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MT Seed Conference (Dec 7 2016)

created using Create Your Own Presentation template
published by Anton Bekkerman

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All Roads Lead to Supply and Demand

Starring:

FARMERS

SEED MARKETERS

with appearance from

GRAIN PRICES,

FUTURE EXPECTATIONS,

SUPPLIER MERGERS,

POLICY INTERVENTIONS

RETAIL MARKETS,

as "Consumers"

as "Producers"

GRAIN MARKETS: The Demand Side

Prices are at a 10-year low

U.S. and global wheat stocks are at 25-year highs

the following preview has been approved for a

STRONG-WILLED AUDIENCE

Producers' pessimistic about the near future

In a time of darkness and uncertainty:

Potential for policy-influenced disruptions

A light continues to shine:

Government programs lessen input demand declines

Continued retail demand for differentiated products

SEED DEMAND:                      The Bad, The Good

Market data suggest lower demand for inputs in 2017 production year

Historically low Montana wheat prices

Lowest HRW price since 2000

Historically high U.S. and World Wheat Inventories

{

37% higher than 20-year average

U.S. WHEAT PRODUCERS RESPOND by reducing planted acres

USDA forecasts lowest planted acres since 1970

U.S. Ag Producers Are less optimistic about the future

Other tidbits and considerations

2018 Farm Bill

TPP / NAFTA

Exchange rates

Geopolitics

Interest rates and land values

bright spots for Input DEMAND

2016 Government Payments:

Max Wheat PLC:  $2.56 / bu

Max Wheat ARC:  $3.70 / bu

In Midwest, some LDPs triggered

Revenue crop insurance indemnities possible

Continued producers' demand for higher quality wheat varieties

USDA projects slight price increases after 2016/17

EPA ethanol standards back to 15 bn: Could corn again pull up other commodities?

SEED MARKETING:                   An Industry in Flux

What are the merger statuses?

Impacts of 2016 election?

What are the potential economic impacts?

Who benefits? Who doesn't?

Latest Updates

The Status of Current Proposed Mergers: December 2016

DowDuPont

Proposed all-stock merger: December 2015

Stock holders approved in July 2016

Currently under review by DOJ + 7 state AGs, and EU antitrust commision

Bayer-Monsanto

Bayer made successful bid in May 2016: $66 billion

In beginning stages of antitrust review

Considerations from the 2016 Election Cycle

Republican controlled legislative/executive branches

Jeff Sessions: Likely nominee for U.S. attorney general

Position heads Dept of Justice

100% rating from US Chamber of Commerce

Likely to decide when to file antitrust suits: "market positive to mergers and acquisitions" (Evercore ISI political analyst, nov 18, 2016)

"Traditionally more lenient" toward mergers (financial times, nov 14, 2016)

MERGERS OF AG INPUT SUPPLIERS: Economic Implications

Potential Market Benefits

Horizontal integration of R&D, input production, marketing, and distribution

Reduced costs for R&D, production, distribution

Potential to face lower risk in R&D investments

Potential Market Losses

Reduced competition among input suppliers

Higher prices and fewer options at retail level

Increased influence on political & regulatory issues

How Will the Dow–Dupont & Bayer–Monsanto Mergers Alter the Agricultural Input Industry?

Where does the industry stand today?

It Depends

Four-firm Concentration

(share of global sales by four major firms)

Estimated Seed Price Impacts After Mergers

(Maisashvilli et al., 2016)

Assumption: No Cost Reductions from Merger to R&D, marketing, etc

Assumption: 5% Cost Reduction from Merger to R&D, marketing, etc

2.3%

1.9%

18.2%

–2.8%

–3.2%

12.3%

U.S. Four-firm Concentration

(share of u.s. sales by four major firms)

{

Between 88% and 94% production is GMO

Non GMO wheat production is limiting production increases, but also likely important factor in limiting seed market concentration

What About Impacts on the Wheat Market?

Winter Wheat

Spring Wheat

2016 Top Seeded Varieties in Montana

Seven of the eight top winter and spring wheat varieties developed by publicly funded R&D

Anton Bekkerman

[email protected] 406-994-3032 http://www.antonbekkerman.com

Literature Cited

Maisashvili, A., et al. 2016. "Seed Prices, Proposed Mergers and Acquisitions Among Biotech Firms." Choices.

USDA National Ag Statistical Services. "2016 Wheat Varieties Grown in Montana." July 2016.

Fuglie, K., et al. 2012. "Rising Concentration in Agricultural Input Industries Influences New Farm Technologies." USDA-ERS Report.

ETC Group. 2013. "Putting the Cartel before the Horse…and Farm, Seeds, Soil, Peasants, etc." ETC Group Communique #111.

USDA Farm Service Agency. 2016. "ARC/PLC Program Data."

US Environmental Protection Agency. 2016. "Proposed Renewable Fuels Standards for 2017."

USDA Office of the Chief Economist. 2016. "Long-Term Agricultural Projections." U.S. Wheat Data.

USDA Agricultural Marketing Service. Ag Market News Reports for Montana Elevator Cash Grain Prices, BL_GR110.

Center for Commercial Agriculture. "Ag Economy Barometer. Purdue University and CME Group. Accessed Dec 2, 2016.

Infographic of above presentation and other timely and objective agricultural and natural resource economics research and information

www.AgEconMT.com