Open Markets, Economic Growth and Shared Prosperity “The .../media/others/events/... · Prepared...
Transcript of Open Markets, Economic Growth and Shared Prosperity “The .../media/others/events/... · Prepared...
Al AmbroseVice President, Risk Management
Oilseed ProcessingCHS
Open Markets, Economic Growth and Shared Prosperity
22nd Annual Outlook SymposiumFederal Reserve Bank of Chicago
Chicago, ILDecember 5, 2008
“The Luckiest Generation”
A Remarkable Sequence of Events Leads Global Transformation
• Circa 1947 – UK PM Atlee (Fabian Socialist) nationalized banks, coal, steel, roads, rails, aviation, electricity, telegraph. Created NHS (National Health Service) and welfare system.
• 1979 – 1990 Margaret Thatcher as U.K. Prime Minister privatizes 2/3 U.K. state-run industries, deregulates, cuts taxes (basic rate of 33% to 25%, top wage rate of 98% cut to 40%)
• 1980 - 1988- Ronald Reagan as U.S. President cuts taxes (top tax of 78% cut to 35% [was 91% in 1961], promotes deregulation, S.D.I.
• U.S./U.K. economies lead global economic recovery (S&P 500 & U.K. FTSE triple ’82 -’87)
Remarkable Sequence… continued
• 1983/84 - Deng Xiaoping introduces “market socialism” ,de-collectivizes state-run farms, promotes individual property rights through long-term land leases
• Nov ’89 Berlin Wall falls, Cold War ends, global shift from “guns to butter”
• 1992/93 Uruguay Round (GATT) ends, global industrial trade reform
• 1994 – “NAFTA”
• Widespread “sustainable prosperity”
A Formula for Prosperity
• Rule of Law (ordered liberty)• Property rights (i.e. limited taxation)• Capitalism (individual opportunity)• Competition (creative destruction)• Trade (comparative advantage)• Sensible immigration policy• Democracy? In America, capitalism
predated democracy by hundreds of years
Standard & Poor 500 – Monthly – 78 Years
1,553 (Mar’00)
107 (Jul’82)
14-fold expansion over 18 years
All price charts as of C.O.B. November 28, 2008
Dow Jones Industrial Index - Quarterly - 108 years
Keynesian economic theory dominated public policy: 1945 -1980
(onerous taxation, central planning, government regulation and programs, socialism, collectivism…)
386 (1929)
570 (1974)
Laski, Marx, Keynes, Atlee, Nehru, Galbraith, P.Samuelson, Krugman
“The State is wiser than the individual…”
Dow Jones Industrial Index - Quarterly - 108 years
Monetarist (“Chicago School”) approach replaced Keynesian policies circa 1981…
(tax-reform, privatization, deregulation,free enterprise, capitalism, individualism…)
Adam Smith, Von Misses, Hayek, Friedman, Reagan, Thatcher,
Greenspan, Laffer, Kemp, Bernanke
“Individuals and markets allocate resources better than governments…”
Dow Jones Industrial Index - Quarterly - 108 years
11,750 (Mar’00)
15-fold expansion over 18 years…
*Dow 132,000 by 2026?
770 (Aug’82)
(*Note: This is a rhetorical question, not a forecast!)
Post-9/11 high14,198
(10/11/07)
Post-9/11 low 7,198
(10/10/02)*
Leadership, Ideas, Policy Choices Matter…
• 1957 –1981
• 300 months
• 40 in recession
• 13% of period
• 1982 –2007
• 300 months
• 8 in recession
• 2.7% of period
Source: Recessions by Geoffrey H MooreThe Concise Encyclopedia of EconomicsLibrary of Economics and Liberty
U.S. Household Net Worth(trillion dollars)
• 1950 1.0• 1960 1.8• 1970 3.4• 1980 9.4• 1990 20.2• 2000 42.0• 2007 (Q3) 58.7• 2008 (Q2) 56.0
Source: U.S. Federal Reserve Statistical ReleaseFlow of Funds Accounts – Sept 18, 2008
Expanded 6-fold in 27 years!
Up 33% since 2000
56 trillion secondsis 1.78 million years…
All this growth despite…• U.S./global equity market collapse’00-02 • 9/11/01• Enron, WorldCom, Tyco, etc.• Three-year global economic slump• Afghanistan and Iraq wars• SARS, BSE, Avian flu• Global war on terror• 17 Fed funds rate hikes (6/04 – 6/06)• Katrina/Rita• Real-estate “bubble” • $100+ crude oil• Sub-Prime loan debacle
U.S. 30-year Bond Index – Quarterly – 31 years
Greenspan’s conundrum…
Productivity growth, massive wealth creation,
Asian savings rate,equity-risk aversion, “housing bubble”,
“Boomer” safe haven,21.5% prime rate (12/80)
4% prime rate (6/03)
Liquidity
4%
U.S. Life Expectancy at Birth (years)
1900 48.3 46.3 47.3 1935* 63.9 59.9 61.71970 74.7 67.1 70.82000 79.7 74.3 77.02006 80.7 75.4 78.12006 v 1900 +67% +63% +65%2006 v 1935 +26% +26% +26%
*Social Security Act signedSource: National Center for Health Statistics
June 2008
Female Male Both Sexes
US Net Farm Income(Billions of Dollars)
38.747.9 44.5
49.2
37.2
54.948.6 48
40.2
59.7
85.879.3
58.5
86.895.7
51.546.245.6
0
20
40
60
80
100
12019
9119
9219
9319
9 419
9519
9619
9 719
9819
9 920
0020
0120
0 220
0320
0420
0520
0620
07P
2008
F
’91-’00 $46.1B Avg.
Source: USDA – Oct 2008
Uruguay, NAFTA, CAFTA-DR not helpful to US farmers?
$81.1B Avg.
’01-’08 $69.7B Avg.
$100B+?
US Average Farm vs. Non-Farm Household Income(Percentage)
80
100
120
140
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: USDA – Oct 2008
97%
135% ?
US Farm Sector Debt to Equity Ratio(Percentage)
8
10
12
14
16
18
20
22
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
P20
08F
Source: USDA – Oct 2008
19%
9.9%
Average Farm Equity (Thousands of Dollars)
600
800
1000
1200
1400
1600
1800
2000
2200
2400
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
P20
08F
Source: USDA – Oct 2008
$705
$2,147
Soy Consumption and Global Prosperity
• As the very poor advance economically, they move from grains to vegetable oils to meat.
• Per capita vegetable oil consumption in the poorest countries is used by IMF as measure of changing living standards.
• Very poor people do not purchase meat.• In many developing countries, massive job
creation and rapidly advancing incomes spur improved dietary intake.
• The result? An unprecedented expansion of vegetable oil and protein consumption.
World Soybean Production 1995-2008(Million Metric Tons)
11 Yr Avg. +10 MMT
Source: USDA – Nov 2008
Total production up 112 MMT(90%) in 11 yearsChina usage grew 28 MMT (25%)
(18)(24)
(19?)
Soybean harvest followed by planting of double crop corn (31 combines & 12 planters)
Soybean Harvest - Mato Grosso, Brazil
Yesterday: A Threat…
Today: A Necessity…
Malaysian, Indonesian, Other World Palm Oil Production(Million Metric Tons)
Source: USDA FAS – Nov 2008
0
5
10
15
20
25
30
35
40
45
50
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
OTHER WORLD INDONESIA MALAYSIA
5
43.2Eight-fold in 28 years!
Average: Up 2.4 MMT past 10 years(11 million soybean acres)
World Vegetable Oil Production (9)(Million Metric Tons)
80/81 08/09 Percent ChangePalm 4.9 43.2 +782%Soybean 9.8 37.8 +286% Rape 3.9 19.4 +398%Sun Seed 4.6 11.7 +154%Groundnut 2.3 4.9 +113%Cotton 2.9 5.0 +72%Palm Kernel 0.5 5.1 +920%Olive 1.9 3.0 +58%Coconut 2.8 3.6 +29%Total 33.6 133.7 +298%
World production quadruples in 28 years!Source: USDA FAS – Nov 2008
23.269%
11284%
(World Population + 50.5% same period)(5.9X)
World Production vs. Year-end Stocks-to-Use Ratios(Combined Palm oil, Rape oil, Soy oil, Sun oil)
4.0%5.0%6.0%7.0%8.0%9.0%10.0%11.0%12.0%13.0%14.0%15.0%16.0%
20
30
40
50
60
70
80
90
100
110
120Production (MMT) Stocks-to-use (%)
Source: USDA FAS – Nov 2008
*This prior to recent bio-fuels phenomenon…
*30+ year low
Strong Economic Growth, Especially In DevelopingCountries, Stimulates Demand For Both Food And Fuel
0
200
400
600
800
1000
1988 1992 1996 2000 2004 2008 2012 2016 2020
Foreign households w/real PPP incomes greater than $20,000 a year (in millions of households)
Source: Global Insight’s Global Consumer Markets data as analyzed by OGA/FAS/USDA
Developing countries
Developed countries (ex US)
3501.4B
5602.2B
9503.8B
0
100
200
300
400
500
600
700
800
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
YEAR BEGINNING ON JUNE 01
MILLION TONNES
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
PERCENT
Ending Stocks Total Consumption STU %
Source: USDA & Citi
World Corn Ending Stocks, Consumption and Stocks to Use %(Million Metric Tons)
46%
14%
36 year low
800 MMT*
Nov 2008
*
Major producing country corn yields: Huge untapped potential
0
2
4
6
8
10
12
199019911992199319941995199619971998199920002001200220032004200520062007
Yie
ld(m
t/ha)
EU
Argentina
China
Brazil
U.S.
Prepared by OGA/FAS/USDA July 2008
U.S. corn yields
0
3
6
9
12
15
1960/1961 1975/1976 1990/1991 2005/2006
MT/ha
10-year Trend Projection
40-year Baseline Projection
2008 – 2016 data from USDA Agricultural Baseline Projections; 10-year trend analysis from FAS
Herbicide, Insecticide, Fertilizer Use in U.S Corn Production
Herbicide and insecticide use
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Herb
icid
e po
unds
of a
ctiv
e in
gred
ient
s pe
r ac
re
0
0.05
0.1
0.15
0.2
0.25
0.3
Inse
ctic
ide
poun
ds o
f act
ive
ingr
edie
nt
per
acre
Insecticide Herbicide
Source: USDA/NASS, Agricultural Chemical Usage Report
Prepared by OGA/FAS/USDA July 2008
Fertilizer use
3.75
3.95
4.15
4.35
4.55
4.75
4.95
5.15
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Ferti
lizer
poun
dspe
rbus
hel
Source: USDA/ERS
0
100
200
300
400
500
600
700
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
YEAR BEGINNING ON JUNE 01
MILLION TONNES
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
PERCENT
Ending Stocks Total Consumption STU %Source: USDA & Citi
World Wheat Ending Stocks, Consumption and Stocks to Use %(Million Metric Tons)
38%
22%
Rebounding from 40+ year low
655 MMT*
Nov 2008
*
0
50
100
150
200
250
300
350
400
450
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
MILLION
TONNES
0
5
10
15
20
25
30
35
40
45
PERCENT
STOCKS USAGE STK/USE
World Rice Ending Stocks, Consumption and Stocks to Use %(Million Metric Tons)
37%
19%
429 MMT*
Source: USDA & Citi
Stable at 30 year low
Nov 2008
*
0
20
40
60
80
100
120
140
160
180
20080
/81
82/8
3
84/8
5
86/8
7
88/8
9
90/9
1
92/9
3
94/9
5
96/9
7
98/9
9
00/0
1
02/0
3
04/0
5
06/0
7
08/0
9
MILLION TONNES
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
27.5
30.0
PERCENT
STOCKS USAGE STK/USE
World Barley Ending Stocks, Consumption and Stocks to Use %(Million Metric Tons)
23%
19%
Big recovery from 24 year low144 MMT
Source: USDA & Citi Nov 2008
13%
0
10
20
30
40
50
60
70
80
9019
78
1985
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Perc
ent
Urban Rural
China – Rural versus Urban Population(1978)
82% R -790m
18% U - 172m Total 963m
(2002) +2461% R - 782m
39% U - 502mTotal 1.28B
“To get rich is glorious!” Deng Xiaopeng (1984)*
(2011) +950% R - 690m
Total 1.38B
*
Chinese Soybean Oil Consumption (Million Metric Tons)
0
2
4
6
8
10
12
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Source: USDA – Nov 2008
48-fold expansionover 25 years...
1992
Chinese Soybean Meal Consumption(Million Metric Tons)
02468
10121416182022242628303234
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Source: USDA – Nov 2008
1992
3000% increase 1990 to 2008
16% population growth same period
Protein consumption grew 188x population past 18 years
Chinese Soybean Meal Consumption(Million Metric Tons)
02468
10121416182022242628303234
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Source: USDA – Nov 2008
1992
“Supply-side economics”
Says law: “supply creates its own demand”
Chinese Soybean Imports (MMT)
0
4
8
12
16
20
24
28
32
36
4019
91/9
2
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
07/0
8pro
j.
08/0
9pro
j
Source: USDA – Nov 2008
Rose 235-fold over 13 years…
*(10 year average gain 3.4 MMT)
.16 3.9*
37.8
Chinese Vegetable Oil Imports (Million Metric Tons)
0
1
2
3
4
5
6
7
8
9
10
1991
/92
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
07/0
8pro
j.
08/0
9pro
j.
SBO
RSO
Palmoil
Total
Source: USDA – Nov 2008
Record palm oil imports9 years running…
Soy oil imports avg.2.2 MMT past 7 years…
Vegetable Oil Disappearance (KG P/C)
0
2
4
6
8
10
12
14
16
18
20
84/8
5
85/8
6
86/8
7
87/8
8
88/8
9
89/9
0
90/9
1
91/9
2
92/9
3
93/9
4
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00/0
1
'01/
02
'02/
'03
'03/
'04
'04/
'05
'05/
'06
'06/
'07
China Cuba FSU-12 India North Korea Mexico
Source: FAS – Feb 2007
3.1
15.3
5.311.1
16.9
*10.4
2N.K.
*T.S.R.E.E.A. - 2000
*Trade Sanctions Reform Export Enhancement Act of 2000
10
14.9
U.S. 38, Canada 26.3, EU-25 27.8, Japan 17.2Socialistic Democracy? Capitalistic Autocracy?
Obesity in China Doubled in 11 Years With Rising Prosperity
By Cristina AlesciJuly 8 (Bloomberg) --
Still Not Convinced?
Capitalism versus Socialism
“A government big enough to give you everything you want, is strong enough to take everything you have.”
Thomas Jefferson
“The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery.”
Winston Churchill
As of C.O.B. 28-Nov-08Symbol Post 9/11 Low 2007 High Gain Current Current % gain
S & P 500 769 1,576 105% 896 17%Dow Jones Industrials 7,198 14,198 97% 8,829 23%DJ Canada 1,843 5,019 172% 3,052 66%DJ Mexico 3,719 22,355 501% 13,730 269%NIKKEI 225 7,650 18,350 140% 8,515 11%FTSE 100 London 3,278 6,754 106% 4,288 31%DAX 30 Frankfurt 2,189 8,152 272% 4,669 113%CAC 40 Paris 2,401 6,168 157% 3,263 36%SNG - Singapore 895 3,126 249% 1,334 49%DJ Taiwan 871 2,448 181% 1,074 23%DJ South Korea 829 4,374 428% 2,279 175%DJK Hong Kong 1,378 5,992 335% 2,335 69%
Average 2,752 8,209 229% 4,522 73%
BRAZIL BOVESPA 8,420 74,500 785% 37,500 345%RUSSIA MICEX 131 1,970 1404% 611 366%INDIA SENSEX 2,595 21,207 717% 9,093 250%CHINA SHANGHAI 110 588 435% 196 78%
Average 2,814 24,566 835% 11,850 260%
16 Selected Equity Markets
World & Selected Countries (2007 Data) GDP, GDP and Rank, Population
2005-07Country Rank $Trillion % 3yr GDP Growth Avg. Million Rank %
World 54.3 3.6 6,602
US 1 13.8 25.4% 2.7 301 3 4.6%
Japan 2 4.4 8.1% 2.2 127 10 2.0%
Germany 3 3.3 6.1% 2.4* 82 14 1.3%
China 4 3.3 6.1% 10.8 1,322 1 20.0%
United Kingdom 5 2.7 5.0% 2.4* 61 22 0.9%
France 6 2.6 4.8% 2.4* 64 21 0.9%
Italy 7 2.1 3.9% 2.4* 58 23 0.9%
Spain 8 1.4 2.6% 2.8 33 36 0.5%
Canada 9 1.3 2.4% 2.4 40 29 0.6%
Brazil 10 1.3 2.4% 3.8 190 5 2.9%
Top 10 36.2 66.7%
Russia 11 1.30 2.4% 6.9 141 8 2.1%
India 12 1.2 2.2% 9.2 1,130 2 17.1%
South Korea 13 0.97 1.8% 4.7 49 24 0.7%
Mexico 14 0.89 1.6% 3.6 109 11 1.7%
*Euro Zone Average
Source: World Bank. July 1, 2007
Gross Domestic Product World Population
Global Electoral DemocraciesTotal Partly Pct. Not
countries Free Free F/P.F. Free• 1975 158 40 53 59% 65• 1981 164 54 46 61% 64• 1985 167 56 56 67% 55• 1995 191 76 62 72% 53• 2005 193 90 58 77% 45
Source: Freedom House 2007
In 2002, the GDP of Free countries stood at $26.8 trillion, while the GDP of Not Free countries was $1.7 trillion.
+125% +9% +31% -31%
Not free because prosperous; rather, prosperous because free.
The Next Great Opportunity?
Global Agricultural Trade Reform
Global industrial tariffs average: 4% (20%)
Global agricultural tariffs average: 40%
Support Global Agricultural Trade Reform!
The Outlook…• The pervasive spread of economic freedom, free enterprise,
and optimism trumps terrorism
• The forward march of global prosperity hangs in the balance
• Food-demand growth rates still advancing?
• Free-market principles, progressive policies, and the indomitable human spirit still required if the advance of the human condition to continue
• Caveats… rising protectionism, isolationism, and overt nationalism pose greater threats to broadening prosperity than terrorism
• Excessive taxation, litigation, and regulation inhibit growth
“…Once you begin a great movement, there's no telling where it will end. We meant to change a nation, and instead, we changed a world.”
President Ronald ReaganFarewell Address to the Nation Oval Office - January 11, 1989