The U.S. Department of Agriculture in its Agricultural Projections to 2023 released Feb. 13, with updates provided at the department’s Agricultural Outlook Forum Feb. 21-22, forecast declining prices for most grains over the next two or three years followed by a gradual increase above pre-2007 levels over the next decade, but holding well below those seen during the 2008-13 period. At the same time, lower grain prices are expected to translate into better profit margins for livestock, poultry and milk producers.
“Prices for many major crops are projected to decline in the near term as global production responds to high prices of recent years,” the U.S.D.A. said. “After those initial price declines, long-term growth in global demand for agricultural products, a low-valued dollar and continued biofuel demand hold prices for corn, oilseeds and many other crops above pre-2007 levels.”
Despite record or near record grain and oilseed production last year and forecas again in 2014, both domestically and globally, demand remains strong and stocks remain relatively tight, leaving prices subject to volatility should a “shock” to the market occur.
“Over the past 10 years we have seen remarkable transition in U.S. agriculture,” U.S.D.A. chief economist Joseph Glauber said in prepared comments to open last week’s Outlook Forum. “Buoyed by strong global income growth in the emerging economies, U.S. agricultural trade has more than doubled since the mid-2000s. With strong demand and several supply shocks in key growing regions, global stocks for grains and oilseeds fell to the lowest levels since the 1970s, resulting in price spikes for major commodities in 2007-08, 2010-11 and most recently, 2012-13. Nominal prices for grains, oilseeds, meats and dairy have all set record highs and in many cases, for multiple times over the past 10 years.”
Record high prices en-couraged plantings and more normal weather resulted in record high global production of corn, wheat, rice and soybeans in 2013, Mr. Glauber noted, allowing global stocks to rebound and most crop prices to fall.
“While the outlook for 2014-15 suggests further rebuilding of global stocks and a further moderation of crop prices, global demand is expected to remain strong, which will continue to keep pressure on supplies,” he said.
Mr. Glauber saw four key factors affecting the agricultural economy in coming years. Those include: record global demand and increasing exports, continued growth in the use of corn to make ethanol, program choices for row crop farmers stemming from the new farm bill (but minimal impact on planting decisions), and lingering effects of drought in the West, especially California.
For corn, the U.S.D.A. expects prices paid to farmers to average $3.90 per bu in 2014-15, down 13% from $4.50 per bu expected in the current year and down 43% from a record $6.89 per bu in 2012-13. In its preliminary numbers, the U.S.D.A. projected average annual corn prices to remain under $4 per bu from 2014-15 through 2021-22.
“Corn prices are projected to decline through 2015-16, but then begin increasing in 2016-17 as ending stocks tighten due to growth in feed use, exports and demand for corn by ethanol producers,” the U.S.D.A. said. The U.S.D.A. forecast small growth in corn-based ethanol production over the next decade, with corn used to make ethanol holding at about 35% of total use. Lower corn prices and slower growth in distillers grains along with increased livestock production will increase demand of corn for feed, the U.S.D.A. said. Food use of corn, including corn sweeteners, was forecast to increase over the next 10 years, with continued growth in high-fructose corn syrup exports to Mexico, although other food uses of corn were expected to lag population growth.
As with corn, average prices paid to farmers for soybeans were seen declining through 2015-16 and then slowly turning higher through the end of the forecast period. Mr. Glauber said soybean prices were expected to average $9.65 per bu in 2014-15, down 24% from this year’s expected average of $12.70 per bu and down 33% from a record $14.40 per bu in 2012-13. The U.S.D.A. projected average soybean prices to dip below $9 a bu in 2015-16 and 2016-17 and then gradually increase, but remain below $10 a bu through 2022-23.
The average price for all classes of wheat paid to farmers in 2014 was projected to average $5.30 per bu, down 22% from $6.80 per bu expected in 2013-14 and down 32% from a record $7.77 per bu in 2012-13, Mr. Glauber said.
Rice may be the exception to the lower trend in grain prices as “high rice prices will encourage some expansion” in 2014, Mr. Glauber said, with prices holding nearly steady with 2013-14 levels.
Projected 2014-15 average prices paid to farmers for corn, wheat and soybeans would be the lowest since 2009-10, with Mr. Glauber’s caveat, “Tight stocks mean prices are likely to remain sensitive to market conditions and prices could increase substantially if a major production shortfall were to occur in 2014.”
“Stronger soybean prices relative to corn should favor soybean plantings this year,” Mr. Glauber said. “The soybean to corn futures price ratio for fall 2014 delivery has been at 2.5, which favors soybeans.”
The U.S.D.A. projected 2014 corn plantings at 92 million acres, down 3.4 million from 2013, soybean plantings at 79.5 million acres, up 3 million from last year, and all wheat planted for harvest in 2014 at 55.5 million acres, down 700,000 acres from the prior year as lower soft red winter wheat seedings last fall more than offset an expected increase in spring wheat seedings.
Even though corn and wheat plantings were expected to decline over the 10-year forecast period, soybean plantings were expected to increase modestly, with continued growth in domestic and export demand for soybeans despite growing competition from South America.
Despite projected lower prices for most grains for the next several years (relative to the previous few years), the U.S.D.A. sees strong growth in global trade, with global wheat exports seen growing 15% over the 10-year period, corn increasing 30% and soybean trade nearly 40%.
“U.S. producers can expect stiff competition for those markets from Brazil, Black Sea and other traditional suppliers,” Mr. Glauber said. “Nonetheless, income growth in China and elsewhere is expected to keep export demand strong over the next 10 years.”
The United States was forecast to reclaim the spot as the world’s largest corn exporter, accounting for about 40% of global corn trade, as feed demand increases in other countries, and despite strong export competition from South America and former Soviet Union nations.
Lower grain prices are expected to result in improved margins for U.S. livestock, poultry and dairy producers.
“Market prospects for the animal sector will be much improved in 2014,” Mr. Glauber said, noting that lower feed prices already improved margins in the second half of 2013. Despite the prospects of improved profits, “expansion remains slow” in the red meat sector, he noted, as cattle producers “appear to be taking a cautious view” and the spread of Porcine Epidemic Diarrhea virus in the United States has slowed hog herd expansion.
Average steer and milk prices were forecast record high for 2014, with broiler prices down slightly from record highs in 2013, the U.S.D.A. said.
For producers, the combined impact of these forecast changes is expected to slash net cash farm income by 22% from 2013, to $101.9 billion in 2014, which still is $5 billion above the 10-year average.
For consumers, food prices in 2014 are projected to increase 2.5% to 3.5% from 2013, which is “in line with historical levels,” the U.S.D.A. said.