Transcript WTO and U.S. farm policy: Don’t panic, but pay attention

FAPRI Outlook Prospects for the Next
Decade: The New Ag/Energy Nexus
William H. Meyers
Professor of Agricultural Economics
and Co-Director, FAPRI
University of Missouri
LINK Meeting
Saint Petersburg, Russia 4 June 2009
Outline



A new and market environment with stronger
agriculture and energy linkages
Recent grain market developments
FAPRI projections of global market prospects





Highlights of results
Key movers and shakers
Main uncertainties
Challenges and opportunities
Policy priorities


Short term
Long term
Why did prices rise, then decline?
Can it ALL happen again?
Why prices rose







Reduced grain production
in Europe, Australia
Economic growth in Asia
and elsewhere
Weaker dollar
Higher petroleum prices
Rapid biofuel expansion
Policy interventions
Speculation rose
Why prices fell







Sharp increase in global
grain production in 2008
Financial crisis and world
economic slowdown
Stronger dollar
Lower petroleum prices
Slower biofuel growth
Many interventions stop
Speculation declined
Corn and petroleum prices
Grain production, million metric tons
(WASDE May 12, 2009)
2500
2000
1500
Rice
Coarse Grains
1000
Wheat
500
0
2006/07
2007/08
2008/09E
2009/10P
Grain stocks, million metric tons
(WASDE May 12, 2009)
500
450
400
350
300
Rice
250
Coarse Grains
200
Wheat
150
100
50
0
2006/07
2007/08
2008/09E
2009/10P
Grain stocks to use ratios
(WASDE May 12, 2009)
0.30
0.25
0.20
Wheat
0.15
Coarse Grains
Rice
0.10
Total Grains
0.05
0.00
2006/07
2007/08
2008/09E
2009/10P
19
7
19 9/1
8 98
19 0/1 0
8 98
19 1/1 1
8 98
19 2/1 2
8 98
19 3/1 3
8 98
19 4/1 4
8 98
19 5/1 5
8 98
19 6/1 6
8 98
19 7/1 7
8 98
19 8/1 8
8 98
19 9/1 9
9 99
19 0/1 0
9 99
19 1/1 1
9 99
19 2/1 2
9 99
19 3/1 3
9 99
19 4/1 4
9 99
19 5/1 5
9 99
19 6/1 6
97 99
19 /1 7
9 99
19 8/1 8
9 99
20 9/2 9
00 00
20 /2 0
0 00
20 1/2 1
0 00
20 2/2 2
03 00
20 /2 3
0 00
20 4/2 4
0 00
20 5/2 5
06 00
20 /2 6
07 00
/2 7
00
8
percent
200
20%
$/mt
World grain stocks and real prices,
Oct 2008
40%
350
35%
300
30%
250
25%
15%
150
10%
100
5%
50
0%
0
World Grain Stocks to Use Ratio
Real HRW wheat price, 2000$
Real Maize price, 2000$
1979/1980
1980/1981
1981/1982
1982/1983
1983/1984
1984/1985
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009E
2009/2010P
Stocks/Use
40%
350
35%
300
30%
250
25%
200
20%
15%
150
10%
100
5%
50
0%
0
World Grain Stocks to Use Ratio
Real HRW wheat price, 2000$
Real Maize price, 2000$
dollars per metric ton
World grain stocks and real prices
(WASDE May 12, 2009)
FAPRI-Missouri/ISU - Consortium
IHS Global
Insight
Texas A&M University
U.S. and Global
Representative Farms - 1989
AFPC
Macro
University of Missouri
Texas Tech
U.S. Agriculture
Cotton - 2003
___FAPRI est. 1984____
Arizona State
Iowa State University
NFAPP
CARD
Fruit & Veg. - 1995
World Agriculture
United NationsProject LINK
University of Arkansas
Global Macro
World Rice - 1990
AFAPC
Univ. of
Wisconsin
Dairy - 2003
Historical and projected real commodity prices,
2007$
Why do projections differ?
Key elements of baseline assumptions

Macroeconomic Variables

Agricultural Policies

Technology

Normal Weather
Macroeconomic drivers: GDP
 2009
recession and rapid
recovery (IHS GI)
 Strong global outlook from 2011
onward
 3.3 % average annual GDP
growth rate
 India and China average 7.8 and
8.2%, respectively
Real GDP growth rates
Percent
8
6
4
2
0
-2
-4
2000
2002
2004
World
2006
2008
Developing
2010
2012
Developed
2014
2016
United States
2018
Macroeconomic drivers: exchange rate




U.S. Dollar strengthens in 2009
Real depreciation of $ resumes in 2010
against many currencies
Most Asian currencies appreciate in real
terms against the U.S. dollar
China experiences significant real
appreciation
Exchange rate, major trading partners,
FC/US$
Index, 2000 = 1.00
1.10
1.00
0.90
0.80
0.70
0.60
1993
1998
2003
2008
2013
2018
Macroeconomic drivers: oil price


Projected petroleum prices in the near term
are well below forecasts made in 2008
Below $60/barrel through 2010 then increases
to $80/barrel as global economy recovers and
demand grows
Petroleum price forecasts from IHS
Global Insight
*NYMEX July
futures, 5/27/09
Global macro drivers: income

Economic recovery fuels next 10 years growth
 Dairy product consumption increases 13 kg per
capita (milk equivalent) from 2008 to 2018
 Per capita meat increases 5.6 kg
 Per capita vegetable oil increases 3.1 kg
 Food grain consumption per capita declines
 Production of meats increases 38.6 mmt or 18%
 Trade in meats increases 4.1 mmt or 24.3%
Changes in per capita food consumption 2008-2018
Kg/person
15
10
5
0
-5
Dairy
Meat
Vegetable Oil
Food Grains
World meat production and trade
Million mt
Million mt
300
30
260
26
220
22
180
18
140
14
100
10
2000
2002
2004
2006
2008
Production
2010
2012
Net Exports
2014
2016
2018
Dairy product consumption in Asia
Million mt
Share
12
0.85
10
0.80
8
0.75
6
0.70
4
0.65
2
0
0.60
1998
2000
2002
2004
2006
Asia
2008
2010
2012
Share China and India
2014
2016
2018
Meat production and feed use
Million mt
Million mt
300
1,200
250
1,000
200
800
150
600
100
400
50
200
0
0
2000
2002
2004
Meat Production
2006
2008
2010
2012
Coarse Grain Consumption
2014
2016
2018
Oilseed Meal Consumption
World grain prices
Dollars per mt
700
600
500
400
300
200
100
0
1998/99
2002/03
2006/07
Corn, U.S. FOB Gulf
Rice, FOB Bangkok 100% B Grade
2010/11
2014/15
Wheat, U.S. FOB Gulf
Rice estimate MAY 09
2018/19
Crop outlook:
world feed grain outlook overview




Growth in livestock sector drives the
increase in demand for feed grains.
Feedstock use for ethanol production boosts
demand
Stronger prices increase area and, with yield
growth, production increases.
Increase in area grows supply in the short-run,
while yield improvement is the major source of
growth in the long-run.
World corn use and per capita
consumption
Million mt
1,000
kg per capita
60
900
50
800
700
40
600
500
30
400
20
300
200
10
100
0
0
2000/01
Feed Use
2003/04
2006/07
Distillers Grains
2009/10
2012/13
Food and Other excl DDGS
2015/16
2018/19
Per Capita Consumption
World corn area and yield
Million Hectares
Metric tons per hectare
6
180
160
5
140
4
120
100
3
80
2
60
40
1
20
0
2000/01
2003/04
2006/07
2012/13
2009/10
Area
Yield
2015/16
0
2018/19
World corn stocks-to-use ratio vs. price
Dollars per mt
Percent
300
30
250
25
200
20
150
15
100
10
50
5
0
2000/01
2003/04
2006/07
U.S. FOB Gulf Price
2009/10
2012/13
Stocks-to-Use Ratio
2015/16
WASDE May 09
0
2018/19
World food grain outlook overview




Food grain per capita consumption declines
with growth in income as consumers “tradeup” to protein rich products.
With declining per capita consumption,
demand growth comes mainly from
population growth.
Growth in consumption in regions such as
Asia, Africa, and the Middle East fuels growth
in trade and strengthen food grain prices.
Long-run production growth driven by yield
improvement.
World wheat feed and food
consumption
Million mt
kg per cap
800
85.0
80.0
600
75.0
400
70.0
200
65.0
0
2000/01
2003/04
2006/07
Feed Use
2009/10
Food Use
2012/13
2015/16
Per Capita Consumption
60.0
2018/19
World wheat area and yield
Million ha
mt per ha
230
3.5
225
3.0
2.5
220
2.0
215
1.5
210
1.0
205
200
1998/99
0.5
2002/03
2006/07
Area
2010/11
Yield
2014/15
0.0
2018/19
World wheat stocks-to-use ratio vs.
price
Dollars per mt
Percent
400
40
350
35
300
30
250
25
200
20
150
15
100
10
50
5
0
0
2000/01
2003/04
2006/07
U.S. FOB Gulf Price
2009/10
2012/13
Stocks-to-Use Ratio
2015/16
May 09 WASDE
2018/19
World rice production, use, and per
capita consumption
Million mt
kg per person
600
68
67
500
66
400
65
300
64
200
63
100
1998/99
62
2002/03
2006/07
Production
Use
2010/11
2014/15
Per Capita Consumption
61
2018/19
World rice area and milled yield
Million ha
mt per ha
160
3.5
3.0
156
2.5
152
2.0
1.5
148
1.0
144
0.5
140
1998/99
2002/03
2006/07
Area
2010/11
Yield
2014/15
0.0
2018/19
World oilseed outlook overview




Oilseed sector grows with strong demand for
both oil and meal products driven by population
and income growth, expansion of the livestock
sector
China soybean imports grow by nearly 60 %
from 2008 to 2018
Increasing interest in renewable fuels and
biodiesel mandates drives increase in industrial
use of vegetable oil and their prices.
Room for area expansion in South America
dampens price growth in the next decade.
World vegetable oil consumption
Million mt
160
kg/person
25
140
20
120
100
15
80
10
60
40
5
20
0
1998/99
2002/03
2006/07
Food and Other Use
2010/11
Industrial Use
2014/15
0
2018/19
Per Capita Consumption
World soybean area and yield
Million ha
mt per ha
120
3.0
100
2.5
80
2.0
60
1.5
40
1.0
20
0.5
1998/99
2002/03
2006/07
2010/11
Area
Yield
2014/15
0.0
2018/19
World oilseed prices
Dollars per mt
800
700
600
500
400
300
200
100
0
1998/99
2002/03
2006/07
Soybeans
2010/11
Rapeseed
2014/15
Sunflower Seed
2018/19
World vegetable oil prices
Dollars per mt
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1998/99
2002/03
2006/07
Soybean Oil, Rotterdam
Sunflower Oil, Rotterdam
2010/11
2014/15
Rapeseed Oil, Hamburg
Palm Oil, Rotterdam
2018/19
World Protein Meal Prices
Dollars per mt
500
400
300
200
100
0
1998/99
2002/03
2006/07
Soybean Meal, Rotterdam
Sunflower Meal, Rotterdam
2010/11
2014/15
Rapeseed Meal, Hamburg
2018/19
FOB Northern European dairy
product prices
Dollars per mt
6,000
5,000
4,000
3,000
2,000
1,000
0
1998
2000
2002
2004
2006
Butter
2008
Cheese
2010
SMP
2012
WMP
2014
2016
2018
Movers, shakers and uncertainties






Good weather and yields in 08/09, but costs and poor
weather dampen 09/10 growth, except soybeans
Price surge has abated, but NOT in some LIFDCs
Trade “safeguard” interventions mostly gone
Biofuel growth slowed, but policies remain
Strong influence of energy markets continue
Major uncertainties (stochastic analysis)
 Oil price
 US dollar
 The global financial crisis and impacts on demand
growth, trade financing
 Weather
Oil price distribution
Maize US farm price uncertainty
Wheat US farm price uncertainty
A more uncertain future
1.
2.
3.
4.
5.
6.
7.
8.
Road to economic recovery?
Timing and size of oil price volatility?
Will biofuel policies change?
Will other policies be unstable?
Wider range of possible outcomes
Farmers and agribusiness can easily get on
wrong side of output and/or input markets
Complicated decision making and planning
Larger impacts on low income consumers
Challenge and Opportunity
Challenge - how to provide safety net measures
for the most vulnerable populations
Opportunity - higher prices can increase
incomes from food production in rural areas
where agriculture is the main source of income
and employment
National and international policy actions need
to be considered
1.
2.
3.


Short run
Long run
Spasibo!
CONTACT INFORMATION:
EMAIL: [email protected]
WEB: WWW.FAPRI.MISSOURI.EDU