1. 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

2. Outline
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

4. Why did prices rise, then decline? Can it ALL happen again?
Why prices rose
Why prices fell
Reduced grain production in Europe, Australia
Economic growth in Asia and elsewhere
Weaker dollar
Higher petroleum prices
Rapid biofuel expansion
Policy interventions
Speculation rose
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

5. Corn and petroleum prices

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

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

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

9. World grain stocks and real prices, Oct 2008

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

11. FAPRI-Missouri/ISU - Consortium
IHS Global Insight
U.S. and Global
Macro
Texas A&M University
AFPC
Representative Farms
University of Missouri
U.S. Agriculture
___FAPRI est. 1984____
Iowa State University
CARD
World Agriculture
Texas Tech
Cotton
Arizona State
NFAPP
Fruit & Veg
Univ. of
Wisconsin
Dairy
United Nations-Project LINK
Global Macro
University of Arkansas
AFAPC
World Rice

12. Historical and projected real commodity prices, 2007$
Not magic or crystal ball
Combination of historical behavior and expert judgment, broad review and consultation with other analysts
Models keep things in balance
Price path? Don t know because we don’t know oil price or economic rebound etc

13. Why do projections differ?

14. Key elements of baseline assumptions
Macroeconomic Variables
Agricultural Policies
Technology
Normal Weather

15. 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

16. Real GDP growth rates

17. 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

18. Exchange rate, major trading partners, FC/US$

19. 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

20. Petroleum price forecasts from IHS Global Insight
*NYMEX July futures, 5/27/09

21. 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%

22. Changes in per capita food consumption 2008-2018

23. World meat production and trade

24. Dairy product consumption in Asia

25. Meat production and feed use

26. World grain prices
The world wheat price was $144.9 per mt in 2003/04, and it is projected to decrease in 2004/05 to $140.8 per mt with the recovery in area and production, particularly in the EU-15, Eastern European, and FSU countries. The average annual growth rate of the wheat price is 0.24%. The stocks-to-use ratio was 21.5% in 2003/04, and it is projected to continue its downward trend though at a slower pace, reaching 18.7% in 2013/14.
Drought and dry conditions reduced the EU-15 wheat harvest in 2003/04 to 91 mmt. A recovery of 11.7 mmt is projected in 2004/05 with the aid of a lower set-aside rate. Production in the EU-15 reaches mmt in 2013/14. Although Argentine producers partly switch to soybeans in 2004/05, production resumes later and reaches 20.9 mmt in 2013/14. Canadian production is projected to reach 30.7 mmt in 2013/14, with Australian production at 28.3 mmt in 2013/14.
Driven by strong consumption demand, coupled with recent drought in India and decreased area in China, global rice stocks in 2003 dropped to their lowest levels in 20 years. The stocks-to-use ratio was at a record low of 20.1%. Consequently, international rice prices broke the $200 mark in 2003 after three years of weakness. Over the baseline, the rice stocks-to-use ratio remains low, and the international (Thai) price trends upward, reaching $326 per mt by 2013.
Still recovering from recent drought in India, world rice area gains 3.0 mha in Over the next decade, global rice area grows only slightly, at 0.3% annually, ranging between 153 mha to 155 mha. Thus, yield growth is expected to be the main source of the growth in rice output over the same period. The world rice yield improves an average of 1.0% annually over the baseline as a result of continued development and adoption of higher-yielding varieties.
In 2003/04, large releases of stocks increased supply much more than demand, causing a drop in the corn price. In 2004/05, stocks are released at a lower rate, putting pressure on the supply despite increasing production. Thus, the corn price increases in 2004/05 by 1.6% to $105.2 per mt. The stocks-to-use ratio was 10.5% in 2003/04; it decreases to 8.8% in 2013/14.

27. 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.

28. World corn use and per capita consumption

29. World corn area and yield

30. World corn stocks-to-use ratio vs. price

31. 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.

32. World wheat feed and food consumption

33. World wheat area and yield

34. World wheat stocks-to-use ratio vs. price

35. World rice production, use, and per capita consumption

36. World rice area and milled yield

37. 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 biodiesel mandates 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.

38. World vegetable oil consumption

39. World soybean area and yield

40. World oilseed prices
World oilseed prices climbed strongly in 2003/04 as demand grew faster than supply. All oilseed prices are expected to fall significantly next year under the pressure of record supplies. Another price decline is expected for the 2005/06 season. Oilseed prices recover slightly after that before settling on a declining path for the remainder of the outlook period as production expansion outpaces demand growth. In the long run, prices are expected to keep their established relationships.
World soybean production reaches 273 mmt by 2013/14, an increase of 37% over the current year. In 2009/10, Brazil overtakes the U.S. as the largest soybean producer in the world. At the end of the outlook period it holds a 35% share. The U.S share drops to 30%. World soybean production becomes even more concentrated: the top three producer countries increase their production share from 82% to 85%.

41. World vegetable oil prices
World oilseed prices climbed strongly in 2003/04 as demand grew faster than supply. All oilseed prices are expected to fall significantly next year under the pressure of record supplies. Another price decline is expected for the 2005/06 season. Oilseed prices recover slightly after that before settling on a declining path for the remainder of the outlook period as production expansion outpaces demand growth. In the long run, prices are expected to keep their established relationships.
World soybean production reaches 273 mmt by 2013/14, an increase of 37% over the current year. In 2009/10, Brazil overtakes the U.S. as the largest soybean producer in the world. At the end of the outlook period it holds a 35% share. The U.S share drops to 30%. World soybean production becomes even more concentrated: the top three producer countries increase their production share from 82% to 85%.

42. World Protein Meal Prices
World oilseed prices climbed strongly in 2003/04 as demand grew faster than supply. All oilseed prices are expected to fall significantly next year under the pressure of record supplies. Another price decline is expected for the 2005/06 season. Oilseed prices recover slightly after that before settling on a declining path for the remainder of the outlook period as production expansion outpaces demand growth. In the long run, prices are expected to keep their established relationships.
World soybean production reaches 273 mmt by 2013/14, an increase of 37% over the current year. In 2009/10, Brazil overtakes the U.S. as the largest soybean producer in the world. At the end of the outlook period it holds a 35% share. The U.S share drops to 30%. World soybean production becomes even more concentrated: the top three producer countries increase their production share from 82% to 85%.

43. FOB Northern European dairy product prices

44. 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
Weather

45. Oil price distribution

46. Maize US farm price uncertainty

47. Wheat US farm price uncertainty

48. 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 48

49. 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 49

50. Spasibo!
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