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Long-TermAg.OutlookWebinarOctober30,2015
Long-TermAg.OutlookWebinar,October30,2015
TheStateoftheAgriculturalEconomy
Short-run:TheFarmBoomisOverLowInterestRates
LowInfla:on
Long-run:9+BillionPeopleHigherInfla:on
HigherInterestRates
TheTransi:onisKey:Howdoesagriculturerespondifinfla:on
movesfasterthaninterestrates?
Long-TermAg.OutlookWebinar,October30,2015
10.0
12.0
14.0
16.0
18.0
20.0
22.0
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
GDPa
PotenCalGDP-CBO
Infla-onandGDPGrowthwillShapeAgriculture• PotenCalGDP
– PopulaConHowmanypeople?
– LaborForceParCcipaConHowmanywork?
– ProducCvityHowwelldotheywork?
Trillionsofdollars
USGDPandPotenCalGDP
Source:CongressionalBudgetOffice
Source:CBO
Long-TermAg.OutlookWebinar,October30,2015
DoesAgricultureFaceInterestRateRisk?• TheFederalReserveindicatesthat
ratescouldrisein2015
• Inthelongrun,normalizaConwouldadd3to4percentagepointstointerestrates?
• Howwoulda3to4percentpointincreaseinratesaffectthefinancialhealthofyourbusiness?
FedFundsRate
Source:FederalReserveBank,BoardofGovernors
Long-TermAg.OutlookWebinar,October30,2015
Transforma-onofDevelopingNa-ons• Overthenextdecade,global
economicgrowthisexpectedtostrengthen
• USDAexpectspopulaContoriseingrowingeconomies
• Whatismoreimportant?PopulaConorIncome
• WhatdoestheU.S.needtodotoboostexports?
0
2
4
6
8
10
12
World Africa SouthAsia
China LaCnAmerica
NorthAmerica
Europe
WorldRealGDPGrowth(Annualpercentchange)
1991-2000 2001-2010 2015-2024
Source:USDA
Source:WorldBank
Long-TermAg.OutlookWebinar,October30,2015
TheExchangeRateEnvironmentwillChange
• China:aConsumeroraProducerDrivenEconomy?
• WhataboutotherdevelopingnaCons?
Consumers
StrongCurrency
Producers
WeakCurrency
Long-TermAg.OutlookWebinar,October30,2015
Long-TermAg.OutlookWebinar,October30,2015
Weakerworlddemanddueto:-Weakdevelopingeconomyincomegrowth-StrongU.S.dollar-Excesssuppliesofoilandgeneralcommodityweakness
DollarCutsU.S.AgTradeLowPricesandHighCosts-WorldproducCongreaterthanuse-Growinginventories-Costslagfromhighreturns
Long-TermAg.OutlookWebinar,October30,2015
HowStrongareFarmFinances?
-3.0
2.0
7.0
12.0
-3.0
2.0
7.0
12.0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Non-real-estateRealEstate
Percentchangefrompreviousyear
Source:FDIC,CallReportdata
FarmDebtOutstandingatCommercialBanks
Source:FederalReserveBank,KansasCity,AgFinanceDataBook
Long-TermAg.OutlookWebinar,October30,2015
1917 = $678
1921 = $172 1931 =$113
1946 = $694
1960 = $442
1973 = $1,248
1986 = $394
2005 = $372
2012 = $1,019
-$100
$100
$300
$500
$700
$900
$1,100
$1,300
Dol
lars
Per
Acr
e
Real U.S. Corn Revenue (+Insurance) Per Harvested Acre: 2015 = 100
2014-18=
$688
2010-13 =
$926
Note: Government payments were very large at times in the 1982 to 2005 period, but not included here
Long-TermAg.OutlookWebinar,October30,2015
1972/73=1,872
1981/82=2,115
1996/07=2,104
2002/03=2,033
05/06=2,142
1,600
1,700
1,800
1,900
2,000
2,100
2,200
2,300
2,400
Million
WorldHarvestedACRES13MajorCropsTotal:(Millions)
181Millionacresaddedin10years…8%
U.S.Gov't:Released11millionacresfromCRP(37downto26million)
2015/16=2,323
Long-TermAg.OutlookWebinar,October30,2015
291281
267 254 241
$0
$50
$100
$150
$200
$250
$300
$350
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CashRentforWestCentralIndiana
Source:PurdueLandValuesSurvey
Long-TermAg.OutlookWebinar,October30,2015
$0
$50
$100
$150
$200
$250
$300
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
WestCentralIndianaCashRentandFarmlandPrice,1960to2015
Farmland(leeaxis) CashRent(rightaxis)
Source:PurdueLandValuesSurvey
Long-TermAg.OutlookWebinar,October30,2015
0
5
10
15
20
25
30
35
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
FarmlandPricetoCashRentMul-pleWestCentralIndiana,1960to2015
ActualPricetoRent AveragePricetoRent
Long-TermAg.OutlookWebinar,October30,2015
1,028
727
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Rota-onCorn,DollarsperAcre
MarketRevenue VariableCost ContribuConMargin
Long-TermAg.OutlookWebinar,October30,2015
Cash rent or net return to land (dollars per acre)
$200 $300 $400 $500 $600 $700
3% 6,667 10,000 13,333 16,667 20,000 23,333
4% 5,000 7,500 10,000 12,500 15,000 17,500
5% 4,000 6,000 8,000 10,000 12,000 14,000
6% 3,333 5,000 6,667 8,333 10,000 11,667
7% 2,857 4,286 5,714 7,143 8,571 10,000
8% 2,500 3,750 5,000 6,250 7,500 8,750
Capi
taliz
atio
n Ra
te
(per
cent
) CapitalizedValueFormula
CashrentorNetreturnstolandExpectedCapitalizationRate
LandvaluesarebasedonexpectaCons.
Long-TermAg.OutlookWebinar,October30,2015
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2014 2015 2016 2017 2018
ProjectedARC-COPaymentsperAcreforCorninSelectedIndianaCoun-es
Elkhart Jay Knox White
Long-TermAg.OutlookWebinar,October30,2015
-$250
-$200
-$150
-$100
-$50
$0
$50
20%LowerPrice 10%LowerPrice BasePrice 10%HigherPrice 20%HigherPrice
EarningperAcrein2016withSafetyNetinPlace
30%LowerYield 20%LowerYield 10%LowerYield BaseYield 10%HigherYield
Long-TermAg.OutlookWebinar,October30,2015
g=3.33%
0
50
100
150
200
250
300
1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
USDAPricesPaidIndices-AllProduc-onItems1973to2014
Declinedin1985,1986,1998,1999,and2002.
Long-TermAg.OutlookWebinar,October30,2015
223
203
212 214
220
180 185 190 195 200 205 210 215 220 225 230
80 82 84 86 88 90 92 94 96 98 00 2 4 6 8 10 12 14 16 18
Pou
nds
Per
Cap
ita
Year
Per Capita Total Meats and Poultry Retail Weight: USDA
Long-TermAg.OutlookWebinar,October30,2015
13 14 15 16USDA
FinishedSteers
126 155 149 136-147
500-550Calves
174 252 248 190-210
Hogs 64 76 51 47-50
Milk 20.05 24 17 16-17
Eggs 125 142 195 164-178
Broilers 100 105 90 84-91
Turkey 100 108 117 110-119
Long-TermAg.OutlookWebinarOctober30,2015
JoinUsforournextWebinaronNovember30,2015
“CapturingtheUpsideandBufferingthe
DownsideonYourFarm”
