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Economic Update: Managing Risk in a Deleveraging and Rebalancing Global Economy. 13 th Annual Farmer Cooperatives Convention December 6-7, 2010. Presented by: Terry N. Barr , Senior Director of Industry Research Knowledge Exchange Division, CoBank, ACB E-mail: [email protected]

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economic update managing risk in a deleveraging and rebalancing global economy

Economic Update: Managing Risk in a Deleveraging and Rebalancing Global Economy

13th Annual Farmer Cooperatives Convention

December 6-7, 2010

Presented by:

Terry N. Barr, Senior Director of Industry Research

Knowledge Exchange Division, CoBank, ACB

E-mail: [email protected]

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide2

The Emerging Business Environment Will Include ……..

  • Continuing volatility … meaning more working capital, lower acceptable levels of leverage and mandatorywell-defined strategies for risk management.
  • Increasing costs from regulatory compliance and declining support from federal programs.
  • More challenging access to capital markets with broader risk analysis, including counterparty.
  • Changing U.S. consumer behavior & demographics.
  • Growing trade dependency (more risk & volatility)
  • Increasing consolidation and realignment of supply chains. Domestic integrated into global chains.

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide3

Labor Force Growth is Driver of Future Growth and Potential Trade Issues

1. A labor force of 1.7 billion workers must be integrated into the global economy!

2. A consumer base of 1.7 billion people with more purchasing power must also be integrated!

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide4

Asia Becoming More Significant Factor in Balancing Global Growth

Advanced economies accounted for over half of world growth rate from 1970 to 2008. From 2010 to 2012 they will account for less than one-third!

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide5

Dollar Erosion Has Boosted Foreign Buying Power and Commodity Prices

Competitive devaluations and protectionism will be significant issues in 2011-12!

From March 2009 ………. -14%

From 1997-03 average … -28%

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide6

The U. S. Transition

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide7

Recovery Shaped by Cautious

Consumer and Financial Headwinds

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Consumer holds the key to the pace of this recovery!

Recovery path dramatically different!

slide8

Continued High Unemployment and Excess Capacity in Labor Markets

This transition required 5 years with average growth rate of 4.5%!

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide9

Federal Reserve

White House

Congress

Fiscal and Monetary Policy: Setting Stage for 2011 and Beyond

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide10

What Will Election Mean For The Evolving Business Environment?

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

  • Lame duck session:
  • Tax extenders
  • 2011 budget spending
  • New 2011 Congress ?
  • Deficit reduction will dominate Congress through session. Policy changes through funding levels.
    • Spending cuts
    • Revenue increases
    • No farm bill but change through budget cuts!
  • Regulatory activities:
  • Agenda may accelerate!
    • Food safety, environment, nutrition, etc.
slide11

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Economic Conditions Increasingly Diverse in Agriculture

slide12

Smaller Than Expected 2010 Crops Lead Grain Stocks Lower

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide13

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Acreage Shifts Will Favor Corn But Weather / Input Costs Will Play Role!

slide14

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Key Crop Input Prices Set Globally and Likely to Remain Volatile

China has increased loans to their agricultural sector, particularly sectors with supply shortages!

slide15

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Reduced Global Harvest Boosts Prospects for Wheat market

slide16

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

World Wheat Stocks Rebounding

slide17

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Declining FSU-12 Wheat Production Driving Markets

28% of world trade

slide18

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Rebound in Global Wheat production Could Push U.S. Stocks Higher in 2011

slide19

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

U.S. Corn Market Riding the Ethanol Wave

slide20

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Corn Stocks Remain Tight Even With Large Harvest

Nearly 40 percent of the crop is utilized for ethanol.

Total corn use is now over

13.5 billion bushels!!

slide21

Ethanol Increases Continue to Drive Corn Markets

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide22

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Corn Prices Rally Strongly into 2011

slide23

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Soybean Market Riding Export Wave to China

slide24

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Global Trade Remains Strong

60% to China

39% to China

slide25

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

South American Crop Size Will set Tone for 2010 and 2011 Cropyears

slide26

Sharply Larger Global Soybean Stocks Weighing on Markets

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide27

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

U.S. Soybean Stocks Limited by Strong Demand and Acreage Competition

slide28

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Soybean Prices Reflect Increasing Pressures From Larger Supplies

slide29

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Cotton Market Riding Export Wave to China and Low Stocks

slide30

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

World Cotton Stocks Beginning Rapid Adjustment

slide31

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Increased Acreage and Output in 2011 Would Still Leave Stocks Low

slide32

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Cotton Prices Sharply Higher As Global Stocks Decline

slide33

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Livestock, Dairy and Poultry

Can Domestic Meat and Dairy Industry Bid Grain Out of Ethanol and Export Sectors?

slide34

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Meat Industry Will Be Cautious About Expansion in 2011-12

slide35

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Higher Broiler Shipments in 2011 Will Boost Meat Exports

  • Export share of
  • 2011 U.S. production
  • Broilers ….. 18%
  • Beef ………. 9%
  • Pork ……… 20%
  • All meat .......16%
  • Dairy (fat)… 3%
slide36

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Meat Exports at Plateau Following Strong Upward Trend

slide37

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Broiler Industry Gauging 2011 Exports, Consumers and Feed Costs

slide38

Data source: Livestock Marketing Information Center; USDA, NASS

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Cow Calf Returns Likely to Remain Positive As Inventory Continues Decline

slide39

Data source: Livestock Marketing Information Center; USDA, NASS

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Ability to Pass Increased Costs to Consumer Will Set Cattle Prices

slide40

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

International Dairy Product Prices: Oceania

slide41

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Dairy Sector Challenged by Volatility in Product and Feed Prices

Increasing competition in a smaller global marketplace!

slide42

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Milk Production Potential Likely to be Limited by Feed Cost Escalation

slide43

Agriculture Sector Rebounding Sharply in 2010-11

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide44

Farm Income: Agriculture Continues Strong Performance

Record high

Net cash income in agriculture is now averaging around $80 billion a year compared with an average of $60 billion for the previous decade….. but more volatility!

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

slide45

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Farm Debt Leveraging Has Not Followed Land Prices Higher

slide46

We May All Have to Get Out and Push But Opportunities Abound!

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

The Road Ahead

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