Softened prices highlight 2016 ag outlook

Softened prices highlight 2016 ag outlook

U.S. ag sector driven by lower global economic growth and currency valuations as livestock production to reach record levels.

Last year, the outlook for the agricultural sector was driven more by factors such as transportation issues, energy price declines and drought in the West.

While energy prices and drought remain important components of the outlook this year, the overall picture for agriculture in the U.S. is being driven more by lower global economic growth and currency valuations, Robert Johansson, U.S. Department of Agriculture chief economist, told the USDA Agricultural Outlook Forum on Thursday morning.

Johansson forecasts that livestock, dairy and poultry sectors will see record production in 2016 — at 97 billion lb. — as beef, pork, broiler and turkey production all increase. If realized, this will be the first time since 2008 that all major meats increased during the same year.

Although prices for livestock, poultry and milk declined in 2015, lower feed costs and — in the case of beef and dairy — improved forage supplies provided the impetus for expansion of flocks and herds. Hogs and turkeys have been able to recover from disease outbreaks.

All livestock prices are projected to be lower. Fed steer prices are forecasted to be $137/cwt. — down 7% — as increased cattle supplies move through feedlots. Hog prices are expected to be $47/cwt., down 6% from last year. Broiler prices are expected to average 88 cents/lb., down 3% from 2015.

Constrained exports are weighing on the dairy market, and production expansion could bring an 8% drop in milk prices to $15.65/cwt., Johansson said.

For grains, he noted that global consumption is being outpaced by increased production after three years of record production, leading to building of stocks. The softening global economy is affected most by China's sluggish growth.

Since December, the dollar has strengthened relative to Brazil's real and Argentina's peso. Brazil continues to experience a downward spiral in its economy, which has made the real 50% lower in value since 2010 relative to the dollar and makes its soybeans more competitive on the global marketplace.

“Today, the Brazil producer could expect to be paid 34 real per bushel — about what they received in June of 2014. However, ... U.S. producers expect a price of $8.70/bu. now — 40% lower than in June 2014,” Johansson said.

U.S. corn prices are projected to fall to $3.45/bu. for the 2016-17 marketing year. Soybean prices are forecasted to be $8.50/bu.

USDA also projected a decline in acres planted because of the lower prices. Total cropland planted to the eight major crops is expected to fall 2.5 million acres and would be down 8.5 million acres from the recent peak in 2014.

“Lower crop returns will push some area out of production, while shifts in relative returns will reallocate planted area among crops,” Johansson said.

Winter wheat seeding already saw a decrease of 2.9 million acres. Corn and soybeans are expected to take 172.5 million acres, up 1.8 million acres from 2015. Corn area is projected to increase by 2 million acres to 90 million in 2016, with lower fuel and fertilizer making corn more attractive relative to other crops. Soybean planted acres are projected to be 0.2% lower.

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