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Transcript of Ag Business Climate Outlook for 2018 › commercialag › Documents › ...Ag Business Climate...
January5,2018©2018PurdueCenterforCommercialAgriculture
AgBusinessClimateOutlookfor2018
ChrisHurt,Professor&ExtensionEconomist
MichaelLangemeier,Professor&AssociateDirector
JamesMintert,Professor&Director
January5,2018©2018PurdueCenterforCommercialAgriculture
2018MacroEconomicEnvironment• StrongAgDemandfromU.S.andForeignEconomicGrowth
• FullemploymentintheU.S.
• ConsumerstimulusfromTaxReform
• BusinessstimulusfromTaxReform-CorporateIncome&StockValues
• Strongeconomicdemand&tighteninginresourceavailability:• Fasterwagerateincreases• Fastergrowthinhousingvalues• Fasterincreasesininflation• Fasterincreasesininterestrates
January5,2018©2018PurdueCenterforCommercialAgriculture
15%
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Fede
ralTaxRate
TaxableIncome$1,000s
CoupleFilingJointly:TaxBracketsandRates
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January5,2018©2018PurdueCenterforCommercialAgriculture
Agriculture’sEconomicEnvironment• U.S.andWorldGrainInventoriesarelarge• U.S.animalindustriesbacktofullproduction-WeakerPrices?• TradeconcernsforAgriculture• NAFTArenegotiations• N.Korea&otherGeopoliticalhazards• China• “U.S.First”backlash?
• WhatcouldbefriendlytoAgPrices?• Shiftfromequitytoagcommodityinvesting• WillUnusual4-yearrunoffavorableweatherend?• Weather/Weather/Weather
January5,2018©2018PurdueCenterforCommercialAgriculture
MeatProductionUpAgainin20184th YearinaRowforaProductionIncrease
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Annual U.S. Beef, Pork & Poultry Production2000-2018
Purdue Center for Commercial AgricultureSource: USDA, 2018 LMIC Forecast
ProductionExpectedtoIncrease2to3%in’18vs.‘17
January5,2018©2018PurdueCenterforCommercialAgriculture
ImprovedForeignTradeWillHoldPerCapitaMeatSupplyIncreaseto1to2%
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Annual U.S. Red Meat & Poultry SupplyPer Capita
Purdue CenterforCommercialAgricultureSource:USDA&LMIC,2018LMICForecast
January5,2018©2018PurdueCenterforCommercialAgriculture
PoultryIsU.S.ConsumersLargestSourceofAnimalProtein
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Poultry Share of U.S. Meat ConsumptionRetail Weight, Annual, 1960-2018
Source: USDA & Purdue Center for Commercial Agriculture, 2018 Projected
January5,2018©2018PurdueCenterforCommercialAgriculture
Blue:GoldmanSachsCommodityIndexOrange:CornFuturesPrice(BarChart.com)
January5,2018©2018PurdueCenterforCommercialAgriculture
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US.EndingStockstoUse%:Corn,Soybeans,Wheat:
Wheat Corn Soybeans
Highest In 12 Years
Highest in 11 Years
January5,2018©2018PurdueCenterforCommercialAgriculture
36.2%
22.2% 21.3%19.1%
10%12%14%16%18%20%22%24%26%28%30%32%34%36%38% World Stocks to Use %: USDA
Wheat
Soybeans
Corn
January5,2018©2018PurdueCenterforCommercialAgriculture
July2018CornFutures-BarChart.com
$4.20
$3.95
$3.70
January5,2018©2018PurdueCenterforCommercialAgriculture
July2018SoybeanFutures-BarChart.com
$10.40
$9.40
January5,2018©2018PurdueCenterforCommercialAgriculture
2012 2013 2014 2015 2016 USDA
2017USDA
2018FutrMYA
2019FutrMYA
2020FutrMYA
Corn $6.89 $4.46 $3.70 $3.60 $3.36 $3.20 $3.70 $3.90 $4.00
Soybeans $14.40 $13.00 $10.10 $8.95 $9.47 $9.30 $9.55 $9.55 $9.45
Wheat $7.77 $6.87 $5.99 $4.89 $3.89 $4.60 $4.20 $4.80 $5.00
MYAFarmPrice:PASTandFUTURE
January5,2018©2018PurdueCenterforCommercialAgriculture
$393$422 $427
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$740$740
$672$692 $678
$663 $664
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EstimatedRevenueandCosts/Acreona50/50Corn/SoybeanFarmonAverageQualityIndianaLand
Cost/Acre
Revenue
C.Hurt,Purdue,January2018
January5,2018©2018PurdueCenterforCommercialAgriculture
January5,2018©2018PurdueCenterforCommercialAgriculture
CornPricesRequiredtoProducePerAcreReturnsEquivalenttoSoybeansSoybeanPrice LowProductivity
(C=130;SB=43)Avg. Productivity(C=162;SB=53)
HighProductivity(C=194;SB=63)
$8.50 $4.03 $3.95 $3.80
$9.00 $4.20 $4.11 $3.96
$9.50 $4.37 $4.27 $4.12$10.00 $4.53 $4.44 $4.28
$10.50 $4.70 $4.60 $4.45
$11.00 $4.86 $4.77 $4.61
CurrentPricesFavorRotationSoybeansOverContinuousCorn
January5,2018©2018PurdueCenterforCommercialAgriculture
CornPricesRequiredtoProducePerAcreReturnsEquivalenttoSoybeansSoybeanPrice LowProductivity
(C=138;SB=43)Avg. Productivity(C=172;SB=53)
HighProductivity(C=206;SB=63)
$8.50 $3.68 $3.61 $3.49
$9.00 $3.84 $3.77 $3.64
$9.50 $4.00 $3.92 $3.79$10.00 $4.15 $4.08 $3.95
$10.50 $4.31 $4.23 $4.10
$11.00 $4.46 $4.38 $4.25
ContinuousSoybeansandRotationCornComparison
January5,2018©2018PurdueCenterforCommercialAgriculture
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2018ContributionMarginperAcreforRotationCornandSoybeansinIndiana
Corn Soybeans Overhead
January5,2018©2018PurdueCenterforCommercialAgriculture
2.792.47
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2018BreakevenPricesforRotationCorninIndianaCoverVC CoverTC
January5,2018©2018PurdueCenterforCommercialAgriculture
5.634.79 4.17
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2018BreakevenPricesforRotationSoybeansinIndianaCoverVC CoverTC
January5,2018©2018PurdueCenterforCommercialAgriculture
ReducingPerUnitCosts(VariableCost+FixedCost)÷ Yield=TotalCostperBushel
• Reducecostby:
• Reducingvariablecostwithoutimpactingyield
• Reducingfixedcost(lowersfixedcostperbushel)
• Improvingyieldwithoutincreasingvariableorfixedcost
WhatisMyCostofProduction?IllustratedBelow:HighProductivitySoilinIndiana,TrendYields
CostCategory RotationCorn RotationSoybeans
Land(Fixed) $1.19 $3.90
Machinery(Var.&Fixed) $0.68 $2.05
Fertilizer(Variable) $0.61 $0.86
Seed(Variable) $0.54 $1.06
Pesticides(Variable) $0.29 $1.03
Labor (Fixed) $0.18 $0.59
Sub-Total $3.49 $9.49
TotalCostperBushel $4.02 $10.25
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CashRentandNetReturntoLand,WestCentralIndiana
NetReturntoLand CashRents
January5,2018©2018PurdueCenterforCommercialAgriculture
ManagementPhilosophy-2018• Thinktightmargins• Lookformodestpriceincreases• Earnmarketcarryingcharges&basisimprovement• NewPurdueCCACropBasisToolonthewebnextweek
• Thinkcostcontrol• Thinkpreservationofcapital• Thinkaboutgettingthrough2018• Willtherebeimprovementinlate-2018and2019?• Knowyourfinancialposition...workwithyourlender
January5,2018©2018PurdueCenterforCommercialAgriculture
Purdue Top Farmer Conference
Tues. Jan. 9, 2018Registrationdetailsat:Purdue.edu/commercialag
Purdue.edu/agbarometer