FAPRI Forecasts Price Decline

| March 12, 2013 | 3:38 pm
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FAPRI Director Pat Westhoff

The Food and Ag Policy Research Institute at the University of Missouri has released a baseline projection for agriculture.  Director Pat Westhoff reports normal weather this summer will lead to lower commodity prices. 

“We do expect to have about the same level of corn acreage planted again in 2013 as in 2012, and maybe even a bit of an uptick in acres for both soybeans and for wheat in the current marketing year.”  Westhoff says “if that happens we’ll be looking at the potential for large supplies and prices that could drop pretty significantly come fall.”

The university think-tank placed the average corn price for last fall’s crop at about $7 a bushel.  They’ve pegged the average price for the 2013 harvest at $5 a bushel. 

The drop in price is expected to have a large impact for end-users.  The higher price level has caused a decline in demand.  

“Less feed use, less exports, less ethanol use of corn during the current marketing year,” he says.  “The high feed costs have indeed put a major crimp in livestock producer returns.” 

Westhoff says a more normal growing season will turn prices around leading to more affordable grain costs for livestock producers.

Click to hear KMZU’s Janet Adkison talk with Pat Westhoff about the ag forecast:

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FAPRI issued the following information regarding the baseline projection:

These baseline projections for agricultural and biofuel markets were prepared in January 2013 based on information available at that time. Macroeconomic assumptions are based on forecasts by IHS Global Insight and suggest modest growth in the U.S. and global economies in 2013 and slightly faster growth in later years. The baseline assumes a continuation of current policies, even when changes are possible or even likely. Policy assumptions generally match those used by the Congressional Budget Office (CBO) in preparing its baseline projections.

The figures reported here represent the average of 500 alternative outcomes based on different assumptions about the weather, oil prices and other factors. In some of the 500 outcomes, prices, quantities and values are much higher or much lower than the reported averages.

Some key results:

  • • In 2013, corn acreage is projected to remain near the 2012 level. Soybean and wheat acreage expand slightly, while cotton acreage contracts.
  • • Average weather conditions in 2013 would result in a 2013 corn crop that far exceeds the previous record. This would allow corn use and stocks to rebound and the corn price to fall by about $2 per bushel relative to the record average price for the crop harvested in 2012.
  • • A rebound in global grain and oilseed supplies also contributes to sharply lower prices for soybeans and wheat for crops harvested in 2013. Cotton prices remain stagnant, in part because of large global cotton stocks.
  • • In 2014 and beyond, average grain and oilseed prices remain well below the record levels of 2012/13, but well above the prices that prevailed prior to 2007. Corn prices, for example, average a little under $5 per bushel.
  • • The projected strong recovery in ethanol production in 2013/14 is contingent on enforcement of biofuel use mandates. The value of the certificates used to demonstrate mandate compliance must rise substantially to cover the discount needed to sell fuels containing more than 10 percent ethanol.
  • • Multiple years of drought have limited forage supplies, raised feed prices and reduced cattle numbers. Live cattle prices rise to $129 per hundredweight in 2013 and remain near that level for several years.
  • • Hog, chicken and milk prices also increase in 2013. If feed prices decline as projected, this would imply increased profitability for livestock and poultry producers.
  • • Under a continuation of 2008 farm bill provisions, Commodity Credit Corporation (CCC) outlays would average about $9 billion per year over the next decade, of which about $6 billion would be for major commodity programs.
  • • With record indemnity payments for 2012 crop losses, crop insurance net outlays exceed $13 billion in fiscal year (FY) 2013. Over the FY 2014-22 period, net outlays average a little under $9 billion per year.
  • • Farm income remains high for the third straight year in 2013. Net farm income, a measure that includes changes in the values of inventories, reaches a record $131 billion in 2013, while net cash income reached its record level in 2012. Both net income measures retreat slightly in 2014 in response to lower crop prices and receipts.
  • • Annual average food price inflation reaches 2.9 percent in 2013, slightly greater than the 2012 pace. Increases in food prices slow in later years to a rate comparable to the general rate of inflation, about 2 percent per year.
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