International

Perspectives on
Farm Income Drivers

J. P. Gervais
Chief Ag Economist
July 2014

Near record farm cash income in the

U.S. and throughout the world

Source: USDA - ERS

World population growth and

changing diets is projected to
increase food consumption by 60
percent between 2007 and 2050

(yet) world production

would need to increase at rates
much lower than in the past
Source: FAO

But what are we really talking about?

A shift in demand and/or a shift in supply

And why is this important

for farm income?

Fairly wide consensus around global

production increase for commodities, so
pricing and income all hinges on demand

Source: IMF, DataMapper

More affluent populations

Changing food
preferences

Global population growth

Increased demand for
meat and feed grains

Consumption upgrade powered by a larger

portion of middle income households

Food consumption growth in China

Source: USDA - ERS

Self sufficiency ratio (0=self

sufficient, -1=all imported)

with increasing reliance on imports

Source: OECD

Chinese GDP slowing, but does it matter?

Target

16%

Actual

14%
12%

Current
pace:
7.4%

10%
8%
6%
4%
2%
0%
2003

2005

Source: World Bank

2007

2009

2011

2013

A smaller workforce will lead to more

productivity gains and higher wages
Chinese demographic shift

millions of people

1,000
800

Age 15-59

600
Age 60 and over

400
Age 0-14

200
1950
Source: United Nations

1970

1990

2010

2030

2050

Chinas challenge is to rebalance

their economy
55.0

Investment

50.0

GDP share (%)

45.0
40.0
35.0

consumption

30.0
25.0
20.0
1980

1985

Source: World Bank

1990

1995

2000

2005

2010

Expansion of biofuels overall been

positive for farm cash income
Production

Consumption

Billions of gallons

16

12

0
2000

2007

2008

Source: US Energy Information Administration

2009

2010

2011

2012

2013

Consumer food
preferences are
evolving
Food safety
Health and
nutrition
Values-based
purchasing
Ethnic preferences

Sources of growth in crop production

Annual growth (%)

Wheat

World

Source: FAO

Contributions to
growth (%)

Production

Harvested
land

Yield

Harvested
land

Yield

1961-2007

3.6

0.7

2.9

19

81

2007-2050

0.9

0.0

0.9

99

1961-2007

3.6

1.1

2.5

30

70

2007-2050

1.4

0.6

0.8

41

59

Sources of growth in
developing countries
Annual growth (%)

Wheat

Corn

Source: FAO

Contributions to
growth (%)

Production

Harvested
land

Yield

Harvested
land

Yield

1961-2007

3.6

0.7

2.9

19

81

2007-2050

0.9

0.0

0.9

99

1961-2007

3.6

1.1

2.5

30

70

2007-2050

1.4

0.6

0.8

41

59

Big data in ag

Policy response to the drivers of farm

income not about subsidies anymore

The trade policy environment

now focuses on bilateral deals
1990-1994
1995-1999
2000-2004

24
33
48

2005-2009
2010-2015

Source: WTO

77
50

This is perhaps the biggest

success story in the U.S.
Bulk

Intermediate

Consumer Oriented

160

$billion

120
300%
80
270%
40
270%
0
2000
Source: USDA-ERS

2002

2004

2006

2008

2010

2012

CETA

TTIP

Australia Japan

Agricultural subsidies are not

distributed equal

U.S. 13/14 stock to use ratio has

tightened as year progressed
25%
20%

2013
Initial
projection

15%
10%
5%

June 2014
projection

0%
01/02
Source: USDA - WASDE

05/06

09/10

13/14

Looking into next year 2014-15 average price

between $3.85 $4.55 markets more optimistic
25%
20%
June
projection for 14-15

15%
10%
5%
0%
01/02

03/04

Source: USDA - WASDE

05/06

07/08

09/10

11/12

13/14

Red meat consumption expected to

stabilize in western nations

* Includes pork, beef, and lamb

Source: AAFC Medium Term Outlook

Red meat consumption still has

upside in developing nations

* Includes pork, beef, and lamb

Source: AAFC Medium Term Outlook

Cattle numbers declining, contributing

to price pressures

Thousands of Beef Cattle

Canada

U.S. (right axis)

5,500

34,000

5,000

33,000

4,500

32,000

4,000

31,000

3,500

30,000

3,000

29,000

2,500

28,000

2,000

27,000
2000

2002

2004

2006

2008

2010

2012

Breeding and market hog inventory

(seasonally adjusted)
Breeding stock
1,800

14,000
Market hog inventory decline from peak -14.8%

13,000
12,000

1,700
1,600
1,500
1,400

11,000
Breeding hog inventory decline from peak -26.1%

10,000

1,300
1,200

9,000

1,100

8,000

1,000
Jan
2000

Source: Statistics Canada

Jan
2002

Jan
2004

Jan
2006

Jan
2008

Jan
2010

Jan
2012

Breeding stock thousand head

Market hogs thousand head

Market hogs

G&O prices expected to stabilize in the longrun above historical average

Source: USDA Agricultural Projections to 2023

Livestock prices settling at higher plateau

Source: USDA Agricultural Projections to 2023

Consumers rule!

Bilateral trade agreements are

important to sustain farm income

Grain and oilseed prices cooling-off

Positive outlook, but what

is the appetite for risk?

Where does this leave

farm profitability?

Source: USDA Agricultural Projections to 2023