Ag Business Climate Outlook for 2018 › commercialag › Documents › ...Ag Business Climate Outlook for 2018 Chris Hurt, Professor & Extension Economist ... Corn Prices Required

January5,2018©2018PurdueCenterforCommercialAgriculture

AgBusinessClimateOutlookfor2018

ChrisHurt,Professor&ExtensionEconomist

MichaelLangemeier,Professor&AssociateDirector

JamesMintert,Professor&Director


2018MacroEconomicEnvironment• StrongAgDemandfromU.S.andForeignEconomicGrowth

• FullemploymentintheU.S.

• ConsumerstimulusfromTaxReform

• BusinessstimulusfromTaxReform-CorporateIncome&StockValues

• Strongeconomicdemand&tighteninginresourceavailability:• Fasterwagerateincreases• Fastergrowthinhousingvalues• Fasterincreasesininflation• Fasterincreasesininterestrates


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


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


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


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


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


Blue:GoldmanSachsCommodityIndexOrange:CornFuturesPrice(BarChart.com)


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


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


July2018CornFutures-BarChart.com

$4.20

$3.95

$3.70


July2018SoybeanFutures-BarChart.com

$10.40

$9.40


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


$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



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


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


112

194

296

167

250

336288

332383

$0$50$100$150$200$250$300$350$400$450

Low Average HighLandProductivityCategory

2018ContributionMarginperAcreforRotationCornandSoybeansinIndiana

Corn Soybeans Overhead


2.792.47

2.17

4.884.40

4.02

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00


2018BreakevenPricesforRotationCorninIndianaCoverVC CoverTC


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


2018BreakevenPricesforRotationSoybeansinIndianaCoverVC CoverTC


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

$50

$100

$150

$200

$250

$300

$350

$400

$450

CashRentandNetReturntoLand,WestCentralIndiana

NetReturntoLand CashRents


ManagementPhilosophy-2018• Thinktightmargins• Lookformodestpriceincreases• Earnmarketcarryingcharges&basisimprovement• NewPurdueCCACropBasisToolonthewebnextweek

• Thinkcostcontrol• Thinkpreservationofcapital• Thinkaboutgettingthrough2018• Willtherebeimprovementinlate-2018and2019?• Knowyourfinancialposition...workwithyourlender


Purdue Top Farmer Conference

Tues. Jan. 9, 2018Registrationdetailsat:Purdue.edu/commercialag

Purdue.edu/agbarometer