1. NC Ag Situation & Outlook 2017: Getting Through the Downturn
Dr. Blake Brown
Hugh C. Kiger Professor
Agriculture & Resource Economics
College of Agriculture & Life Sciences

2. U.S. Net Farm Income

3. NC Cash Farm Income North Carolina 2010 2011 2012 2013 2014 2015
$1,000
Gross cash income
11,154,777
11,890,299
13,130,068
14,226,303
14,526,240
12,859,068
All commodity receipts
9,777,233
10,333,222
11,550,333
12,682,160
12,951,808
11,638,910
Crop receipts
3,443,563
3,531,181
4,206,172
4,376,531
4,149,797
3,673,786
Animals and products receipts
6,333,670
6,802,041
7,344,161
8,305,629
8,802,012
7,965,124
Cash farm-related income
939,113
1,155,935
1,149,332
1,132,812
1,228,338
1,129,020
Total direct government payments
438,432
401,142
430,403
411,331
346,093
91,137
Cash expenses 1/
7,542,456
9,247,457
9,711,158
10,225,037
10,097,951
9,119,339
Interest /
314,060
297,218
260,999
233,298
244,593
255,890
Nonreal estate
181,955
156,796
97,543
81,220
85,912
91,445
Real estate 1/
132,105
140,422
163,456
152,078
158,681
164,445
Labor expenses
527,676
599,536
743,238
818,144
724,684
738,636
Property taxes and fees 1/
197,635
209,815
226,341
201,781
261,524
215,533
Farm origin
3,515,097
4,739,136
4,976,382
5,457,160
5,108,137
4,476,923
Feed purchased
2,670,000
3,800,000
4,100,000
4,410,000
4,050,000
3,470,000
Livestock and poultry
545,097
599,136
516,382
677,160
678,137
626,923
Seed
300,000
340,000
360,000
370,000
380,000
Manufactured inputs
1,152,184
1,311,042
1,385,329
1,448,211
1,426,201
1,296,238
Electricity
117,591
127,025
131,736
151,027
144,744
147,653
Fertilizer and lime
390,000
470,000
480,000
530,000
520,000
Fuel and oil
384,593
414,017
473,592
457,184
431,457
358,585
Pesticides
260,000
310,000
330,000
320,000
Other intermediate expenses 1/
1,771,073
2,017,476
1,994,103
1,905,154
2,187,217
1,985,614
Net rent to landlords 2/ 3/
64,731
73,233
124,766
161,289
145,596
150,505
Net cash income
3,612,321
2,642,842
3,418,910
4,001,266
4,428,288
3,739,728

4. Ag Prices Received Index

5. Exchange Rates: EURO/US$ & EURO/Brazilian Real

6. NC Cropland: Cash Rent per Acre

7. Poultry & Livestock

8. US Meat Production and Prices
2014
2015
Projected 2016
Projected 2017
% Change ’16 to ‘17
Production
Billion Pounds
Beef
24.32
23.76
25.12
26.37
+5.0%
Pork
22.86
24.52
24.96
25.82
+3.44%
Broilers
38.14
39.62
40.29
41.10
+2.0%
Turkey
5.76
5.63
6.02
6.13
+1.8%
Source: USDA WASDE (Nov 2016)
Prices
Feeder Cattle $/cwt
202.82
202.92
144.25
Live Cattle $/cwt
154.56
148.12
119.94
Hogs $/cwt
76.03
50.23
45.65
38-42
Broilers cents/lb
104.90
90.50
83.1
77-84
Turkeys cents/lb
107.90
116.5
118
Source: USDA-ERS (Nov 2016)

9. Peanuts

10. Peanuts
You don’t have to plant base acres to get the payment
The allocation of your payment on generic base is determined by how you allocate planted acres…..generic base is allocated in proportion to the acres planted for the covered crops
The allocation of generic base acres is an annual decision based on planted acres

11. US Peanut Stocks (as of Aug 31), Production, and Average National Price
$382/ton*
$386/ton
$498/ton
* projected

12. Payments per ton of Base Acre Yield on Generic Base Acres Planted to Peanuts and on Peanut Base Acres
2014
2015
2016 Projected
Reference Price
$535/ton
Marketing Year Average Price
$440/ton
$386/ton
$382/ton
PLC Payment Rate
$95/ton
$149/ton
$153/ton
85% of PLC on generic or peanut base acres
$81/ton
$127/ton
$130/ton
Payment/Ton of yield on base acres after Sequestration reduction of 7.2%
$75/ton
$117/ton
$121/ton

13. Cotton

14. December Cotton Futures

15. World Cotton Ending Stocks

16. Cotton’s Share of U.S. Fiber Consumption

17. World Fiber Mill Use
*PCI

18. December Corn Futures

19. November Soybean Futures

20. Sweet Potatoes

26. Flue-Cured Tobacco

27. Global Supply: U.S., Brazil and Zimbabwe Flue-Cured Tobacco Production
Source Brazil & U.S.: Universal Corporation. “World Leaf Production as of November 8, 2016.”
Source Zimbabwe: Zimbabwe Tobacco Association “Weekly FCV Report ”

28. Flue-Cured Production: (million pounds)
2012
2013
2014
2015
2016* US
473
454
557
468
460 NC
377
360
434
365
346
*USDA-NASS October 2016 Estimate

29. US Flue-Cured Exports and Domestic Disappearance

30. Global Tobacco Manufacturing
Annual growth of 3.6% in VALUE of sales to $643.8 billion in 2015
From Value of sales expected to increase at an annual rate of 1.8% to $703.8 billion
Continued volume declines in mature markets with growth in emerging markets
Number of smoking age adults increases
Increases in disposable income cause some smokers to trade up to premium tobacco products
Source: IBISWorld

31. “Philip Morris could stop making conventional cigarettes” BBC News November 30, 2016
iQOS did well in test markets…PM plans to introduce into additional markets
PM has filed an application with FDA to permit iQOS as a Modified Risk Tobacco Product

32. Some Take-Aways Watch the “heat-not-burn” category
Global surpluses, especially of flavor-style flue-cured, were reduced in 2016
Exchange rates favored increased Brazilian production; Brazilian flue-cured production is up at around 1.4 billion pounds
Despite continued reductions in cigarette consumption and increases in taxation and regulation, industry profits remain strong
Watch the “heat-not-burn” category
Opportunities for flavor style producers are in countries where smokers are expected to “trade up” to premium brand cigarettes

33. Bottom Line: Bigger Supply & Weaker Demand Depressed Prices
General Themes
Global weakness in demand & Strong $
Translates to weaker demand for US exports
Large production & stocks
Bottom Line: Bigger Supply & Weaker Demand Depressed Prices

34. Tips for Getting Through

35. Tips for Getting Through
Know your costs/ Know your cash flow
You can’t make decisions if you don’t know how the decision will change your costs and returns
You can’t make decisions to ensure you meet your cash flow obligations unless you have an accurate cash flow projection
Create a financial roadmap (plan) for your farm

36. Tips Know your costs/ Know your cash flow Cost Control
ALWAYS LOOK AT HOW REDUCING COST AFFECTS REVENUES…if a cost reduction results in an even larger reduction in revenues it is NOT a good decision.

37. Planned and Actual Cost Saving Measures by Farms (Source: “The Farmers Speaks Study” J.L. Farmakis, Inc.)

38. Re-evaluate your inputs: Who you buy them from and what you buy
Cost Control
Re-evaluate your inputs: Who you buy them from and what you buy
Look at the cost of the input
Look at the performance of the input…how does it affect revenues
Look at the services you receive with the product
Relationships do matter…but re-evaluate your relationships
Request quotes on prices
Negotiate prices for inputs
What services can your supplier provide that may decrease costs and/or increase revenue?
Work with your suppliers as partners to increase profits

39. Tips Know your costs/ Know your cash flow Cost Control
Examine your land rentals
Renegotiate
Is keeping that farm really profitable and feasible?

40. Tips Know your costs/ Know your cash flow Cost Control
Re-evaluate your labor use
H2-A rate for 2017: $11.27 per hour
Re-evaluate your production and harvest system
Are there tasks that can be mechanized?
If the investment makes sense and you can afford it, equipment prices may be at their lowest….

41. Tips Know your costs/ Know your cash flow Cost Control
Re-evaluate your labor use
If you can’t recover your variable (out-of-pocket) costs and some of your fixed costs….don’t plant it

42. Tips Re-balance your balance sheet Examine restructuring debt
Know your costs/ Know your cash flow
Cost Control
Re-evaluate labor use
If you can’t recover your variable (out-of-pocket) costs and some of your fixed costs….don’t plant it
Re-balance your balance sheet
Examine restructuring debt
Are there (non-producing) assets that need to go? Even though asset prices are low, it may be worth selling or necessary to reduce debt.
Be pro-active…don’t wait until you are forced to restructure or sale assets

43. Tips Look for pricing opportunities on commodities
Know your costs/ Know your cash flow
Cost Control
Re-evaluate labor use
If you can’t recover your variable (out-of-pocket) costs and some of your fixed costs….don’t plant it
Rebalance your balance sheet
Look for pricing opportunities on commodities

44. Tips
Know your costs/ Know your cash flow
Cost Control
Re-evaluate labor use
If you can’t recover your variable (out-of-pocket) costs and some of your fixed costs….don’t plant it
Rebalance your balance sheet
Re-examine any decisions you have to make about farm programs
Look for pricing opportunities on commodities
Are there ways you can add value to your products ….be customer focused

45. What is your value proposition
What is your value proposition? The benefits your customers can expect from your products and services
What attributes of your product create value for the customer?
What services do you offer that create value for the customer?
How do your products and services create gains and alleviate pain for your customers?

46. Take Aways Price outlook for ag products remains “subdued”
Take time to scrutinize each part of your production and marketing system
If you can’t recover your variable costs, don’t plant it
Be careful not to just focus on cost reduction…focus on increasing profits
Re-balance your balance sheet
Focus on how you create value for your customer

47. Executive Farm Management Program for NC Sweet Potato and Tobacco Farmers
Key Topics
Strategic Planning
Human Resource Management
Financial Management
Leading Change
Risk Management
Family Business Issues
Assessing Markets
Assessing and building key partnerships
Strengthening your value proposition
February 5-10, 2017
December 10-15, 2017
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