1

Projections and Economics of Global Projections and Economics of Global

Food Supply and DemandFood Supply and Demand

Maurice HouseMaurice HouseDeputy AdministratorDeputy Administrator

Office of Global AnalysisOffice of Global AnalysisForeign Agricultural Service/USDAForeign Agricultural Service/USDA

2

Food Price Crisis Food Price Crisis –– Then and NowThen and Now

�� Global economic growthGlobal economic growth –– previously strong but quickly previously strong but quickly weakening. weakening.

�� Value of the U.S. dollarValue of the U.S. dollar –– previously weak but now strengtheningpreviously weak but now strengthening

�� Energy, freight rates, and Energy, freight rates, and agag input pricesinput prices –– previously strong; previously strong; quickly weakeningquickly weakening

�� Supply situationSupply situation –– World wheat supplies rebound in 08/09 World wheat supplies rebound in 08/09

�� Export restrictionsExport restrictions –– problematic in the spring but have easedproblematic in the spring but have eased

�� Global biofuels marketGlobal biofuels market –– still strong in US, EU, Brazil and still strong in US, EU, Brazil and providing supportproviding support

Global Recession Will Sharply Slow Growth Global Recession Will Sharply Slow Growth And Food DemandAnd Food Demand

-3

0

3

6

9

12

China Brazil Japan EU USA World

Rea

l GD

P G

row

th R

ate

%

2007 2008 2009f

Source: Global Insight

Agricultural Trade and the DollarAgricultural Trade and the Dollar

4

90

95

100

105

110

115

120

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

Dollar

US Ag Exports

Weighted-average dollar agricultural markets Exports, million dollars

Source: USDA, Economic Research Service; Foreign Agricultural Service

0.60

0.70

0.80

1/1/08 3/1/08 5/1/08 7/1/08 9/1/08 11/1/08 1/1/09

US

$

Euro

Source: FXHistory © 1997-2008 by OANDA Corporation

0

25

50

75

100

125

150

175

200

225

25019

92 N

ov

1994

Nov

1996

Nov

1998

Nov

2000

Nov

2002

Nov

2004

Nov

2006

Nov

2008

Nov

Crude oil

All Commodities

Food

Index: January 2005 = 100

Energy and Food Prices Closely LinkedEnergy prices affect ag inputs, processing, transportation, and biofuels

Source: International Monetary Fund: Internationa l Financial Statistics

6

0

50

100

150

May

-96

Feb-

97N

ov-9

7A

ug-9

8M

ay-9

9Fe

b-00

Nov

-00

Aug

-01

May

-02

Feb-

03N

ov-0

3A

ug-0

4M

ay-0

5Fe

b-06

Nov

-06

Aug

-07

May

-08

Feb-

09

$/MT

Gulf to Japan

PNW to Japan

Source: International Grains Council

Ocean Freights Are Plummeting Due to Lower Fuel Costs and Reduced Transportation Demand

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How Are Ag Commodity Prices Faring?Wheat, corn, soybeans, and rice have all dropped sharply from recent highs

Corn futures

Rough rice futuresWheat futures

Soybean futures

Wheat prices respond to major exporters' stocks

0

20

40

60

80

100

83/84 87/88 91/92 95/96 99/00 03/04 07/08

Stock

s (m

mt)

0

100

200

300

400

500

Pric

e ($/ton

)

Ending Stocks of 4 Major Exporters U.S. HRW FOB Prices

Despite Lower Commodity Prices, Threat of Market Despite Lower Commodity Prices, Threat of Market Volatility RemainsVolatility Remains

July 8, 2005 July 8, 2006Tracking Global Food SupplyTracking Global Food Supply

9.0 MMT 5.1 MMT

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New Challenges Since Food Price CrisisNew Challenges Since Food Price Crisis

�� World recession is a foregone conclusionWorld recession is a foregone conclusion

�� Agricultural trade will sufferAgricultural trade will suffer�� The value of the dollar is a key variable hereThe value of the dollar is a key variable here

�� Constraints in credit accessConstraints in credit access

�� Protectionist trade policies remain a threatProtectionist trade policies remain a threat

�� Reduced sense of urgency in longReduced sense of urgency in long--term term agricultural investmentagricultural investment

No country can afford trade protectionism; No country can afford trade protectionism; Least of all, developing countriesLeast of all, developing countries

Annual wheat production minus consumption

-100

-50

0

50

100

1998/1999 2000/2001 2002/2003 2004/2005 2006/2007 2008/2009

MMT

Advanced Economies Emerging Mkts Developing Countries

Source: USDA; Global Insight

Net Surplus

Net Deficit

Emerging Markets Still Key to Global Emerging Markets Still Key to Global Demand GrowthDemand Growth

-3

0

3

6

9

12

World AdvancedEconomies

Emerging Mkts DevelopingCountries

Rea

l GD

P G

row

th R

ate

%

2007 2008 2009f

Source: Global Insight

“Middle Class” Outside the U.S. Expected to Double By 2020 – supporting strong demand for commodities

157

112

17

11

11

9

9

8

7

7

6

5

5

4

0 25 50 75 100 125 150 175 200 225 250

**China**IndiaRussiaMexico

Brazil**Thailand

**IndonesiaNigeria

**PhilippinesTurkey

IranPoland

Egypt**Vietnam

2004 levels Proj gains by 2020

Developing countries with fastest growing “middle c lass”

Source: Global Insight’s Global Consumer Markets d ata as analyzed by OGA