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Office of the Chief EconomistOffice of the Chief Economist

USDA’s Office of the Chief Economist

February 20, 2020

2020 Agricultural Outlook

https://www.thedickinsonpress.com/business/agriculture/4730104-Snow-increases-

harvest-worries-as-North-Dakota-considers-disaster-declarations

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https://www.thedickinsonpress.com/business/agriculture/4730104-Snow-increases-harvest-worries-as-North-Dakota-considers-disaster-declarations

Office of the Chief Economist

Outline

1. Trade

2. Crops & Livestock

3. Farm Economy

Photographer: Tiffany Hagler-Geard/Bloomberg via Getty Images

(Moriah Ratner/Bloomberg News)

CREDIT MADELYN BECK / ILLINOIS NEWSROOM

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World growth forecast down, led by weakening of emerging markets and developing countries (not including coronavirus)

Data: International Monetary Fund, World Economic Outlook. April 2019, October 2019, and January 2020.

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1

2

3

4

5

2017 2018 2019 2020 2021

An

nu

al p

erc

en

t ch

an

ge

Apr 2019

Oct 2019

Jan 2020

1

2

3

4

5

2017 2018 2019 2020 2021

An

nu

al p

erc

en

t ch

an

ge

Emerging: Apr 2019Emerging: Oct 2019Emerging: Jan 2020Advanced: Apr 2019Advanced: Oct 2019Advanced: Jan 2020

Office of the Chief EconomistOffice of the Chief Economist 4

Data: Refinitiv and China’s National Health Commission

Coronavirus tops macro global economy concerns; markets expecting recovery

0

10000

20000

30000

40000

50000

60000

0.85

0.9

0.95

1

1.05

1.1

# o

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9 in

fec

tio

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201

9=

1

S&P 500 vs Shanghai Composite Index and Corona Infections

# of Covid19 infections S&P500 Index Shanghai Composite Index

U.S. and China reach

Phase One agreement


U.S. dollar appreciated early in the year before declining across many currencies

Data: Refinitiv

-10% -5% 0% 5% 10% 15% 20% 25% 30% 35%

UK pound

South Korean won

Russian rouble

Mexican peso

Japanese yen

Euro

Chinese renminbi yuan

Canadian dollar

Brazil real

Australian dollar

Argentina peso

US $ appreciation in 1st and 2nd half of 2019

1st half

2nd half

5


U.S. agricultural exports by trade agreement status, size of trade

2020

Agreements:

51%

Previous

FTAs: 14%

Notification of Intent: 8%No Agreement: 26%

6

Canada

USMCA signed

into U.S. law

Jan. 29, 2020

$20.6B

China

Phase One

entered into

force

Feb. 14, 2020

$19.5B

Mexico

USMCA signed into

U.S. law Jan. 29,

2020

$18.6B

Japan

Entered into

force Jan. 1,

2020

$11.9B

Hong

Kong

$4.2B

South

Korea$6.9B

EU27

$9.7B

UK

$1.7B

Source: USDA, 2017 data

TWN

$3B

IDN

$3B

PHL

$2.6BVNM

$2.5B

THA

$2BTUR

$2B

India

$1.6B

SAU

$1.5B

UAE

$1B

PAK

$1B

Rest of World

$12.6B

CAFTA

$4.3B

Australia,

Peru, Israel,

Panama,

Singapore,

Chile-$5.6B

Co

lom

bia

$2.5

B

Kenya $0.1B


U.S. agricultural exports in billion $ from 1990 to 2019 (FY) by income level

7

Source:

USDA using

gapminder


U.S. agricultural exports forecast to rise $4 bil. in FY2020

8

Source:

USDA using

gapminder

+$3.9B

+$0.8B

+$0.6B

-$0.1B

-$0.3B


And where do we expect the largest growth in import demand?Projected growth in global imports over the next ten years (2020-2029)

Source: USDA

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U.S. Crop and Livestock sectors forecast to improve in 2020

Forum News Service/Agweek/Mikkel Pates

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June 11, 2019

A wet autumn further delayed an already slow U.S. harvest.

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18-Nov-18

22-Feb-19

10-May-20

11-Jun-19

11-Jul-1912-Aug-

1912-Sep-

1910-Oct-

198-Nov-19

10-Dec-19

10-Jan-20

acres harvested 84.6 84.6 85.4 82.4 83.6 82 82 81.8 81.8 81.8 81.5

Yield 176.5 176 176 166 166 169.5 168.2 168.4 167 167 168

160

162

164

166

168

170

172

174

176

178

79

80

81

82

83

84

85

86

Yie

ld,

Bu

/acre

Acre

s, m

illio

ns

First 2019 WASDE

Acres = NASS Prospective

Plantings

Yield = WAOB trend

Acres and Yield = NASS surveys

Source: USDA.

12


Source: Adjemian, Arita, Hungerford, Breneman, and Johansson (Illinois FarmDoc, October 2019)

(400)

(200)

-

200

400

600

800

Millio

n b

ush

els

Figure 1. USDA Aug. corn production forecast minus average private trade expectations

Aug 2019 USDA

report

USDA August

corn

production

forecast

minus

average

private trade

expectations

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50 cent drop in futures price Reaction inline with relationship

When USDA and the trade are on opposite pages, a price correction is usually coming

Source: https://farmdocdaily.illinois.edu/2019/10/market-reaction-to-usda-august-corn-crop-reports.html

300

320

340

360

380

400

420

440

Figure 2. Corn Dec19 Contract (cents/bu)

USDA report

released Aug

12, 2019y = -1.09x + 0.003

R² = 0.46

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Figure 3. Average Corn Futures Reaction to August USDA Reports, against the Market Surprise in the Production Forecast

x-axis: % Difference between

USDA Prod. Forecast and Avg

Trade Guess

y-axis: %

change in

Dec Corn

futures on

day of Aug

Report

Aug 12,

Source: Reuters, USDA; author

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-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2019

2016

2013

2010

2007

2004

2001

1998

1995

1992

1989

1986

1983

1980

19

77

1974

USDA Trade Estimates

Forecasts of final corn production have been getting more accurate

15

Since 2010, August

corn production

estimates have been

< 5% from final

Data: USDA, Refinitiv


16 million acre decline in 2019 --- where do they end up?

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Source: USDA-NASS.


Global stocks in days of use: stocks are relatively high but expected to decline over the next few years (except rice)

Data: USDA

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0

20

40

60

80

100

120

140

160

1990 1995 2000 2005 2010 2015 2020 2025 2030

Da

ys o

f U

se

/ C

on

su

mp

tio

n

Wheat

Corn

Rice

Soybeans


Continued expansion expected in Brazil’s soybean and corn production

18

-

1,000

2,000

3,000

4,000

5,000

6,000

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

2013/1

4

2014/1

5

2015/1

6

2016/1

7

2017/1

8

2018/1

9

2019/2

0

Mill

ion B

ushels

2nd Corn 1st Corn Soybeans

Source: CONAB. 2nd Corn assumed to be all corn minus 1st crop.

Office of the Chief Economist 19

New crop futures soybean:corn price ratio for 2020 points to a large corn crop, with some basis effects

Data: CME, Geograin.


Corn and rice prices expected to edge down in 2020/21

Crop 2016 2017 2018 2019 2020F %∆

Wheat ($/bu) 3.89 4.72 5.16 4.55 4.90 8%

Corn ($/bu) 3.36 3.36 3.61 3.85 3.60 -6%

Soybeans ($/bu) 9.47 9.33 8.48 8.75 8.80 1%

Cotton (cents/lb) 70.5 68.6 70.3 63.0 64.0 2%

All Rice ($/cwt) 10.4 12.9 12.6 13.0 12.0 -8%

Data: USDA-OCE.

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Crop (mil. acres) 2016 2017 2018 2019 2020F %∆

Corn 94.0 90.2 88.9 89.7 94.0 5%

Soybeans 83.5 90.2 89.2 76.1 85.0 12%

Wheat 50.1 46.1 47.8 45.2 45.0 0%

Cotton 10.1 12.7 14.1 13.7 12.5 -9%

Other feedgrains 12.6 10.7 11.0 10.8 11.1 3%

Rice 3.2 2.5 2.9 2.5 3.1 21%

Total 8 crops 253.4 252.3 253.9 238.0 250.7 5%

CRP 23.9 23.4 22.6 22.6 22.7 0%

8 crops + CRP 277.3 275.7 276.5 260.6 272.7 5%

Cropland area mostly up from last year

Source: USDA-OCE. Area planted. Values in red denote record levels.

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Record production projected in 2020

Data in red denote record levels. 1 Total red meat and poultry. 2Skim-solids basis

exports as a percent of total milk production

Item 2010

Exports

as a % of

prod. 2019

Exports

as a % of

prod. 2020F

Exports

as a % of

prod.

Billion pounds

Beef 26.3 8.7% 27.2 11.1% 27.5 12.0%

Pork 22.4 18.8% 27.6 22.9% 28.9 25.5%

Broilers 36.9 18.3% 43.9 16.2% 45.8 16.2%

Total1 92.1 15.2% 105.2 16.3% 108.8 17.3%

Billion pounds

Milk2192.9 15.8% 218.3 19.0% 222.0 19.6%

Data: USDA-OCE.

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54

2

55

7

47

3

49

7

36

4

40

7

-

10

20

30

40

50

60

China Production World Exports toChina

China DomesticConsumption

World exports toeveryone but China

China pork production, supply and demand

2018 2019 2020F

2020 Production

down 18 mmts

from 2018

2020 China

Imports

projected up 2

mmts from 2018

China 2020

Consumption

down 15.8

mmts

Not enough global

export supply to fill

China’s ASF

shortfall

MMTsChina 2018 vs 2019 imports (mmts)

African Swine Fever shocks China and global pork supply

Data: USDA and TDM


Prices: hogs, milk up, broilers down; steers largely unchanged

Item 2016 2017 2018 2019 2020F%∆

Dollars per cwt

Steers 120.86 121.52 117.12 116.78 117.00 0.2%

Hogs 46.16 50.48 45.93 47.95 49.00 2.2%

Broilers 84.3 93.5 97.8 88.6 87.0 -1.8%

Milk 16.30 17.65 16.27 18.60 18.85 1.3%

Data: USDA-OCE.

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Recent milk production increases driven by cow numbers and milk per cow gains

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

8,800

8,900

9,000

9,100

9,200

9,300

9,400

9,500

Milk/cow/day (pounds)

Cow numbers(Thousands)

Dairy Cow Numbers (Left axis)

Milk per cow per day

Data: USDA

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U.S. Dairy Herd by Size of Operation

0

1

2

3

4

5

6

Million milk cows

Size of Operation by Number of Milk Cows (Head)

1997 2002 2007 2012 2017

Year

Milk Cow

Inventory

(millions)

Operations

with Inventory

(thousands)

1997 9.1 125.0

2002 9.1 92.0

2007 9.3 69.9

2012 9.3 64.1

2017 9.5 54.6

Data: USDA-NASS.

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Distribution of Milk Production Cost by Farm and Production

$0

$10

$20

$30

$40

$50

$60

0 10 20 30 40 50 60 70 80 90 100

$/hundredweight

Percentile of Farms or Production

Farms Production 2019 All-Milk Price

Data: USDA-ERS, Agricultural Resource Management Survey, 2016.

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Farm Economy and Policies

https://www.cnn.com/2017/03/08/us/ka

nsas-wildfires-livestock-lost/index.html

https://www.11alive.com/article/weather/hurricane/timeline-

how-will-hurricane-michael-affect-georgia/85-602040370

https://www.producer.com/2019/12/u-s-sugar-beet-farmers-face-

frozen-harvest/

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https://www.cnn.com/2017/03/08/us/kansas-wildfires-livestock-lost/index.html

https://www.11alive.com/article/weather/hurricane/timeline-how-will-hurricane-michael-affect-georgia/85-602040370

https://www.producer.com/2019/12/u-s-sugar-beet-farmers-face-frozen-harvest/


How optimistic are you about economic prospects over the next 6 months?

Data: Refinitiv, USDA, University of Michigan, NAHB, Creighton, NAHB, Purdue/CME

70

80

90

100

110

120

130

70

80

90

100

110

120

130Feb 2019 = 100Feb 2019 = 100

Corn Price Agbarometer DJIA

Consumer Sentiment Rural Mainstreet Housing Market

Corn price increases with

the knowledge of

widespread prevent plant.

Slow planting progress

and increased trade

tension

Signing of the phase I

trade deal with China

29


Distribution of farm household income shows half of all farms earn negative farm income

PercentileFarm

Income

Off-farm

Income

Total

Income

5 -$47,714 $0 -$8,526

25 -$9,950 $33,577 $35,978

50 -$1,735 $65,841 $72,481

75 $8,783 $112,500 $122,991

95 $148,850 $205,000 $304,715

Source: USDA-ERS, Agricultural Resource Management Survey, 2018

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

0 10 20 30 40 50 60 70 80 90 100

Percentile

Total income

Farm Income

Off-farm Income

30


Net returns are expected up, with lower expected government payments and crop insurance indemnities

Data: USDA-ERS

$0

$20

$40

$60

$80

$100

$120

$140

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Billion dollars (2020$)

Federal crop insurance indemnities minus premium

Direct government payments

Net farm income minus government payments and net federal indemnities

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Prevent plant boosted insurance indemnities in 2019 by > $4 billion

Source: USDA-Risk Management Agency * 2019 data collection is still ongoing.

0.0

0.5

1.0

1.5

2.0

2.5

$0$2$4$6$8

$10$12$14$16$18$20

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90

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91

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99

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20

19

Loss RatioBillion dollars (2020$)

Drought/Heat/Excess Sun Excess Moisture/Precipitation/Rain/Flood

Hurricane/Tropical Depression/Cyclone Other

Prevented Planting Price

WHIP/WHIP+ Loss Ratio

32


MFP payments overlap areas where estimated damages are the highest

Source: USDA

33


Debt-to-assets ratio remain low --- 13.59%, and debt financing cost falling despite total debt at historic levels

Data: USDA-ERS

“Interest

repayment

capacity”

=Interest

Expenses

divided by

(NFI before

interest and

taxes)

2020, $425.3B

2020, 15.22%

2020, 13.59%$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

0%

10%

20%

30%

40%

50%

60%

70%

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

Billion dollars (2020$)

Percent

Debt (right axis) Interest repayment capacity Debt to asset ratio

34


The percentage of corn, soybean, and hog farm businesses that are very highly leveraged has been trending upward

Data: USDA-ERS. Note: very highly leveraged farms have debt to asset ratios of >70%.

0%

2%

4%

6%

8%

10%

12%

14%

Corn specialized farms Soybeans specialized farms Hog specialized farms

35


Farm bankruptcy rates remain historically low

0

5

10

15

20

25

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,0001

89

9

19

03

19

07

19

11

19

15

19

19

19

23

19

27

19

31

19

35

19

39

19

43

19

47

19

51

19

55

19

59

19

63

19

67

19

71

19

75

19

79

19

83

19

87

19

91

19

95

19

99

20

03

20

07

20

11

20

15

20

19

Ban

kru

ptc

y R

ate

/ 10,0

00 fa

rms

Nu

mb

er

of

farm

s, exclu

din

g

sh

are

cro

pp

ers

Total farms

Bankruptcy Rate

Source: USDA-ERS, U.S. Courts

36


Data: U.S. Courts

AK

AL

ARAZ

CA

CO

CT

DEFL

GA

IA

ID

ILIN

KS

KY

LA

MD

ME

MI

MN

MO

MSMT

NC

ND

NE

NH

NJNV

NY

OHOK

OR PA

RI

SC SDTN

TXUT

VA

VT

WA

WI

WVWY

0

2

4

6

8

10

12

0 2 4 6 8 10 12

10

-year

avera

ge o

f b

an

kru

ptc

ies p

er

10,0

00

farm

s

Number of bankruptcies in 2019 per 10,000 farms

Many states remain near

their 10-year average

bankruptcy rate.

37


Negative returns for some heading into 2020 --- not including government payments

Data: Illinois, Arkansas, Kansas extension farm management budgets; MFP for 2019 tranche 3 only.

AR, conventional,

furrow irrigation

Central IL, high

prod, after soy

Central IL, high

prod, after corn

South Central KS,

continuous

2020F Cotton Corn Soybeans Wheat

Market returns:

Total costs (dollars/acre) $952 $864 $617 $271

Value of production (dollars/acre)

(includes cottonseed value for

cotton)

$923 $835 $540 $211

Market returns per

acre using total costs($28) ($29) ($77) ($60)

38


Concluding Remarks

1. Current conditions point towards an improved outlook for 2020

• Trade deals will improve our access and trading opportunities

• A return to more normal trade will lower friction

2. Economic fundamentals are stable

• Interest rates remain low and keep borrowing costs down

• Equity remains high relative to debt

• Stable land values

3. Weather conditions will likely be better

• Corn and soybean area likely to be up from 2019

39


Concluding Remarks (con’t.)

4. Livestock sector poised for continued growth• Modest growth in beef production, stronger growth in pork and

poultry• Growing opportunities for meat exports reflecting the Phase One deal,

U.S.-Japan agreement, and global income growth

5. International competition in crop and livestock production is intense• Corn and soybean expansion continues in Brazil

6. U.S. productivity remains remarkably strong• Continued investment in technology and innovation key to

maintaining markets and profitably, and feeding a growing global population

40


Expectations for 2029/30?

Productivity of staple commodities continues to grow, fueled by technology

In 1929, approximately 6.3 million farms

produced 105 million metric tons of crop and

fiber, feeding and clothing 121 million

Americans.

In 2017, 2.0 million farms produced 561

million metric tons of crops --- an increase of

more than 400% on 9% fewer acres, feeding

and clothing 330 million Americans and

exporting food and fiber to help feed and

clothe billions globally.

And over the next 10 years, we would expect

an additional 90 million tons of production.Data: USDA-NASS; USDA Baseline.

Note: USDA WASDE crops included in the chart are

wheat, corn, sorghum, barley, oats, rice, soybeans, and cotton.

0

50

100

150

200

250

300

350

0

100

200

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600

700

19

29

19

39

19

49

19

59

19

69

19

79

19

89

19

99

20

09

20

19

20

29

To

tal

pla

nte

d a

cre

s U

SD

A W

AS

DE

cro

ps (

Mil

lon

)

To

tal

pro

du

cti

on

of

US

DA

WA

SD

E C

rop

s (

Mil

lio

n M

T)

Crop production versus planted acres

Total metric tons (millions) Total planted acres

41


The number of undernourished people in the world still number more than 800 million, and is heading in the wrong direction

Source: FAO, SOFI 2019.

42

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