm Income Will Realign with Emerging Transitions And Better Balance Among Commodities Billion dollars 150 125 100 Improving margins in the protein and dairy sectors could emerge with large 2013 harvests. Declining crop prices would be offset with larger volumes. Net cash income likely to be third largest but further declines may be coming in 2014! 75 Net Farm Cash Income 50 25 Direct government payments* 0 78 80 82 84 86 88 90 92 94 96 98 00 * emergency payments are striped area of government payments) 46 02 04 06 08 10 12 14
  • 47. The Strong Balance Sheet For Much of Agriculture Will Cushion Any Transition B illion dollars B illion dollars Change 1970-1980 Change 1980-1990 Change 1990-2000 Change 2000-2010 Assets ... +259% Debt ....... +235% 3000 Assets ... -16% Debt ....... -19% Assets ... +43% Debt ....... +25% Assets ... +96% Debt ....... +70% 600 Change 2010-2013 Assets …. +28% Debt ……....+11% 2500 2000 500 400 Farm assets (left scale) 1500 1000 300 200 Farm debt (right scale) 500 100 14 12 10 08 06 04 02 00 98 96 94 92 90 88 86 84 82 80 78 76 74 72 0 70 0
  • 48. Market Transitions Will Provide More Opportunities and Risk and Place A Greater Premium on Management
  • 49. Market Transitions Will Provide More Opportunities and Risk and Place A Greater Premium on Management Market volatility will continue and the growing export reliance for all ag sectors will increase exposure to global policy shifts and add new risk. Risk management strategies will need reevaluation with particular focus on integrating margin and marketing strategies, cost controls, crop and revenue insurance, regulatory compliance and counter party risk. Precision agriculture technologies and data mining to control costs and boost production will be integral ingredients in the transition strategies. New opportunities will emerge as grain flows shift to feed and export channels and new niche markets and storage options emerge. Understanding these evolving domestic and global supply chains is key. Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)
  • 50. Market Transitions Will Provide More Opportunities and Risk and Place A Greater Premium on Management Competitive pressures in the global market will intensify as foreign productive capacity has expanded. Multinational companies will aggressively seek positions in both U.S. and global supply chains. Infrastructure issues such as locks & dams, widening of Panama Canal & emerging market infrastructure investment will impact competitiveness. The meat and dairy sectors will need to realign alliances and capital deployment strategies to develop products and global supply chains to serve preferences of foreign markets and avoid residual supplier status . The market demands for more regulatory scrutiny of the food chains will impact domestic and global supply chains. Food safety, animal welfare, traceability, sustainability and environmental regulations will be global.
  • 51. Market Transitions Will Provide More Opportunities and Risk and Place A Greater Premium on Management The pace of consolidation, both horizontally and vertically, will accelerate at all stages of the global supply chains as margins tighten, scale of economies dominate and liquidity capital is deployed. Major tax code changes are coming. New rules on depreciation, 1031 like-exchanges, accounting options, estate taxes, etc. could alter previously optimal business structures and strategies. Investments in equipment, land ownership and rental commitments will need to be reassessed in new marketplace A strong balance sheet with significant working capital and strong risk management policies will be critical in accessing the increasingly expensive debt capital required to implement transition strategies.
  • 52. The Global Economy and Agriculture in Transition