The Great North American Drought: Industry Impacts One Year Later

The Great North American Drought:
Industry Impacts One Year Later
August 8, 2013
Welcome to Today’s Webcast

Copyright © 2013 IHS Inc. All Rights Reserved.
Before We Get Started
• Ask questions any time
• Type questions into the “Ask a Question” area, click ‘submit’
• The slides advance automatically throughout the event
• Need help? Click the Help(?) icon below

Live Tweet Today’s
Webcast:
#IHSWebcast
Join the Conversation:
Follow @IHS4SupplyChain on Twitter
3

We Want Your Feedback on Today’s Topics
4
Everyone completing the entire
survey at the conclusion of
today’s live event will be
entered into a drawing to win a

Today’s Speakers
5
Mr. Ryland Maltsbarger
Principal Economist, Agriculture
IHS Supply Chain Pricing & Purchasing
Ryland Maltsbarger is a principal economist of the IHS Pricing & Purchasing
Agriculture Service. He supervises the long-term Global Crops and Livestock
Services along with the monthly update of the quarterly price forecast. Ryland
is directly responsible for the global sugar and cotton forecasts. Other duties
include the publication and forecast of the Global Crops Cost of Production
Service.
Ryland joined IHS in 2008 as an economist. His service with the company has
included the creation of the global sugar partial-equilibrium model along with
the expansion of the global cotton model. He created the system behind the
quarterly price forecast as well as the format for the publication. Other projects
have included work on 2050 Global Crops service and expansion and
reformatting of the Global Crops Cost of Production Service.

Today’s Speakers
6
Mr. Brandon Kliethermes
Senior Economist, Agriculture
IHS Supply Chain Pricing & Purchasing
Brandon Kliethermes is an economist with IHS Agriculture Pricing &
Purchasing group. Brandon's key area of focus is the continued development,
maintenance, and forecasting of US crops. He also provides daily and weekly
commentary on current issues affecting agricultural markets worldwide.
Brandon created and maintains the Global Insight Softs Commodity Price
Index (GISCPI) to evaluate weekly prices changes for food components such
as feed grains, food grains, meals and oils, dairy, fiber, sugar, and meats and
products.
Brandon joined IHS Global Insight in April 2010 after completing an M.S. in
Agriculture Economics in December 2009 and a B.S. in Agriculture Economics
in 2008, both from the University of Missouri-Columbia. Brandon has held
positions as a licensed commodity broker for Allendale Inc. and worked under
the board members at the Kansas City Board of Trade. His agricultural
background and continued involvement with production agriculture gives him a
unique perspective for market/industry analysis.

US & Global
Agriculture Market
Outlook
Great North American drought:
Industry impacts one year later
Ryland Maltsbarger & Brandon Kliethermes
IHS Agricultural Service
8 August 2013

Copyright © 2013 IHS Inc. All Rights Reserved
Outline
• Introduction
• US outlook
• Supply implications
• World grains
• World oilseeds
• US cattle
• Multi-client study

Large impacts of last half-decade: corn and
wheat
Once upon time Then came the four shocks
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13
• World grain prices increased modestly
• Grain prices began fluctuating markedly, corn
prices almost tripled, wheat prices more than
doubled
• Corn and wheat area harvested experienced very slight
increase
• While corn area grew almost 10 times faster,
wheat area did not change much
• Corn and wheat yield improved very marginally
• Yields outpaced their trend growth for both
grains (growth was twice as fast)
Demand-driven shocks
1-US Biofuel mandate
2-Financial crises
Supply-driven shocks
3-Drought
(FSU-12, EU-27, CAN)
4-Drought
(US, ARG)

US drought and recovery: May
2012 2013
Abnormally Dry Drought – Moderate Drought – Severe
Drought – Extreme Drought - Exceptional

US drought and recovery: August
2012 2013
Abnormally Dry Drought – Moderate Drought – Severe
Drought – Extreme Drought - Exceptional

IHS GISCPI
The IHS Global Insight Soft Commodity Price Index (GISCPI) has pulled back from
its 2012 highs from the drought. The most recent break lower was in reaction to old
crop futures collapsing from net long liquidation from traders, which spilled over
into grains.
The IHS GISCPI falls to an index value of 1.8 by first-quarter
2014.

Where we are today
• The US weather forecast looks to keep pollination stress to a minimum this year.
• Weather in Russia and Ukraine has been conducive for an early start to the
harvest, but dry warm weather in late spring had cut production outlooks slightly.
• Brazil’s summer corn crop has sidestepped a major yield-reducing scenario.
• Weekly wheat imports from China have shocked the trade. As a result, the US
Department of Agriculture has increased 2013/14 Chinese wheat imports to 8.5
million metric tons.
• Bottom line: commodity prices are being pressured by the growing reality that
world grain balance sheets may actually loosen.

Quarterly price outlook
Downward trend for corn and soybean prices while wheat sees seasonal
price gains. Our lower price outlook is also conditional on average growing
weather in 2014.

Past corn area revisions—USDA
Given prior years of delayed plantings, corn area typically falls
in the October WASDE report.
Using 2009 as a proxy, revisions in abandonment might
actually offset planted area losses. Current USDA harvested
percentage is at 91.5%.

Past soybean area revisions—USDA
Unlike corn, soybean area is variable and a wet year such as
2008 showed producers moved to soybeans.
On a percentage basis, soybean abandonment changes very
minimally year to year. The current USDA harvested percentage
is at 99%.

Area scenario and price midpoints—corn
• Bearish: Planted area is adjusted
higher to 97.5 million acres with
harvested area at 89.2 million acres.
Yield is 156.5 bushels per acre.
• Bullish: Planted area is reduced to
96.7 million acres with harvested area
at 88.0 million acres. Yield is 155
bushels per acre.
• June acreage: Planted area is at 97.4
million acres and harvested area at
89.1 million acres. Yield is 156.5
bushels per acre.

Area scenario and price midpoints—
soybeans
• Bearish: Planted area is adjusted
higher to 79.2 million acres with
harvested area at 78.4 million acres.
Yield is 44 bushels per acre.
• Bullish: Planted area is reduced to
77.1 million acres with harvested area
at 75.5 million acres. Yield is 43.5
bushels per acre.
• June acreage: Planted area is at 77.7
million acres and harvested area at
76.9 million acres. Yield is 44.5
bushels per acre.

Increased area planted supply capacity
Potential implications of adding supply capacity without another supply downturn
• Area pulled from pasture and Conservation Reserve Program (CRP) remain in
row crop production for the next few years.
• Producers continue to hope for higher prices in the following 12 months.
• One factor to consider is as world production increases, supply disruptions in the
two hemispheres may offset supply gluts in each other.
• In this example IHS looks strictly at the price impact of three prolonged years of
higher-than-expected planted area for the United States only.

Implications of increased capacity—corn
Supply scenario 2014/15 2015/16 2016/17
Production (Million
bushels) 14,216 14,181 14,123
Feed and residual 5,208 5,175 5,236
Exports 2,153 2,280 2,171
Ending stocks 1,632 1,496 1,390
Average farm price
(Dollars per bushel) $3.83 $4.06 $4.22
May forecast
Production (Million
bushels) 13,527 13,438 13,906
Feed and residual 5,042 5,018 5,165
Exports 1,968 1,789 1,901
Ending stocks 1,402 1,189 1,214
Average farm price
Percentage change
Production (Million
bushels) 5% 6% 2%
Feed and residual 3% 3% 1%
Exports 9% 27% 14%
Ending stocks 16% 26% 15%
Average farm price -13% -12% -6%
• Scenario: Corn planted area falls from
97.4 million acres in 2013/14 to 94.3
million acres in 2014/15, 91.8 million
acres in 2015/16, and 90.2 million
acres in 2016/17.
• Harvested percentage remains
constant at 91% and yields fall in line
with the May forecast.
• Corn for ethanol remains aligned with
the May forecast at 5 billion bushels,
but a lower farm price increases food
seed and industrial use by under 1%.
• Risk surrounding the robust export
path would pressure prices to a
greater extent .

Implications of increased capacity—soybeans
Supply scenario 2014/15 2015/16 2016/17
Production (Million
bushels) 3,497 3,516 3,519
Crush 1,820 1,824 1,809
Exports 1,465 1,541 1,579
Ending stocks 264 249 225
Average farm price
May forecast
Production (Million
bushels) 3,351 3,408 3,481
Crush 1,796 1,796 1,803
Exports 1,438 1,538 1,573
Ending stocks 246 214 212
Average farm price
Percentage change
Production 4% 3% 1%
Crush 1% 2% 0%
Exports 2% 0% 0%
Ending stocks 7% 16% 6%
Average farm price -9% -10% -3%
• Scenario: Soybean planted area is flat
with 2013/14 at 77.7 million acres in
2014/15, 77.1 million acres in
2015/16, and 76.3 million acres in
2016/17.
• Harvested percentage remains
constant at 99% and yields fall in line
with the May forecast.
• For soybeans, there is greater risk
surrounding crush estimates rather
than exports.
• US exports of soy products
increase, pulling crush higher.

Looking ahead
• Expect higher harvest price volatility this fall as a result of the delayed US crop.
• The National Oceanic and Atmospheric Administration stated in its May Atlantic Hurricane Outlook
and Summary that “An above-normal season is most likely, with the possibility that the season
could be very active.” It will release an updated forecast in August.
• Frost concerns will begin to spill into headlines by the end of August, with the end of September
being a key point for northern states.
• Prices should continue to be pressured lower but should see some level of
support after the beginning of 2014.
• How strongly will South America react to lower prices?
• IHS expects producers in Brazil and Argentina to switch to more soybeans at the expense of corn
as margins squeeze.
• The second corn crop area is forecast to pull back in Brazil.

USDA Reports
• 12 August WASDE report
• Possible area revision for US soybean plantings as producers are resurveyed and possibly even
corn?
• Given the current weather outlook there is greater chance today for corn yields to be increased
while soybean yields are still up in the air.
• 12 September WASDE report
• Fall harvested yields will be adjusted.
• 30 September Quarterly Grain Stocks report
• The stocks in this report will represent the ending stock level for all September/August marketing
year crops, i.e., corn and soybeans.
• This report will also set the level of beginning stocks in the 2013/14 marketing year.
• This report will indicate whether wheat feedings during the summer months of 2013 fell within
expectations.
• 11 October WASDE report
• This brings us one step closer to final production numbers for the 2013/14 marketing year.
• Planted and harvested area for all spring planted crops will be updated.

Global commodity market implications
• Corn exporters, Chinese demand
• Wheat exporters, China wheat
• World rice
• Oilseeds area

US and Brazil corn area harvested and
exports
0
10
20
30
40
50
60
0
10
20
30
40
50
60
70
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17
US-Exports Brazil-Exports US-Area Brazil-Area
Millionhectares
Millionmetrictons

China’s corn
0
1
2
3
4
5
6
7
8
0
10
20
30
40
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17
Imports Exports Area Harvested
Millionhectares
Millionmetrictons

US, EU-28, and Russia wheat area harvested
and exports
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
US-Exports EU-Exports Russia-Exports US-Area EU-Area Russia-Area
Millionmetrictons
Millionhectares

China’s wheat
0
5
10
15
20
25
30
100
105
110
115
120
125
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17
Domestic Feed Imports Production
Millionmetrictons
Millionmetrictons

World rice
One of the only grains that have actually seen price pressure
from growing supplies since 2012
The major risk for rice is the continued fog surrounding
the Thai rice paddy program.

0
5
10
15
20
25
30
35
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
Millionhectares
US Argentina Brazil China
Soybean area
South American soybeans see modest expansion of area in
2013/14, although stronger inventories weaken price incentives
and keep expansion stagnant the following couple marketing
years, assuming no new negative weather events.
China continues its slow retreat from the 2004/05 high,
increasing reliance on imports to meet growing domestic
demand.

Canola/rapeseed area
0
1
2
3
4
5
6
7
8
9
10
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
Millionhectares
Canada EU Ukraine Australia
Even with better winter rapeseed planting and
growing conditions in several EU countries,
Canada, Ukraine, and Australia look to remain
the top exporters of canola/rapeseed globally.
Following disappointing yields in 2012/13 due to hot,
dry weather, Canada looks to return with record canola
production in 2013/14 as closer-to-average sowing and
growing conditions boost projected productivity,
overcoming the year-over-year decline in area.

Sunflower seed area
0
1
2
3
4
5
6
7
8
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
14/15
15/16
16/17
Millionhectares
Argentina EU Russia Ukraine
Soybean and corn remain dominant crops in Argentina, limiting
sunflower seed expansion, but it sees a modest recovery in 2013/14.
Russia recovers much of the
record harvestable area in
2013/14 following hot and dry
conditions 2012/13.

US cattle supply issues
• Cattle inventory cycle
• Cattle supplies
• Beef production
• Price outlook

5,000
5,250
5,500
5,750
6,000
6,250
6,500
69,00071,00073,00075,00077,00079,00081,00083,00085,000
LagJan1stNon-MilkHeifersRetained
Jan 1st Non-Milk Cattle Inventory
2012
1986
1996
1990
2004
2014
Cattle inventory cycle
(Thousand head)
1990–96 Industry growth follows
higher exports to Asia and growing
domestic demand.
Inventory growth preceded
by run-up in heifer retention
and slowing inventory
decline.
Slowing inventory decline
and increased heifer
retention signal expansion.
Beef cattle inventories look
to be stalled in 2014 despite
higher heifer retention.
Which way will 2015 move?

Cattle supply
• Heifer slaughter slowed during the first half of 2013, allowing inventories to
improve slightly, but how many have moved into beef cow inventories?
• Cattle placements and cow slaughter suggest that it will not be enough.
• Beef cow slaughter is up 2.3% during the first half of 2013 despite a 2.9% decline in 1 January
inventories.
• The number of cattle placed on feed during the first half of 2013 was nearly even with the first half
of 2012, despite a 2.1% reduction in non-milk cattle inventories.
• Placement weights trended higher during the second quarter, suggesting that
heifers are begin held for additional weight gain, not for breeding.
• Placements of cattle weighing more than 700 pounds increased 16.8% year over year in the
second quarter, while placements of cattle weighing fewer than 700 pounds declined 16.9% during
the same period.

Cattle supply continued
• Total inventories to stall in 2014:
• Strong start to 2013 not expected to turn into better 2014 inventories
• Smaller to even 2013 calf crop
• Even to slightly lower beef heifer and cow inventories
• Lower steer inventories, down by 1.5%
• Improved to even dairy heifer and cow inventories
• Beef production looks to suffer in 2014 and beyond:
• Fewer steers available for placement and slaughter
• Herd building reduces availability of heifers and cows for slaughter
• Higher slaughter weights may help, but are not likely to be enough
• Production is not likely to recover fully until 2018

Beef production
(Million pounds)
22,500
22,750
23,000
23,250
23,500
23,750
24,000
24,250
24,500
24,750
25,000
25,250
25,500
25,750
26,000
26,250
26,500
26,750
27,000
27,250
27,500
1985 1990 1995 2000 2005 2010 2015
2012
1986
1996
1990
2004 2014
Next year looks to have the
lowest beef production in 20
years…
…lower than the
2004 bovine
spongiform
encephalopathy
(BSE) level

5,000
5,100
5,200
5,300
5,400
5,500
5,600
5,700
5,800
5,900
69,00071,00073,00075,00077,00079,000
LagJan1stNon-MilkHeifersRetained
Jan 1st Non-Milk Cattle Inventory
2012
2015
2014
Cattle inventory 2015
(Thousand head)
The first year of
expanded inventories in
eight years is expected to
be 2015.
Heifer inventories are likely to fall
in 2014 because of low cow-calf
returns in 2013 but they should
recover beyond 2014 as the
industry moves to expand.

$40
$50
$60
$70
$80
$90
$100
$110
$120
$130
$140
$150
$160
$170
2008 2009 2010 2011 2012 2013 2014 2015
Feeder Steer Price, OK City, 600-650 lb, $/CWT Fed Steer Price, NE Direct, 11-1300 lb, $/CWT
Ave Cost of Gain $/CWT Fed Steer Price - Feed Costs $/CWT
Cattle price and returns
(US dollars per hundredweight)
Despite lower feed prices,
fed steer remain higher
on tight beef supplies.
Weaker spring demand causes
lower 2013 feeder steer price.
Tighter cattle supplies pull
prices back up in 2014.

Join IHS in an upcoming multi-client study
• Long-term increased variability weather impact study
• Increase frequency of yield variability across major producers and importers
• El Niño & La Niña patterns on Australia/Oceania and South America
• Increased rainfall shortages in North America, the European Union, and the Commonwealth of
Independent States
• Decreased monsoon in India
• Participants
• Agricultural input industries: chemicals, fertilizer, machinery, irrigation
• Food chain participants: grain handlers, processors, retailers, and restaurant chains
• Transportation industry players
• Banking and investment: global potential risks of capital investments
• All companies: global risks surrounding change in indirect costs

42
We Want Your Feedback on Today’s Topics
Everyone completing the entire
survey at the conclusion of
today’s live event will be
entered into a drawing to win a

43
Participate in the IHS Multi-Client Study…
*Offer limited to qualified entities until August 30th, 2013.
How to Participate?
Recommended for all attendees…

For More Information
Send questions and requests for information to:
Webcasts@ihs.com
Visit IHS.com/PricingPurchasing for more information
44

The Great North American Drought: Industry Impacts One Year Later

Recomendados

Recomendados

Mais conteúdo relacionado

Destaque

Destaque (13)

Mais de IHS

Mais de IHS (19)

Último

Último (20)

The Great North American Drought: Industry Impacts One Year Later