Increases in production resulted in continued downward pressure on prices for most crop and livestock commodities in 2016, according to the new baseline report by the University of Missouri's Food & Agricultural Policy Research Institute (FAPRI). The report provided an update of the 2016 FAPRI long-term baseline to reflect information available in mid-August 2016.
The baseline update used 2016 acreage, yield and production estimates included in the U.S. Department of Agriculture's August 2016 “Crop Production” report. It also assumed that current agricultural and biofuel policies will continue and that the global economy will evolve as forecasted by IHS Global Insight in July 2016.
Key results of the FAPRI report included:
· Record U.S. and world corn crops will push corn prices lower, to $3.19/bu. for the 2016-17 marketing year average. Projected prices will begin to recover in 2017-18 due to reduced acreage and lower yields but will remain below $3.90/bu. through 2021-22.
· Unfavorable weather reduced soybean production in South America in early 2016. Despite a record U.S. soybean crop, this will allow projected 2016-17 soybean prices to increase slightly. Projected average soybean prices will remain below $10.00/ bu. over the next five years.
· Wheat prices have been sharply lower in response to record U.S. and world production in 2016. Reduced production in 2017 could help prices begin to recover.
· Projected U.S. upland cotton prices will remain near 60 cents/lb. over the next five years as China's large cotton stocks continue to hang over the market.
· Ethanol production growth has slowed in recent years. Projected declines in gasoline consumption and assumptions about implementation of the renewable fuel standard will result in only small increases in projected U.S. ethanol production.
· Increased supplies of beef, pork, poultry and milk have pushed prices lower. Fed cattle prices have been down by more than $20/cwt. this year compared to 2015, and further declines are projected until prices reach their low point in 2020.
· Lower retail prices for meat and dairy products mean that average consumer prices for food consumed at home are projected to decline in 2016, and overall food price inflation will be just 0.9%. Food inflation will pick up again in 2017 and exceed 2% in 2018.
FAPRI said the baseline update provides a snapshot of what agricultural markets might look like under a particular set of assumptions.
“As more is learned about the size of the 2016 crop, the implementation of policies and the outlook for the general economy, these projections will need to be updated. In the meantime, they can be used as a point of reference in examining alternative scenarios,” the report noted.