Transcript The Current Situation in Crop Agriculture

Global Protein Outlook
and Other Stuff
Daryll E. Ray
University of Tennessee
Agricultural Policy Analysis Center
The Purchasing and Ingredients Suppliers Conference
Sandestin, Florida
March 12, 2009
APAC
What We’re Going To Do
• Global Protein Outlook (It’s my assignment!)
• Exports: Perpetual Promises
• Two Views of Commodity Policy
– “Show Me the Money”
– “Houston, We’ve Got a Problem”
• Policy for All Seasons
• WTO Implications
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The Calm
After the Storm
(Well, relatively anyway)
• Soybean meal prices are way down and
likely will go lower in the months ahead
• Next year:
– Large soybean crop probable
– Protein prices could be considerably lower
• Soybean meal continues to dominate the
U.S. protein market
• Will China gobble up our soybean supply?
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Weekly CBOT Soybean Meal Price
APAC
February 2, 2007 – March 6, 2009
The Calm
After the Storm
(Well, relatively anyway)
• Soybean meal prices are way down and
likely will go lower in the months ahead
• Next year:
– Large soybean crop probable
– Protein prices could be considerably lower
• Soybean meal continues to dominate the
U.S. protein market
• Will China gobble up our soybean supply?
APAC
US Domestic Consumption
of Protein Meals - 2007
Peanut Meal – <1%
Cottonseed Meal – 1%
Rapeseed Meal – 7%
Sunflowerseed
Meal – 1%
Fish Meal – 1%
Soybean Meal – 88%
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Imports are 5.8% of this total
US Imports
of Protein Meals - 2007
Fish Meal – 2%
Soybean Meal – 6%
Rapeseed Meal – 92%
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World Production/Consumption
of Protein Meals - 2007
Cottonseed Meal – 7%
Palm Kernel Meal – 3%
Copra – 3%
Peanut Meal – 3%
Rapeseed Meal – 12%
Sunflowerseed
Meal – 5%
Soybean Meal – 68%
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Fish Meal – 2%
The Calm
After the Storm
(Well, relatively anyway)
• Soybean meal prices are way down and
likely will go lower in the months ahead
• Next year:
– Large soybean crop probable
– Protein prices could be considerably lower
• Soybean meal continues to dominate the
U.S. protein market
• Will China gobble up our soybean supply?
APAC
China Soybeans
40000
35000
Soybean Imports
1,000 Tonnes
30000
25000
20000
Soybean Production
15000
10000
5000
0
1964 1969 1974 1979 1984 1989 1994 1999 2004
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China Soybean Meal
35000
30000
1,000 Tonnes
25000
Soybean Meal Production
20000
15000
10000
Soybean Meal Imports
5000
0
1964 1969 1974 1979 1984 1989 1994 1999 2004
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Chinese
Imports
China Soybean
Soybean Complex Imports
40,000
35,000
Thousand Tonnes
30,000
ChinaTotal Imports
25,000
20,000
15,000
10,000
Imports from US
5,000
0
1990
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1992
1994
1996
1998
2000
2002
2004
2006
Soybean Exports
35000
30000
United States
1,000 Tonnes
25000
20000
15000
Brazil
10000
5000
Argentina
0
1964 1969 1974 1979 1984 1989 1994 1999 2004
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Soybean
Complex
Exports
US Soybean
Complex Exports
45,000
40,000
US. Total Exports
Thousand Tonnes
35,000
30,000
US Total Exports less China
25,000
20,000
15,000
10,000
5,000
0
1990
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1992
1994
1996
1998
2000
2002
2004
2006
Soybean Complex Trade
Soybean Complex Trade
Sum of Soybeans, Soybean Meal, and Soybean Oil
160,000
140,000
Thousand Tonnes
120,000
Total World Exports
100,000
80,000
Arg. & Br. Exports
60,000
US Exports
40,000
20,000
0
1990
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China Imports
1992
1994
1996
1998
2000
2002
2004
2006
Exports: Perpetual Promises
• Be a permanent source of ever
increasing US agricultural prosperity
• Correct the long-term price and income
problems in agriculture
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Data Show or “Survey Says...”
US Domestic Demand
US Population
US Exports
*Adjusted for grain exported in meat
Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops
1979=1.0
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What About Exports?
Thousand Metric Tons
US Exports
Developing Competitors’ Exports
Developing competitors: Argentina, Brazil, China, India, Pakistan, Thailand, Vietnam
15 Crops: Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley, Millet, Soybeans, Peanuts, Cottonseed, Rapeseed, Sunflower,
Copra, and Palm Kernel
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What About Exports?
Billion Dollars
Total Agricultural Exports
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Bulk Exports
What Were We Thinking …
Why would we expect trade to deliver
crop agriculture to the Promised Land?
•1970s Syndrome
– Earl Butz said …
– The outsized export share of the 1970s has been
viewed as US property from then on
– When exports slowed in the 1980s …
• Been on a quest to recapture the Golden Age of
Agriculture (1970s)
• Lowered Loan Rates
• Moved from supply management to writing checks
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What Were We Thinking …
Why would we expect trade to solve US price
and income problems?
•Because we are confused!
•We implicitly think US agriculture would be just fine …
– If only “such and such” were removed or different
•
•
•
•
•
Complete access to all international markets
Exchange rates were different
Inflation were reduced
Subsidies were eliminated
Etc., etc.
– After these “such and ‘suches’,” the importers would import
more and our export competitors would export less
• And all would be fine in the world that is agriculture
• Ag prices and incomes would be stable and “high”
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So What’s Not Considered?
• FOOD IS DIFFERENT
– Food is a national security issue—just like
military security is to the US. So …
• Countries want to domestically produce as
much of their food as possible
• Political considerations
– Need to feed the population
– Need to provide a living for millions in agriculture
– Need an orderly exit of workers out of agriculture
• Suppose there had been total access to all
international markets this past year
– Vietnam, Thailand and scores of other countries…
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So What’s Not Considered?
• Except for short periods, production
outstrips demand
– This is a good thing
– Butz had it right except for one word
• Excess capacity in the future will be a
worldwide problem
– Increased acreage
– Increased yields
• When prices decline, self-correction does not
work (very quickly at least)
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– Quantities demanded and supplied change little
(Stay tuned for “The Rest of the Story”
Expecting Trade To …
• Deliver US agriculture to the promised land
of unending prosperity with no government
intervention is too much to ask
– WTO or no WTO, US agriculture exports will be
limited by
• The nature of agricultural importers’ demands
• The nature of US’s agricultural export competitors’
supply
• The US is the residual supplier
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– Therefore we should expect continuing periods of
low prices when agriculture cannot self-correct on
its own
Two Views of
Commodity Policy
• “Show Me the Money”
• “Houston, We’ve Got a Problem”
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“Show Me the Money”
• View that commodity programs exist
because:
– Farmers have inordinate political power
– Farmers “milk” the government
• Corresponding Conclusion
– Farm programs are a waste
– They address no real problem
– Taxpayer gift
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“Show Me the Money”
• So…
– Get rid of them
• Conservative think tanks
• Editorial writers and syndicated columnists
• Those for which “free market” is not a concept
but a religion plus much of the general public
– Redistribute or “earn” payments
•
•
•
•
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Environmental/Wildlife Groups
States with large vegetable/fruit/etc production
Organic, small farms, land preservation, tourism
Multi-functionality (all the above)
“Houston, We Have A
Problem”
• Chronic price and income problems
• Why?
– Market correction does not occur in timely
manner
– Economist call this “Market Failure”
– Sometimes in remission
…but always comes back
• What does this mean, you say…
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In General…
• Econ 101 says that (except during
melt-down periods) markets correct
on their own
• In times of low prices or increased
inventories:
– Consumers buy more
– Producers produce less
– Viola! Self-correction.
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Characteristics of Ag Sector
• Agriculture is different from other
economic sectors.
On the demand side:
– With low food prices—
• People don’t eat more meals a day
• They may change mix of foods
• Aggregate intake remains relatively stable
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Characteristics of Ag Sector
• Agriculture is different from other
economic sectors.
On the supply side:
– With low crop prices—
• Farmers continue to plant all their acres
• Farmers don’t and “can’t afford to” reduce
their application of fertilizer and other major
yield-determining inputs
• Who farms land may change
• Essential resource—land—remains in
production in short- to medium-run
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Why Chronic Problems In Ag?
• Technology typically expands output
faster than population and exports
expand demand
– Much of this technology has been paid
for by taxpayers
• The growth in supply now is being
additionally fueled by
– increased acreages in Brazil, etc.
– technological advance worldwide
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Early Policy Was Output
Expanding
• Historic policy of plenty
– Land distribution mechanisms – 1620
onward
– Canals, railroads, farm to market roads
– Land Grant Colleges – 1862, 1890, 1994
– Experiment Stations – 1887
– Cooperative Extension Service – 1914
– Federal Farm Credit Act – 1916
• This policy of plenty continues today
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Easy to Under Estimate
Supply Growth
• US supply response
– Conversion of Conservation Reserve
Program Acreage and hay/pasture land to
crop production
– Investment in yield enhancing technology
(300 bu./ac on best land in a few years—
national average a decade or later?)
– Conversion to cellulosic feedstocks for
ethanol production
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Easy to Under Estimate
Supply Growth
• International supply response—yield
– Development and adoption of
drought/saline/disease resistant crops
– Globalization of agribusiness: Near
universal access to the new
technologies world-wide
• Narrowing of technology and yield differentials
between the developed and developing world
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Easy to Under Estimate
Supply Growth
• International supply response—acreage
– Long-run land potentially available for major
crops
• Savannah land in Brazil (250 mil. ac. -- USDA says 350)
• Savannah land in Venezuela, Guyana, and Peru (200
mil. ac.)
• Land in former Soviet Union (100 mil. ac.)
• Arid land in China’s west (100 mil. ac. GMO wheat)
• Savannah land in Sub-Saharan Africa (300 mil. ac. -10 percent of 3.1 bil. ac. of Savannah land)
• Supply growth has always caught and then
surpassed demand growth (and it does not take long)
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Policy for All Seasons
• Assume the unexpected will happen
– Random policy and weather events do occur—
Plan for them
• Establishment of International Grain
and Oilseed Reserve
– Moderate impacts of random policy and
weather events by providing stable supply until
production responds
– Operated by an international commission—
decision making/oversight
– Stores strategically purchased/stored
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Policy for All Seasons
• Keep productive capacity well ahead
of demand
– Public investment in yield enhancing
technologies and practices
• Provide means to hold arable land in
rotating fallow during periods of
overproduction
– This land can then quickly be returned
to production in the case of a crisis
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WTO …
• Does not account for the unique nature of food and
agriculture
• Needs to understand the difference between DVD
players and staple foods
• Needs to be reformulated or replaced with an
organization that recognizes the need for…
– Food reserves to address the inevitable shocks to the
availability and price of food
– Promoting increases in worldwide productive capacity,
especially each country’s domestic production
– Addressing
• Agriculture’s inability to gauge the use of productive capacity
to match demand by creating methods to overcome
– Agriculture’s inability to self-correct
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Finally …
(Other) statements that lead farmers and
others to erroneous conclusions:
• 95% of the world’s population is outside the
US …
• Increases in per capita income and growth or
the middle class in China and India …
• The value of the dollar has decreased this
export season ….
• The value of US agricultural exports has
increased substantially …
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Thank You
Agricultural Policy Analysis Center
The University of Tennessee
310 Morgan Hall
2621 Morgan Circle
Knoxville, TN 37996-4519
www.agpolicy.org
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