“Economic Outlook: Global Transitions”agecon.okstate.edu/extension/2016/Barr.OK Rural Economic...

Rural Economic Outlook Conference October 21, 2016

Presentation by Terry N. Barr, SeniorDirector, KED, CoBank 1

Presentation by:Terry Barr, Senior Director of Industry ResearchKnowledge Exchange Division, CoBank, ACBE-mail: [email protected]

“EconomicOutlook: Global

Transitions”

Rural EconomicOutlook Conference

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)Data source: World bank

0

25

50

75

100

125

150

175

Indexes (2010=100)

6 0 6 2 6 4 6 6 6 8 7 0 7 2 7 4 7 6 7 8 8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6 1 8

E n e rg y A g ric u ltu re (a ll c o m m o d it ie s )

RisingGlobal

Middle class

EconomicTurmoil2009-13

PolicyRealignment

2014-18

Commodity Market Realignments Will ContinueTo Reflect The New Realities of Global Economy

Factors that drove the previous decade have reversed: Slow and volatile growth in China. Value of U.S. dollar sharply higher. Advanced economies facing subdued growth potential! Emerging market growth slowed by market turmoil! Global terrorism and geopolitical risks increasing. Global commodity supplies are growing larger.

Unless Mother Nature intervenes we will remain inbottoming phase of commodity cycle!

Old normal zone

Newnormalzone?



This Strategy Will Not Work!

Business Strategies Must Adapt

Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

Most Agriculture Products Are More ExportDependent and Focused on Asian Growth



Global debt burden, impacts of aging populations, lack ofpolitical consensus or leadership, rising anti-globalizationsentiment & election cycles will delay reforms / growth!

Eurozone – Brexit and refugee migration issue is splinteringcoalitions; elections in France and Germany in 2017 will bevolatile; Brexit negotiations will take years! Bank of Englandreduces rates and injects more quantitative easing.

Japan – more fiscal stimulus. Bank of Japan actions next? U.S. – 2016 elections will be divisive; Fed remains cautious!

China’s economic transition and debt issues will reducepotential growth and add economic uncertainty.

Divergent central bank policies inject financial/currency risk.

Declining capital flows to emerging markets will limit growth.

Geo-political uncertainties and terrorism are ongoing issues.

Global Economics and Politics Unsettled

PolicyRealignment

2014-18???

RisingMiddleClass

2004-08Avg.=4.5%

EconomicTurmoil2010-13

Avg.=3.9%


Little Optimism for A Global Economic SurgeOver the Next Few Years; Too Much Turmoil

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

-2

0

2

4

6

Percent change in annual world growth (purchasing-power parity rates)

Advanced countries Rest of world China India



Global Economy Can’t Avoid MajorStructural and Geo-political Issues Forever!

Angela Merkel

German Chancellor

Mario Draghi

ECB PresidentChristine Legarde

Managing Director IMF


Europe: EU challenged by Brexit;Eurozone questions remain asgovernment debt levels and

banking sector still a problem;2017 elections in France and

Germany will be devisive withrising anti-globalizationsentiment. ECB promises

whatever it takes;

Confidential andProprietary 8

Euro Region Struggling to Transition

Monetary Union Fiscal Union Banking Union

No shortcut


Reality is a 2-3 year transition with expanded ECB role!Major structural reform will be required in labor markets.

Countries must forfeit significant sovereignty on bankingand fiscal decisions to permit the transition from a

monetary union to a fiscal and banking union!




2.2

1.7

3.23.0

0.4

-4.4

2.0

1.4

-0.6-0.4

1.1

2.01.7

1.5

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

-5

-4

-3

-2

-1

0

1

2

3

4

Annual percent change


Euro Zone Growth Rates Remain WeakWith Germany Providing Most Growth


Angela Merkel

German Chancellor

Mario Draghi



Prime Minister Shinzo Abe


Japan: currencydevaluations and

another round of QE($130 bil.) but the thirdarrow of reform is still

missing??Growth likely under 1

percent for several years




5.6

3.3

0.80.2

0.9

1.92.6

1.6

-2.0

-0.2

2.3

0.4 0.3

1.72.4

1.31.7

2.2

-1.0

-5.5

4.7

-0.6

1.5 1.5

0.00.5 0.5 0.6

19901992

19941996

19982000

20022004

20062008

20102012

20142016

-8

-6

-4

-2

0

2

4

6

8

Annual percent change


Japan Must Carry Out Structural Reformsor lose Growth Momentum


Angela Merkel

German Chancellor

Mario Draghi



Prime Minister Shinzo Abe


Xi Jinping

President of China

China: leadership is solidifying control. Growth targetshave been lowered to transition to consumer driven

economy. Vulnerability in financial system and shadowbanking sector.



9.8

11.3

12.7

14.2

9.69.2

10.4

9.3

7.7 7.77.3

6.9 6.66.2

93-0

220

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

17

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Percent growth rate per year


Chinese Growth Likely to Remain SubduedAs Advanced Economies Remain Weak

Fiscal stimulus maybe needed to stay

above 6.5%!

Source: IMF


Why China Acted To Preserve Export MarketShare As Domestic Economy Underperforms

60

70

80

90

100

110

120

130

140

150

160

170

180

Indexes of currencies/US$ with January 1999=100

S. Korea

China

U.K.

Taiwan

Mexico Japan

19 9 9 2 00 1 20 0 3 2 00 5 2 00 7 2 00 9 2 01 1 2 0 13 2 01 5 2 0 17

-5 %

Changefrom Sept.

2015

- 14%

+14%+6%

-17%

+4%




India

Brazil

Russia

Emerging markets


Emerging markets remain weak ascommodity prices decline and trade

volumes slow. Currency volatility hasrisen rapidly and capital inflows have

declined dramatically! Geopoliticalturmoil in many regions!

3.8

4.5

6.4

7.9

7.2

8.2

8.7

5.8

3.1

7.4

6.2

5.2 5.04.6

4.04.2

4.6

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

1

2

3

4

5

6

7

8

9

10

Annual percent change in real GDP

E m e rg in g M arke ts a n d D ev e lo p in g E c o n o m ie s

6.0

6.6

8.3 8.5

9.3

10.1

11.2

7.3 7.5

9.6

7.7

6.87.0 6.8 6.6 6.5 6.3

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

2

4

6

8

10

12


E m ergin g and D evelo ping A sia

0.5 0.4

2.0

6.2

4.7

5.6 5.7

3.9

-1.3

6.1

4.9

3.1 2.9

1.0

0.0

-0.6

1.6

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

-2

-1

0

1

2

3

4

5

6

7


L atin A m e rica & C arib b ea n

2.5

3.8

7.2

9.4

5.4

6.5 6.4

5.2

2.3

5.1

4.54.9

2.32.7

2.3

3.4 3.4

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

0

1

2

3

4

5

6

7

8

9

10


M iddle East & N . Africa

Emerging Markets Face Wide Range ofChallenges in New Global Environment




Amid These Transitions Central Banks AreHaving Difficulty in Coordinating Policy Moves

U.S. FederalReserve

Bank

Bank ofJapan

EuropeanCentralBank

Bank ofEngland

Bank of England will now adaptpolicy to Brexit. Reduces policy rateto 0.25% , added $79 bil. in gov’t

bond purchases and $10 bil. incorporate bond purchases.

U.S. Federal Reserve rate increase in 2015may be followed by additional increase in

late 2016. Federal Reserve in reactiverather than preemptive role relative to

inflation, unemployment and globalissues!

Bank of Japan hasimplemented negative

interest rate policy in additionto existing monetary actions.

European Central Bank continues aggressivequantitative easing and purchasing corporate

securities. If Euro region growth weakens it willundertake further actions beyond negative interest

rate strategy!

10,000

8,000

6,000

4,000

2,000

0

12,000

14,000

16,000

Billion U.S. dollars

U.S. Federal Reserve

European Central Bank

Bank of Japan

15,207

Monthly Central Bank Assets for U.S., Japan and Euro Area

June 2006 to August 2016

Central Bank Balance Sheets Continue to Growin 2016 Exceeding $15 Trillion!

Chart source: Cumberland Advisors



19Chart source: Knowledge Exchange Division, CoBank, ACB (confidential and proprietary)

0

1

2

3

4

5

6

7

Percent

Bank of Japan

Bank of England

European Central Bank


2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7

Central Banks Have Been Very AccommodatingSince 2008 …… Unable to Break Cycle!!

Zero interest rate policy (ZIRP) isnow its 8th year!

Negative interest rate policy(NIRP) now covers 22 countries

and 25 % of world GDP!

2 year 10 year Spread Under/OverCountry yields * yields* 2 year U.S. Treasury

---------- percent ---------- Basis points

United States 0.826 1.690 -------

Germany -0.682 -0.045 -150.8

France -0.633 0.200 -145.9

U. K. 0.138 0.778 -68.8

Japan -0.277 -0.069 -110.3

Switzerland -0.961 -0.552 -178.7

Canada 0.555 1.068 -27.1

Negative Interest Rates Widen SpreadsWith U.S. Treasury Yields


*As of October 4, 2016




* C u rre n c ie s w e ig h te d b y re la t ive m a rk e t im p o rta n c e to to ta l U .S . tra d e .

70

80

90

100

110

120

130

140

150

Indexes of major currencies/US$ (March 1973=100)

80 8 2 84 8 6 88 9 0 92 94 9 6 98 0 0 02 0 4 06 0 874 7 6 7 8 10 12 14 1 6

From 2002 to 2011 ……….……….... -38 %From Sept. 2011 to Sept. 2016 …. +30 %

Dollar declinedby over 25%

after floating in1973!

Asianfinancial

crisis

Deferred Federal Reserve Actions HavePushed U.S. Dollar Lower

Currencyto US dollar:

ChinaEuro

JapanBrazil

AustraliaIndia

RussiaMexico

U.S. Index

Change2014

-9 %-15 %+4 %

-39 %-19 %-10 %-69 %-45 %+13 %

from Sept.2015-5 %+0 %+14 %

+ 17 %+7 %-1 %+3 %

-14 %-2 %

U.S. dollar indexdown 5 percent since

January 2016 !

U.S.savings &loan crisis

Volkerfed policy

22

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

U.S. dollars and Brazilian reals per bushel

0

12

24

36

48

60

72

84

96

Mexican pesos per bushel

U.S. Brazil Mexico

C o rn

2005

S ept. ch ange fro m 20 15 & 2 014:

U .S . ........ -13 % -12 %

B raz il ...... -21 % + 25%

M exico .... -3 % + 24%

2006 2008 200 9 2010 20 11 2012 2013 2 014 2015 2 0162 007


Currency Changes Alter the Competitiveness ofU.S. in Terms of Customers and Competitors



Current U.S. Business Cycle is FourthLongest But Under Performing

0 4 8 12 16 20 24 28 32 36 40 44

-10%

0%

10%

20%

30%

40%

50%

Percent change from previous business cycle peak

1960-69

1969-73

1973-80

1980-81

1981-90

1990-2001

2001-07

2007-??

Num ber of quarters from previous peak and real grow th during each business cycle

38 qtrs(+52 % )

42 q trs(+41% )

36 q trs(+35% )

27 q trs(+1 9% )

34 qtrs(+11 % )


2007-?? cycleFourth longestDeepest / longest troughWeakest recovery




Economic Recovery Remains Subdued AsU.S. Economy Unable to Weather Volatility

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

-2

0

2

4

6

8

Percent change in real GDP Average growth:1970-791980-89=1990-99=2000-09=2010-16=

3.2 %3.2 %3.2 %1.8 %2.1 %

-8

-6

-4

-2

0

2

4

6

8

Percent change in quarterly Gross Domestic Product (Chained 2005$)*

* S e a s o n a lly a d ju s te d a t a n n u a l ra te2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 22 0 1 0 2 0 1 1 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

60-70% of U.S. economic growth comesfrom consumer spending:


U.S. On Subdued Growth Path But GrowthMomentum May Have Emerged in 2nd Quarter

2.4%1.5%2.2%1.6%Annual average= 2.5%

1.4 %

2.4% 1.5%




Real Gross DomesticProduct (GDP)

Personal Consumption(personal savings rate %)

Fixed investmentNonresidential

Residential

Change in Inventories

Net exports

Government spending

Percent points of contribution at annual rate:

---------- Percent change from year earlier ----------

---------- Percent change at annual rate ----------

2014III

5.0

2.9

2.5(5.7)

1.21.1

0.1

0.3

0.5

0.5

IV

2.3

2.5

3.1(5.6)

0.2-0.1

0.4

0.2

-1.1

-0.1

2015I

2.0

3.3

1.6(5.5)

0.60.2

0.4

1.1

-1.7

0.4

II

2.6

3.0

1.9(5.7)

0.70.2

0.5

-0.5

-0.1

0.6

III

2.0

2.2

1.8(5.9)

0.90.5

0.4

-0.6

-0.5

0.3

IV

0.9

1.9

1.5(6.0)

-0.0-0.4

0.4

-0.4

-0.5

0.2

I

0.8

1.6

1.1(6.1)

-0.1-0.4

0.3

-0.4

0.0

0.3

2016II

1.4

1.3

2.9(5.7)

-0.2-0.1

-0.3

-1.2

0.2

-0.3

Resilient Consumer Offsets Weakness inBusiness Investment and Inventory Drawdown

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

50

60

70

80

90

100

110

120

130

140

Percent (debt-to-income)

Debt-to-Income

Consumer Spending Remains Resilient WithLess Debt and More Disposable Income


Consumer net worth

Consumption will track income growth. Consumers are more comfortable with debt levels;incomes are rising; home prices are improving and equity markets are near record levels.

Net worth has recovered and remains at record levels. Discretionary income is higher(aided by lower gas prices and lower debt service). Wage and job growth remain issues?

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

10

20

30

40

50

60

70

80

90

100

Trillion dollars

Housing bubble



Consumers Are Showing ConfidenceThrough their Credit Card Usage

8 0-10

-8

-6

-4

-2

0

2

4

6

8

10

Billion dollars (change in 3-month moving average of consumer revolving credit)

8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6


Auto Sales Have Recovered Strongly SinceRecession But Are Beginning to Plateau

5

10

15

20

25

Monthly light vehicle sales (millions at annual rate)

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

R ecessions

12 14 16




3.0

3.5

4.0

4.5

5.0

Percent (net worth-to-GDP)

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Dot combubble

Housingbubble

Consumer Net Worth As A Percent of GrossDomestic Product Is At Historically High Levels

Fedbubble?

32

-750

-500

-250

0

250

500

Change in nonfarm payrolls (thousand)

Monthly change 12-month moving average

8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2

* B u s in e s c y c le tro u g h s : N o v 1 9 8 2 , M a rc h 1 9 9 1 , N o v e m b e r 2 0 0 1 a n d J u n e 2 0 0 9 .

0 4 0 6 0 8 1 0 1 2 1 4 1 6

Job Growth Steady in September;Unemployment Rate Up With Participation


Unemployment rate = 5.0 %Underemployment = 9.7 %Participation rate = 62.9 %Average duration = 27.5 weeks

156,000 jobs created in September(167,000 in private sector)

(averaged 203,900 for last 12 months)




Hourly Earnings Improving But Lagging theConsistent Decline in the Unemployment Rate

0

2

4

6

8

10

12

Percent rate of unemployment

0

2

4

6

8

10

12

Percent change in average hourly earnings

unemployment rate hourly wages

7 0 7 2 74 76 78 80 82 84 86 88 90 9 2 94 96 98 0 0 0 2 04 06 0 8 10

R ecessions

12 14 16

Sept.5.0%

Sept.+2.7%

0

0.25

0.5

0.75

1

1.25

1.5

1.75

2

2.25

2.5

Million starts per quarter, seasonally adjusted

Multi-family Single family Total

7 2 7 4 7 6 7 8 8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 40 2 0 6 0 8 1 0 1 2 1 4 1 6

Housing Sector Retaining Some MomentumBut It Appears to be Plateauing




Business Investment is Key to Growth andJobs in the U.S. Economy In Years Ahead

1999200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

Billion dollars in profits; investment at annual rates

Business fixedinvestm ent

Corporateprofits (after tax)

Residentialinvestment

2001 2003 2005 2007 2009 2011 2013

Housing in slowrecovery

2015

Declining corporateprofits and polcyinaction limiting

businessinvestment.


36

U.S. Economic Policy Inaction CreatesHeadwinds for Break-out Investment Growth

Risk management and investment strategies cannot deal with policy vacuum.Companies can measure and adjust to risk based on actual policy decisions!

Financial sector Financial sector regulatory reform continues

Energy sector No energy policy despite new energy paradigm;Shale technology change fossil / renewable roles.

Immigration Beginning to look like 2017 issue?

Health care sector Affordability Care Act, unintended consequences?

Regulatory oversight Increasing regulation; Clean air & water, Food safety

Federal budgetissues

Changing tax policy / entitlements / infrastructureon hold until 2017? Ongoing budget uncertainties.


Trade agreements Trans-Pacific Part. (TPP); Trans-Atlantic (TTIP) ????



Energy Sector Realignments Will Continue toBe A Major Impetus for Economic Volatility


Energy Sector Negative for InvestmentBut A Stimulus for Consumption in 2016

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

$130

$140

Dollars per barrel

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Dollars per million Btu

W e s t Te x a sIn te rm e d ia te

(le ft s c a le )

H e n ry H u b(r ig h t s c a le )


Energy Information Administration forecasts

Will there be an effective agreementamong the major non-U.S. oil

producers? With effective action oilprices could move into the $50-60 range

in 2017 despite weak global demand.

Data source: U.S. Energy Information Administration



Fiscal and Monetary Policy in TransitionWhite House

CongressU.S. Treasury Department



Regulatory Agenda WillAccelerate Under

Administrative Authoritiesin 2016!!!

(expect legislative/legal challenges)

Fiscal Policy Actions Will Await Presidentialand Congressional Election Outcomes

White House

Congress


Legislative progress on taxpolicy, entitlements, etc. willbe deferred to next Congress.Election results and budgetpressures will complicate

2017 policy options!!!



The House of Representatives

248 Republicans 187 DemocratsMost Republican seats since 1929.


Republicans +61The Senate

Republicans +8

What Will the 115th Congress and NewPresident Accomplish in 2017 and Beyond?

54 Republicans 46 Democrats** two Independents caucusing with Democrats

Republican control of House of Representatives seems secure.However control of the Senate will be in play with Republicansneeding to defend 24 and Democrats defending 10!.

Presidential election will likely be negative and contentious!

In 2018 control of the Senate will be back in play with Democratsneeding to defend 25 seats and Republicans defending 8!


83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

Deficit in billion dollars

-16

-14

-12

-10

-8

-6

-4

-2

0

2

-6 %

R e a g a n C lin to nG . H .B u s h

G .W . B u s h

S o u r c e : C o n g r e s s io n a l B u d g e t O ff ic e (A u g u s t 2 0 1 6 ) , B E A a n d T r e a s u r y D e p a r tm e n t

D e f ic it a sp e r c e n to f G D P

P e r c e n t o f G D P

O b a m a

-1 0 %

? ? ? ? ?

Over 10,000 people per daycould qualify for Medicare

over the next 13 years!

Even If Congress Adheres to SequestrationCommitments the Deficit Will Rise Sharply

First budgetsof next

President



24%28%

6%

16%26%

24%30%

9%

14%

23%Defense

NetInterest

Medicare /Medicaid

NetInterest

Defense

SocialSecurity

Discretionaryand other

mandatory

Discretionaryand othermandatory

FY 2015 FY 2020

SocialSecurity

Medicare /Medicaid

Social Security, Medicare, Medicaid and NetInterest Consuming Larger Share of Budget


58% of Spending 63% of SpendingData source: CBO August 2016

Eis

en

ho

we

r

Ke

nn

ed

y

Jo

hn

so

n

Nix

on

/F

ord

Ca

rte

r

Re

ag

an

H.W

.B

us

h

Cli

nto

n

G.W

.B

us

h

Ob

am

a

Tru

man

Ro

ose

velt

D ebt held by publicas % of G DP

40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 15 20

Fiscal year

0

2

4

6

8

10

12

14

16

18

20

22

24

Trillions of dollars

0

12

24

36

48

60

72

84

96

108

120

132

144

Percent of GDP

D ebt held by public in dollars


National Debt Will Be Increasing Rapidly in theYears Ahead Unless Action is Taken

Data source: CBO August 2016



Monetary Policy in Transition

U.S. Treasury Department



Appropriate pace of policy firming: midpoint of target range or target level estimatesof FOMC participants for federal funds rate at end of respective year (March 2016)

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.02016 2017 Longer run

Federal Reserve Consensus on Start and EndBut Pace of Increase is in Question

2018


2019The FOMC consists of twelve members--seven members of the Board of Governors,; the president of theFederal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serveone-year terms on a rotating basis. The additional possible dots are for seven presidents not on FOMC.




0

1

2

3

4

5

6

7

8

9

Percent

1 0 -y e a rT re a s u rie s

F e d e ra lF u n d s R a te

9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 40 3 0 5 0 6 0 7 0 90 8 1 21 0 1 1 1 3 1 4 1 61 5 1 7

Federal Reserve Will Be Cautious and ContinueTo Promote Growth and Employment

• Availability of credit will not be an issue.• Balance sheet and working capital will be

issue in context of price expectations.

-1

0

1

2

3

4

5

0

Percent change from year earlier (monthly seasonally adjusted)

Total PCE deflator Core PCE deflator

2008 2009 2010 2011 2012 2013 2014 2015*M o n th ly p e rs on a l c o n s um ptio n e x pe n d itu re s d e fla to r (2 00 9 =1 0 0); co re e x clud e s fo o d a n d e n erg y

2016

Core Inflation Is Accelerating Slowly




0

1

2

3

4

5

6

Percent rate

1 0y e a r

7y e a r

5y e a r

3y r

2y r

1y r

3 0y e a r

2 0y e a r

J a n , 2 0 0 7

J a n , 2 0 0 8

J a n . 2 0 1 4

J a n . 2 0 1 3

J a n . 2 0 1 7

J a n . 2 0 1 8

Yield Curve Likely to Flatten Very GraduallyUnder Federal Reserve Preferred Option


Agriculture Markets Are Continuing SignificantTransitions in This Global Environment



70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

10

20

30

40

50

60

70

80

Million metric tons of soybeans

0

5

10

15

20

25

30

35

40

Stocks-to-use percentage

World ending stocks Stocks-to-use

S o y b ea n s

Global Carryovers Remain Large; Stocks-to-UseNear Record High for Wheat and Cotton


70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

50

100

150

200

250

300

Million metric tons of coarse grains

0

12.5

25

37.5

50

62.5

75

Stocks as percent of use

Co a rse G ra in s

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

50

100

150

200

250

Million metric tons of wheat

0

8

16

24

32

40

Stocks as percent of use

W h ea t

72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

20

40

60

80

100

120

Million 480-pound bales of cotton

0

20

40

60

80

100

Stocks-to-use percent

World ending stocks Stocks-to-use

C o tto n

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

Dollars per bushel (monthly prices received by farmers, USDA)

W h e a t p r ic e

8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 67 0 7 2 7 4 7 6 7 8$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00


C o rn p r ic e

8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 67 0 7 2 7 4 7 6 7 8

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18


S oy be an price

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 1670 72 74 76 78


Commodity Markets Are in Different Stagesof Transition …. “Now Cents Matter”

20

30

40

50

60

70

80

90

100

Cents per pound (monthly prices received by farmers, USDA)

U pland cotton price

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 1670 72 74 76 78




1.9%

2.5%2.3%

2.9%

1.3%

0.7%

0.2%0.4%

1.4%

3.0% 3.0%

20052006

20072008

20092010

20112012

20132014

20152016

2017

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

Percent change in production from year earlier

To ta l in clud in g farm p rod u ction fo r red m ea ts a n d, fo r p o u ltry, fe de rally in sp ec te d p lu s n o n-fed erally ins p ec te d, les s co n de m n ation s.

Total U.S. Meat and Poultry ProductionContinuing Strong Increases Into 2017

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

Dollars per doz. (monthly prices USDA)

E g g s(a ll e g g s )

9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4 1 6$0

$25

$50

$75

$100

$125

$150

$175

Dollars per cwt. (monthly prices USDA)

C a tt le p r ic e s(s te e rs & h e i fe r s G E 5 0 0 lb s )

9 2 9 4 9 6 9 8 0 0 0 2 0 4 0 6 0 8 1 0 1 2 1 4

H o g p r ic e s(b a r r o w s a n d g i l ts )

1 6

0

5

10

15

20

25

30

Dollars per hundredweight (monthly prices USDA)

M ilk prices

92 94 96 98 00 02 04 06 08 10 12 14 16

0

20

40

60

80

100

Cents per pound (monthly prices USDA)

Broiler and Turkey prices

92 94 96 98 00 02 04 06 08 10 12 14

Broilers

Turkeys

16


Animal Protein/Dairy Adjusting to GlobalDependence; Lower Feed Costs Will Help




1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

50

60

70

80

90

100

110

120

130

140

Index (2011=100)

P r ic e s re c e iv e d : c ro p s

* P r ic e s p a id c o m m o d it ie s & s e rv ic e s , in te re s t , ta x e s a n d w a g e ra te s

P r ic e s re c e iv e d : l iv e s to c k

P r ic e sp a id

Commodity Prices Adjusting Sharply to NewMarket Realities; Cost Side Next

Costpressures


80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

0

25

50

75

100

125

150

Billion dollars

Net cash income (Aug.)

February estimate

Direct payments Decade averages

D irec t g overnm en t p aym ents*

* S ou rce: U S DA

2010-16

$122 .2

2000-09

$72 .2

1990-99

$56 .51980-89

$42 .7

Since 2010 net cash farm income hasaveraged 64 percent higher than

previous decade!

Farm Income Likely To Be Under DownwardPressure But Revisions Boost Income!

2015 incomerevised up by

$15 bil.



The market transitions will bring new opportunities andchallenges as supply chains from farmers to retailersrealigned to new domestic and global market realities.

Accessing and implementing new enhancedtechnologies and precision agriculture/data mining willbecome strategic business option for producers. Theywill need size and scale to exploit these technologies.

The regulatory and market demands for more scrutiny ofthe food/input chains will expand and impact domesticand global supply chains from producers to retailers.(food safety, sustainability)

The Transition in Markets CreatesStrategic Management Challenges


The pace of consolidation, both horizontally andvertically, will accelerate over next few years aseconomies of scale, diversification and globalpositioning are driven by massive amounts of liquidity.(production agriculture, input supply chains, and foodprocessing and retailing will reevaluate strategies foradjusting to new realities.)

Mega mergers already in pipeline will change inputsupply chain (Dow-Dupont merger would control 25%of global seed market and 15% of pesticide sales,ChemChina-Syngenta, Bayer-Dow, Potash and Agriumand John Deere-??)

The Transition in Markets Creates StrategicManagement Challenges for Cooperatives




A strong balance sheet with significant working capitaland strong risk management policies will be required.Debt capital will become more expensive and subject totightening credit standards in the years ahead.


Farmers, particularly mega-producers, will requiretheir partners to provide speed, space and risk

management options for inputs and marketing.

The Transition in Markets Creates StrategicManagement Challenges for Cooperatives

“Economic Outlook: Global Transitions”agecon.okstate.edu/extension/2016/Barr.OK Rural Economic...

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