Fapri outlook prospects for the next decade the new ag energy nexus
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FAPRI Outlook Prospects for the Next Decade: The New Ag/Energy Nexus. William H. Meyers Professor of Agricultural Economics and Co-Director, FAPRI University of Missouri LINK Meeting Saint Petersburg, Russia 4 June 2009. Outline.

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FAPRI Outlook Prospects for the Next Decade: The New Ag/Energy Nexus

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FAPRI Outlook Prospects for the Next Decade: The New Ag/Energy Nexus

William H. Meyers

Professor of Agricultural Economics

and Co-Director, FAPRI

University of Missouri

LINK Meeting

Saint Petersburg, Russia 4 June 2009


  • A new and market environment with stronger agriculture and energy linkages

  • Recent grain market developments

  • FAPRI projections of global market prospects

    • Highlights of results

    • Key movers and shakers

    • Main uncertainties

    • Challenges and opportunities

  • Policy priorities

    • Short term

    • Long term

Why did prices rise, then decline? Can it ALL happen again?

Why prices rose

Why prices fell

Sharp increase in global grain production in 2008

Financial crisis and world economic slowdown

Stronger dollar

Lower petroleum prices

Slower biofuel growth

Many interventions stop

Speculation declined

  • Reduced grain production in Europe, Australia

  • Economic growth in Asia and elsewhere

  • Weaker dollar

  • Higher petroleum prices

  • Rapid biofuel expansion

  • Policy interventions

  • Speculation rose

Corn and petroleum prices

Grain production, million metric tons(WASDE May 12, 2009)

Grain stocks, million metric tons (WASDE May 12, 2009)

Grain stocks to use ratios (WASDE May 12, 2009)

World grain stocks and real prices, Oct 2008

World grain stocks and real prices (WASDE May 12, 2009)

FAPRI-Missouri/ISU - Consortium

IHS Global Insight

U.S. and Global


Texas A&M University


Representative Farms - 1989

University of Missouri

U.S. Agriculture

___FAPRI est. 1984____

Iowa State University


World Agriculture

Texas Tech

Cotton - 2003

Arizona State


Fruit & Veg. - 1995

Univ. of


Dairy - 2003

United Nations-Project LINK

Global Macro

University of Arkansas


World Rice - 1990

Historical and projected real commodity prices, 2007$

Why do projections differ?

Key elements of baseline assumptions

  • Macroeconomic Variables

  • Agricultural Policies

  • Technology

  • Normal Weather

Macroeconomic drivers: GDP

  • 2009 recession and rapid recovery (IHS GI)

  • Strong global outlook from 2011 onward

    • 3.3 % average annual GDP growth rate

    • India and China average 7.8 and 8.2%, respectively

Real GDP growth rates

Macroeconomic drivers: exchange rate

  • U.S. Dollar strengthens in 2009

  • Real depreciation of $ resumes in 2010 against many currencies

  • Most Asian currencies appreciate in real terms against the U.S. dollar

  • China experiences significant real appreciation

Exchange rate, major trading partners, FC/US$

Macroeconomic drivers: oil price

  • Projected petroleum prices in the near term are well below forecasts made in 2008

  • Below $60/barrel through 2010 then increases to $80/barrel as global economy recovers and demand grows

Petroleum price forecasts from IHS Global Insight

*NYMEX July futures, 5/27/09

Global macro drivers: income

  • Economic recovery fuels next 10 years growth

    • Dairy product consumption increases 13 kg per capita (milk equivalent) from 2008 to 2018

    • Per capita meat increases 5.6 kg

    • Per capita vegetable oil increases 3.1 kg

    • Food grain consumption per capita declines

    • Production of meats increases 38.6 mmt or 18%

    • Trade in meats increases 4.1 mmt or 24.3%

Changes in per capita food consumption 2008-2018

World meat production and trade

Dairy product consumption in Asia

Meat production and feed use

World grain prices

Crop outlook:world feed grain outlook overview

  • Growth in livestock sector drives the increase in demand for feed grains.

  • Feedstock use for ethanol production boosts demand

  • Stronger prices increase area and, with yield growth, production increases.

  • Increase in area grows supply in the short-run, while yield improvement is the major source of growth in the long-run.

World corn use and per capita consumption

World corn area and yield

World corn stocks-to-use ratio vs. price

World food grain outlook overview

  • Food grain per capita consumption declines with growth in income as consumers “trade-up”to protein rich products.

  • With declining per capita consumption, demand growth comes mainly from population growth.

  • Growth in consumption in regions such as Asia, Africa, and the Middle East fuels growth in trade and strengthen food grain prices.

  • Long-run production growth driven by yield improvement.

World wheat feed and food consumption

World wheat area and yield

World wheat stocks-to-use ratio vs. price

World rice production, use, and per capita consumption

World rice area and milled yield

World oilseed outlook overview

  • Oilseed sector grows with strong demand for both oil and meal products driven by population and income growth, expansion of the livestock sector

  • China soybean imports grow by nearly 60 % from 2008 to 2018

  • Increasing interest in renewable fuels and biodieselmandates drives increase in industrial use of vegetable oil and their prices.

  • Room for area expansion in South America dampens price growth in the next decade.

World vegetable oil consumption

World soybean area and yield

World oilseed prices

World vegetable oil prices

World Protein Meal Prices

FOB Northern European dairy product prices

Movers, shakers and uncertainties

Good weather and yields in 08/09, but costs and poor weather dampen 09/10 growth, except soybeans

Price surge has abated, but NOT in some LIFDCs

Trade “safeguard” interventions mostly gone

Biofuel growth slowed, but policies remain

Strong influence of energy markets continue

Major uncertainties (stochastic analysis)

Oil price

US dollar

The global financial crisis and impacts on demand growth, trade financing


Oil price distribution

Maize US farm price uncertainty

Wheat US farm price uncertainty

A more uncertain future

Road to economic recovery?

Timing and size of oil price volatility?

Will biofuel policies change?

Will other policies be unstable?

Wider range of possible outcomes

Farmers and agribusiness can easily get on wrong side of output and/or input markets

Complicated decision making and planning

Larger impacts on low income consumers

Challenge and Opportunity

  • Challenge - how to provide safety net measures for the most vulnerable populations

  • Opportunity - higher prices can increase incomes from food production in rural areas where agriculture is the main source of income and employment

  • National and international policy actions need to be considered

    • Short run

    • Long run


Contact information:email: [email protected]: www.fapri.missouri.edu

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