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NC Ag Situation & Outlook 2016:

Global Connections

Dr. Blake Brown Hugh C. Kiger Professor

Agriculture & Resource Economics College of Agriculture & Life Sciences

NC had 50,210 farms in 2012 Average Farm Acreage: 168

Source: USDA-NASS

Source: NC Ag Statistics Yearbook 2015

NC Agriculture is Diverse 2014 NC Cash Receipts from Farming

Tobacco 6.9%

Corn 3.7%

Soybeans 5.2%

Cotton 3.2%

Veg,. Fruit, nut, 4.0%

Hogs 22.3%

Broilers 29.3%

Turkeys 5.6%

Dairy 1.9%

Livestock, Poultry and Dairy 2/3 of all NC Farm Receipts

Eggs 3.8%

Cattle 3.3%

“High on the Hog: Farm Income Soars” “Bumper Corn, Soybean Harvests Help Raise Outlook”

“Farm incomes in America are expected to hit their highest level in four decades this

year,…”

Wall Street Journal November 26, 2013

“U.S. Farm Income to Fall to Lowest Level in Nine Years” “USDA predicts a 36% decline amid a slump in commodity prices and

another large harvest”

Wall Street Journal, August 25, 2015

U.S. Net Farm Income

0

20

40

60

80

100

120

140

04 05 06 07 08 09 10 11 12 13 14 15

$ Billions

Market Government

Ag Prices Received Index

40

60

80

100

120

140

160

10 11 12 13 14 15

(Base Year = 2011)

Crops Livestock

OECD Interim Economic Outlook: Key messages February 18, 2016

8

Stronger global growth remains elusive

• Weak trade, investment, and commodity prices

• Disappointing incoming data on demand conditions

• Low inflation and poor wage growth

Financial instability risks are substantial

• Steep declines in global equity markets

• Volatile capital flows and high debt exposures in EMEs

Collective policy action is urgent

• Maintain accommodative monetary policy

• Focus supportive fiscal policies on investment-led spending

• Revive pace of productivity- and growth-enhancing structural reforms

OECD Interim Economic Outlook:

Rebalancing in China and financial volatility are dragging on global markets

9

Composition of growth in China

Note: Manufacturing (secondary) includes construction. Source: Chinese National Bureau of Statistics; People’s Bank of China; and Thomson Reuters.

Exports are vital to US & NC Agriculture

739

699.0

218.0

610

328.0

562

1,028.0

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2005 2006 2007 2008 2009 2010 2011 2012 2013

m

i

l

l

i

o

n

s

NC Agricultural Exports

Other

Tobacco

Cotton

Corn, Soybeans, Wheat

Vegetables & Fruits

Poultry

Pork

2012 NC Agricultural Export Markets

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Broilers Eggs Turkeys Hogs

NC Hogs and Poultry $ billion 2014 Cash Receipts

US Meat Production and Prices

2014 Estimated 2015

Projected 2016

% Change 2016 from 2015

Production Billion Pounds

Beef 24.32 23.75 24.64 +3.75%

Pork 22.86 24.517 24.98 +1.88%

Broilers 38.14 39.61 40.59 +2.5%

Turkey 5.76 5.63 5.94 +5.5%

Source: USDA WASDE (Feb 2016)

Prices

Feeder Cattle $/cwt 202.82 202.52 176-185

Live Cattle $/cwt 154.56 149.19 136-147

Hogs $/cwt 76.03 50.23 46-49

Broilers cents/lb 104.90 90.50 85-90

Turkeys cents/lb 107.90 116.20 110-118

Source: USDA-ERS (Nov 2015)

U.S. Pork Exports: 2013 Value & Destinations

$1,808,519

$854,122

$432,285

$326,015

$234,223

$149,372

$103,473

$76,784

$55,891

$48,848

$338,527

Japan

Mexico

Canada

China

Korea, South

Australia(*)

Hong Kong

Colombia

Philippines

Honduras

Other

Exports: $4.4 billion Production: $14.3 billion

Specialty Crops 2014 Cash Receipts $ million

Tobacco $912

Sweet Potatoes $355

Peanuts $94

Blueberries $78

Christmas Trees (2012) $75

Squash $37

Potatoes $36

Watermelons $35

Strawberries $29

Cucumbers $29

US Peanut Stocks (as of Aug 30) and

Production

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

2013 2014 2015

Stocks Production

$440/ton

$498/ton

$380/ton ?

Flue-Cured Tobacco Production: (million pounds)

2011 2012 2013 2014 2015*

US 345 473 454 557 468

NC

248 377 360 434 365

*USDA-NASS October 2015 Estimate

US Flue-Cured Exports and Domestic Disappearance

304 268

[VALUE]

[VALUE]

-

100

200

300

400

500

600

700

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Exports Domestic Use

Global Supply: U.S., Brazil and Zimbabwe

Flue-Cured Tobacco Production

0

500

1000

1500

2000

2500

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

E

20

16

P

Zimbabwe

US

Brazil

517 million lbs

Source Brazil & U.S.: Universal Corporation. “World Leaf Production as of Nov 4, 2015.” Source Zimbabwe: Zimbabwe Tobacco Association “Weekly FCV Report 10.05.2015”

U.S. Unmanufactured Exports of Flue-Cured Tobacco (stemmed)

(lbs farm weight)

0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

2007 2008 2009 2010 2011 2012 2013 2014 2015

World

EU28

China

Switzerland

Source: USDA-FAS

Real Commodity Exchange Rate Indices (monthly)

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

Jan

-10

Au

g-1

0

Mar

-11

Oct

-11

May

-12

Dec

-12

Jul-

13

Feb

-14

Sep

-14

Ap

r-1

5

No

v-1

5

Jun

-16

Tobacco

Cotton

Pork & Pork Products

Poultry & Meat Products

Source: USDA-ERS

How responsive are NC Ag Export Products to Changes in Customer Exchange Rates and GDP?

US Export Product %∆ Exports/%∆Exchange Rate %∆ Exports/%∆GDP

Total Ag Products -0.507 0.751

Cotton -0.867 1.792

Tobacco Leaf -0.543 -0.339

Fresh Vegetable -0.547 2.189

Poultry -0.390 5.251

Red Meats -0.656 4.651

Dec 2016 Projected Index: 119.1 Aug 2014 Index : 100.2

18.9% Increase in Exchange Rate Index

10.2 % Decrease in Tobacco Exports

Implies US Flue-Cured Exports could decline from 262 million pounds for 2013-14 to 236 million pounds for 2015-16 marketing year; a 26 million pound decrease

US Tobacco Exports

Soybean Prices in Southeast Mato Grosso, Brazil

Soybeans are sold in Real (R$) per sack A sack is 60 kg = 132.3 lbs = 2.2 bushels

R$/sack R$/bushel R$/US$ US$/bushel

12/9/2013 72.6 32.93 2.322 14.18

12/7/2015 66 29.94 -9.1% 3.879 7.72 -45.6%

Source: Instituto Mato-grossense de Economia Agropecuaria

What will it take for markets to improve?

• Lower production…lower supplies

• Strengthening and/or stabilizing global markets…in particular China and the EU

• Recovery of foreign currencies relative to the US$....in particular strengthening of Brazil’s currency, R$

Cost & Return Estimates for Major NC Crops

Flue-cured

Tobacco

Sweet

Potato Peanuts Cotton Corn Soybeans

Price $1.85/lb $15/cwt $400/ton $0.60/lb $4.40/bu $9.00/bu

Yield/acre 2200 lbs 200 cwt 3800 lbs 891 lbs 110 bu 33 bu

Revenue $4,070 $3,000 $760 $535 $484 $297

Operating Expense

(land rent NOT included) $2,907 $2,500 $696 $543 $382 $237

Return over Operating $1,163 $500 $64 -$8 $102 $60

Fixed Cost $514 $86 $133 $70 $72 $36

Return to Land, Risk & Mgt $649 $414 -$69 -$78 $30 $24

Coping with the downturn…

• Know your costs/ know your cash flow…create a plan

• Manage debt early

• Manage your equipment

• Preserve working capital…Cash is King

• Change will come…it always does

• What lessons can we carry forward to the good times?