Good year for cattle, not crops

Good year for cattle, not crops

New 10-year ag projections show lower crop and feed prices but strong cattle prices.

GRAIN prices and crop producer income dropped sharply in 2013 and will probably remain there in 2014, while high prices for cattle will continue, according to the new baseline report by the University of Missouri's Food & Agricultural Policy Research Institute (FAPRI).

The 10-year baseline projections for agricultural and biofuel markets were based on market information available in January. Macroeconomic assumptions were based on forecasts by IHS Global Insight and suggest moderate growth in the U.S. and global economies.

Key results of the new FAPRI projections include:

* Prices for most crops will likely remain below recent peaks. Under average market conditions, projected corn prices over the next 10 years will be about $4/bu., and soybean prices will be about $10/bu. (Table).

* In 2014, the projected area planted to corn will decline by 4 million acres, while the area planted to soybeans and other crops will increase. Lower prices will discourage production on marginal acres, but more normal weather conditions this spring may allow some land that wasn't planted in 2013 to return to crop production.

* Reduced cattle numbers caused, in part, by multiple years of drought will limit beef production in 2014 and result in record cattle prices. Cattle prices and returns to cow/calf operators are likely to remain high until herds have a chance to rebuild, which will take time.

* Lower projected feed costs will improve the profitability of livestock production. One uncertainty is the effect of porcine epidemic diarrhea virus on the pork sector.

* New farm bill provisions include programs that pay farmers only when crop prices or per-acre revenues are below trigger levels. Unlike the previous direct payment program that made constant annual payments, the new programs could make no payouts to producers in some years and very large payments in other years.

* On average, the projected cost of major commodity programs under the new farm bill is about $5 billion per year, and crop insurance costs average a little more than $8 billion per year.

* Net farm income in 2014 is projected to decline by more than $30 billion (24%) from the 2013 record as sharply lower crop prices and reduced government payments more than offset the impact of strong cattle and milk prices and a slight reduction in production costs.

* Food price inflation was less than expected in 2013. Food prices are projected to increase by 2% in 2014.

FAPRI's projections incorporated key provisions of the 2014 farm bill. The analysis required important assumptions about how the bill will be implemented and how the agriculture industry will respond to the new options provided. As more information becomes available, the assumptions and estimates will be revisited.

FAPRI assumed that the Environmental Protection Agency proposal to modify the 2014 renewable fuel standard will be adopted and that a similar approach will be used to set biofuel use mandates in subsequent years. Projected growth in ethanol production over the next several years is expected to be limited.

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

 

FAPRI 2014 U.S. baseline, key results

 

2008-09 to

 

 

2015-16 to

 

2012-13 avg.

2013-14

2014-15

2023-24 avg.

 

----------Marketing year----------

Crop prices

Corn farm price, $/bu.

5.18

4.42

4.17

4.00

Soybean farm price, $/bu.

11.55

12.57

9.84

9.82

Wheat farm price, $/bu.

6.47

6.82

5.55

5.27

Upland cotton farm price, cents/lb.

70.6

74.2

67.3

66.2

Crop area planted, million acres

Corn

89.9

95.4

91.3

90.7

Soybeans

76.6

76.5

78.7

76.6

Wheat

57.2

56.2

57.0

56.4

Upland cotton

11.1

10.2

10.5

10.5

12 major crops*

256.0

260.1

259.0

256.2

 

2008-12 avg.

2013

2014

2015-23 avg.

 

----------Calendar year----------

Livestock sector prices

Fed steers, 5-area direct, $/cwt.

101.80

125.89

137.20

126.28

Barrows and gilts, 51-52% lean, $/cwt.

54.23

64.05

64.25

57.20

National wholesale broilers, cents/lb.

81.24

99.70

93.56

91.55

All milk, $/cwt.

17.31

19.99

20.59

17.86

Biofuel production, billion gal.

Ethanol

12.1

13.5

14.4

14.8

-Corn starch-based ethanol

11.9

13.1

14.1

14.4

Biomass-based diesel

0.7

1.5

1.3

1.5

Net farm income, billion $

90.8

130.5

99.4

91.3

Annual consumer food price inflation, %

2.9

1.4

2.0

1.7

*Includes corn, soybeans, wheat, upland cotton, sorghum, barley, oats, rice, peanuts, sunflowers, sugarcane and sugar beets.

Source: University of Missouri Food & Agricultural Policy Research Institute.

 

Volume:86 Issue:12

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