Economic update managing risk in a deleveraging and rebalancing global economy
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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: tbarr@cobank.com.

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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: tbarr@cobank.com

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


The Emerging Business Environment Rebalancing Global EconomyWill 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)


Labor Force Growth is Rebalancing Global EconomyDriver 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)


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)


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)


The Commodity PricesU. S. Transition

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


Recovery Shaped by Cautious Commodity Prices

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!


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)


Federal Reserve Markets

White House

Congress

Fiscal and Monetary Policy: Setting Stage for 2011 and Beyond

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


What Will Election Mean For MarketsThe 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.


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

Economic Conditions Increasingly Diverse in Agriculture


Smaller Than Expected 2010 Crops Lead Grain Stocks Lower (confidential and proprietary)

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


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

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


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!


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

Reduced Global Harvest Boosts Prospects for Wheat market


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

World Wheat Stocks Rebounding


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

Declining FSU-12 Wheat Production Driving Markets

28% of world trade


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

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


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

U.S. Corn Market Riding the Ethanol Wave


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!!


Ethanol Increases Continue to Drive Corn Markets (confidential and proprietary)

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


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

Corn Prices Rally Strongly into 2011


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

Soybean Market Riding Export Wave to China


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

Global Trade Remains Strong

60% to China

39% to China


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

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


Sharply Larger Global Soybean Stocks Weighing on Markets (confidential and proprietary)

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


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

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


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

Soybean Prices Reflect Increasing Pressures From Larger Supplies


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

Cotton Market Riding Export Wave to China and Low Stocks


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

World Cotton Stocks Beginning Rapid Adjustment


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

Increased Acreage and Output in 2011 Would Still Leave Stocks Low


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

Cotton Prices Sharply Higher As Global Stocks Decline


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?


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

Meat Industry Will Be Cautious About Expansion in 2011-12


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%


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

Meat Exports at Plateau Following Strong Upward Trend


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

Broiler Industry Gauging 2011 Exports, Consumers and Feed Costs


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


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


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

International Dairy Product Prices: Oceania


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!


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

Milk Production Potential Likely to be Limited by Feed Cost Escalation


Agriculture Sector Rebounding Sharply in 2010-11 (confidential and proprietary)

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


Farm (confidential and proprietary)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)


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

Farm Debt Leveraging Has Not Followed Land Prices Higher


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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