Global Protein Outlook and Other Stuff

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Global Protein Outlookand Other Stuff

• Daryll E. Ray
• University of Tennessee
• Agricultural Policy Analysis Center

The Purchasing and Ingredients Suppliers
Conference Sandestin, Florida March 12, 2009
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What Were Going To Do

• Global Protein Outlook (Its my assignment!)
• Exports Perpetual Promises
• Two Views of Commodity Policy
• Show Me the Money
• Houston, Weve Got a Problem
• Policy for All Seasons
• WTO Implications

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The CalmAfter the Storm

• (Well, relatively anyway)
• Soybean meal prices are way down and likely will
  go lower in the months ahead
• Next year
• Large soybean crop probable
• Protein prices could be considerably lower
• Soybean meal continues to dominate the U.S.
  protein market
• Will China gobble up our soybean supply?

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Weekly CBOT Soybean Meal Price
February 2, 2007 March 6, 2009
5
The CalmAfter the Storm

• (Well, relatively anyway)
• Soybean meal prices are way down and likely will
  go lower in the months ahead
• Next year
• Large soybean crop probable
• Protein prices could be considerably lower
• Soybean meal continues to dominate the U.S.
  protein market
• Will China gobble up our soybean supply?

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US Domestic Consumption of Protein Meals - 2007
Peanut Meal lt1
Cottonseed Meal 1
Rapeseed Meal 7
Sunflowerseed Meal 1
Fish Meal 1
Soybean Meal 88
Imports are 5.8 of this total
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US Imports of Protein Meals - 2007
Soybean Meal 6
Fish Meal 2
Rapeseed Meal 92
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World Production/Consumption of Protein Meals -
2007
Cottonseed Meal 7
Fish Meal 2
Palm Kernel Meal 3
Copra 3
Peanut Meal 3
Rapeseed Meal 12
Sunflowerseed Meal 5
Soybean Meal 68
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The CalmAfter the Storm

• (Well, relatively anyway)
• Soybean meal prices are way down and likely will
  go lower in the months ahead
• Next year
• Large soybean crop probable
• Protein prices could be considerably lower
• Soybean meal continues to dominate the U.S.
  protein market
• Will China gobble up our soybean supply?

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China Soybeans
Soybean Imports
Soybean Production
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China Soybean Meal
Soybean Meal Production
Soybean Meal Imports
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Chinese Soybean Imports
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Soybean Exports
United States
Brazil
Argentina
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Soybean Complex Exports
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Soybean Complex Trade
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Exports Perpetual Promises

• Be a permanent source of ever increasing US
  agricultural prosperity
• Correct the long-term price and income problems
  in agriculture

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Data Show or Survey Says...
US Domestic Demand
US Population
US Exports
Adjusted for grain exported in meat
Index of US Population, US Demand for 8 Crops and
US Exports of 8 Crops 19791.0
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What About Exports?
US Exports
Thousand Metric Tons
Developing Competitors Exports
Developing competitors Argentina, Brazil, China,
India, Pakistan, Thailand, Vietnam 15 Crops
Wheat, Corn, Rice, Sorghum, Oats, Rye, Barley,
Millet, Soybeans, Peanuts, Cottonseed, Rapeseed,
Sunflower, Copra, and Palm Kernel
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What About Exports?
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What Were We Thinking

• Why would we expect trade to deliver crop
  agriculture to the Promised Land?
• 1970s Syndrome
• Earl Butz said
• The outsized export share of the 1970s has been
  viewed as US property from then on
• When exports slowed in the 1980s
• Been on a quest to recapture the Golden Age of
  Agriculture (1970s)
• Lowered Loan Rates
• Moved from supply management to writing checks

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What Were We Thinking

• Why would we expect trade to solve US price and
  income problems?
• Because we are confused!
• We implicitly think US agriculture would be just
  fine
• If only such and such were removed or different
• Complete access to all international markets
• Exchange rates were different
• Inflation were reduced
• Subsidies were eliminated
• Etc., etc.
• After these such and suches, the importers
  would import more and our export competitors
  would export less
• And all would be fine in the world that is
  agriculture
• Ag prices and incomes would be stable and high

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So Whats Not Considered?

• FOOD IS DIFFERENT
• Food is a national security issuejust like
  military security is to the US. So
• Countries want to domestically produce as much of
  their food as possible
• Political considerations
• Need to feed the population
• Need to provide a living for millions in
  agriculture
• Need an orderly exit of workers out of
  agriculture
• Suppose there had been total access to all
  international markets this past year
• Vietnam, Thailand and scores of other countries

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So Whats Not Considered?

• Except for short periods, production outstrips
  demand
• This is a good thing
• Butz had it right except for one word
• Excess capacity in the future will be a worldwide
  problem
• Increased acreage
• Increased yields
• When prices decline, self-correction does not
  work (very quickly at least)
• Quantities demanded and supplied change little
• (Stay tuned for The Rest of the Story

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Expecting Trade To

• Deliver US agriculture to the promised land of
  unending prosperity with no government
  intervention is too much to ask
• WTO or no WTO, US agriculture exports will be
  limited by
• The nature of agricultural importers demands
• The nature of USs agricultural export
  competitors supply
• The US is the residual supplier
• Therefore we should expect continuing periods of
  low prices when agriculture cannot self-correct
  on its own

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Two Views of Commodity Policy

• Show Me the Money
• Houston, Weve Got a Problem

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Show Me the Money

• View that commodity programs exist because
• Farmers have inordinate political power
• Farmers milk the government
• Corresponding Conclusion
• Farm programs are a waste
• They address no real problem
• Taxpayer gift

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Show Me the Money

• So
• Get rid of them
• Conservative think tanks
• Editorial writers and syndicated columnists
• Those for which free market is not a concept
  but a religion plus much of the general public
• Redistribute or earn payments
• Environmental/Wildlife Groups
• States with large vegetable/fruit/etc production
• Organic, small farms, land preservation, tourism
• Multi-functionality (all the above)

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Houston, We Have A Problem

• Chronic price and income problems
• Why?
• Market correction does not occur in timely manner
• Economist call this Market Failure
• Sometimes in remission
• but always comes back
• What does this mean, you say

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In General

• Econ 101 says that (except during melt-down
  periods) markets correct on their own
• In times of low prices or increased inventories
• Consumers buy more
• Producers produce less
• Viola! Self-correction.

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Characteristics of Ag Sector

• Agriculture is different from other economic
  sectors.On the demand side
• With low food prices
• People dont eat more meals a day
• They may change mix of foods
• Aggregate intake remains relatively stable

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Characteristics of Ag Sector

• Agriculture is different from other economic
  sectors.On the supply side
• With low crop prices
• Farmers continue to plant all their acres
• Farmers dont and cant afford to reduce their
  application of fertilizer and other major
  yield-determining inputs
• Who farms land may change
• Essential resourcelandremains in production in
  short- to medium-run

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Why Chronic Problems In Ag?

• Technology typically expands output faster than
  population and exports expand demand
• Much of this technology has been paid for by
  taxpayers
• The growth in supply now is being additionally
  fueled by
• increased acreages in Brazil, etc.
• technological advance worldwide

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Early Policy Was Output Expanding

• Historic policy of plenty
• Land distribution mechanisms 1620 onward
• Canals, railroads, farm to market roads
• Land Grant Colleges 1862, 1890, 1994
• Experiment Stations 1887
• Cooperative Extension Service 1914
• Federal Farm Credit Act 1916
• This policy of plenty continues today

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Easy to Under EstimateSupply Growth

• US supply response
• Conversion of Conservation Reserve Program
  Acreage and hay/pasture land to crop production
• Investment in yield enhancing technology (300
  bu./ac on best land in a few yearsnational
  average a decade or later?)
• Conversion to cellulosic feedstocks for ethanol
  production

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Easy to Under EstimateSupply Growth

• International supply responseyield
• Development and adoption of drought/saline/disease
  resistant crops
• Globalization of agribusiness Near universal
  access to the new technologies world-wide
• Narrowing of technology and yield differentials
  between the developed and developing world

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Easy to Under EstimateSupply Growth

• International supply responseacreage
• Long-run land potentially available for major
  crops
• Savannah land in Brazil (250 mil. ac. -- USDA
  says 350)
• Savannah land in Venezuela, Guyana, and Peru (200
  mil. ac.)
• Land in former Soviet Union (100 mil. ac.)
• Arid land in Chinas west (100 mil. ac. GMO
  wheat)
• Savannah land in Sub-Saharan Africa (300 mil. ac.
  -- 10 percent of 3.1 bil. ac. of Savannah land)
• Supply growth has always caught and then
  surpassed demand growth (and it does not take
  long)

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Policy for All Seasons

• Assume the unexpected will happen
• Random policy and weather events do occurPlan
  for them
• Establishment of International Grain and Oilseed
  Reserve
• Moderate impacts of random policy and weather
  events by providing stable supply until
  production responds
• Operated by an international commissiondecision
  making/oversight
• Stores strategically purchased/stored

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Policy for All Seasons

• Keep productive capacity well ahead of demand
• Public investment in yield enhancing technologies
  and practices
• Provide means to hold arable land in rotating
  fallow during periods of overproduction
• This land can then quickly be returned to
  production in the case of a crisis

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WTO

• Does not account for the unique nature of food
  and agriculture
• Needs to understand the difference between DVD
  players and staple foods
• Needs to be reformulated or replaced with an
  organization that recognizes the need for
• Food reserves to address the inevitable shocks to
  the availability and price of food
• Promoting increases in worldwide productive
  capacity, especially each countrys domestic
  production
• Addressing
• Agricultures inability to gauge the use of
  productive capacity to match demand by creating
  methods to overcome
• Agricultures inability to self-correct

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Finally

• (Other) statements that lead farmers and others
  to erroneous conclusions
• 95 of the worlds population is outside the US
• Increases in per capita income and growth or the
  middle class in China and India
• The value of the dollar has decreased this export
  season .
• The value of US agricultural exports has
  increased substantially

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Thank You
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