Ag Business Climate Outlook for 2018 › commercialag › Documents › ...Ag Business Climate Outlook for 2018 Chris Hurt, Professor & Extension Economist ... Corn Prices Required
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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%
25% 28%
33%
12%
22% 24%
5%
10%
15%
20%
25%
30%
35% $1 $14
$27
$40
$53
$66
$79
$92
$105
$118
$131
$144
$157
$170
$183
$196
$209
$222
$235
$248
$261
$274
$287
$300
$313
Fede
ralTaxRate
TaxableIncome$1,000s
CoupleFilingJointly:TaxBracketsandRates
Old
New
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
75
80
85
90
95
100
105
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Billion Lbs.
Year
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%
195
200
205
210
215
220
225
00 02 04 06 08 10 12 14 16 18
Lbs.
Year
Annual U.S. Red Meat & Poultry SupplyPer Capita
Purdue CenterforCommercialAgricultureSource:USDA&LMIC,2018LMICForecast
January5,2018©2018PurdueCenterforCommercialAgriculture
PoultryIsU.S.ConsumersLargestSourceofAnimalProtein
0%
10%
20%
30%
40%
50%
60%
60 65 70 75 80 85 90 95 00 05 10 15
%
of
Total
Year
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
0%
10%
20%
30%
40%
50%
909192939495969798990 1 2 3 4 5 6 7 8 91011121314151617
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
$565
$619
$575
$628
$729$755
$740$740
$672$692 $678
$663 $664
$367
$435
$601$624
$581
$728
$794$824
$769
$657$609 $627
$571$608
$650 $661
$350
$400
$450
$500
$550
$600
$650
$700
$750
$800
$850
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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
112
194
296
167
250
336288
332383
$0$50$100$150$200$250$300$350$400$450
Low Average HighLandProductivityCategory
2018ContributionMarginperAcreforRotationCornandSoybeansinIndiana
Corn Soybeans Overhead
January5,2018©2018PurdueCenterforCommercialAgriculture
2.792.47
2.17
4.884.40
4.02
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Low Average HighLandProductivityCategory
2018BreakevenPricesforRotationCorninIndianaCoverVC CoverTC
January5,2018©2018PurdueCenterforCommercialAgriculture
5.634.79 4.17
12.3311.06
10.25
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Low Average HighLandProductivityCategory
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
$0
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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
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