Outlook for rural economy mixed

Outlook for rural economy mixed

Increased supplies and falling prices will shift benefits away from grain growers in 2014.

A GROWING global economy should boost demand for agricultural products in 2014, but declining crop prices could have a mixed influence on the U.S. rural economy, according to the newly released "Quarterly U.S. Rural Economic Review" by CoBank.

A re-establishment of grain and oilseed supplies will begin to reduce the instability in commodity prices, shifting the benefit from grain producers to grain buyers.

Lower feed costs, strong export markets and near-record prices will be favorable for the livestock and dairy sectors. After the stress of record-high feed costs over the past several years, livestock producers will be able to begin rebuilding their balance sheets.


Grains, oilseeds

Record grain and oilseed crops in 2013-14 will pressure prices and provide a first step toward regenerating carryover stocks, according to the CoBank report.

In comparison to the previous year, grain handling facilities are in a much more favorable position, with an increase in drying and storage revenue due to a high-moisture crop and with only 10% of the new crop sold.

In the 2013 fourth quarter, the large grain crop strained the transportation system as merchandisers raced to refill an exhausted supply chain. As harvest hit full stride, truck shortages were reported. Barge and rail rates doubled in response to a rush to fill December orders.

In addition to the transportation woes, the Gulf and Pacific Northwest terminals were experiencing record export shipments. The U.S. gained a competitive edge in the South American and Black Sea regions as the corn supply increased, combined with a 40% decline in prices.

U.S. corn exports climbed 65% compared to the same time period in the prior year. China will be a key player in the global corn market for the new calendar year. The sharp increase in U.S. corn exports is attributed to China tripling its corn imports from 2013, but the game could change if China rejects more cargoes of U.S. corn.

The Ukraine and Argentina will remain U.S. competitors in 2014, with large corn supplies being reported, but Argentina's price advantage will be dictated by growing conditions in the next two months.

In the domestic market, ethanol plant operators will take advantage of cheap corn feedstocks as ethanol production steadily increases.

The global stocks-to-use ratio for corn will grow for the third consecutive year to an estimated 17%, while the domestic corn ending stocks-to-use ratio is projected to double to 14% in 2013-14.

U.S. soybean supplies will remain tight for 2014, but some relief is in sight with the upcoming South American harvest. Global demand for U.S. soybeans has not been hindered by the limited supplies.

Currently, U.S. soybean exports are up 8% compared to a year ago, with China accounting for nearly 3 bu. of every 4 bu. exported. China increased its purchases from the U.S. last year to protect against repeat shipment delays from Brazil.

U.S. soybean oil will not fare as well because combined supplies of canola and sunflower seed are up 10% year over year. As stated in the CoBank report, a rise in biodiesel production, which accounts for more than a quarter of total U.S. soybean oil demand, will leave U.S. prices uncompetitive, and exports will probably fall by half to a 10-year low.

The demand for U.S. soybean meal, in contrast, remains high, and exports for 2013-14 are projected to be the third highest on record.

In 2014-15, growers will likely plant more soybeans as the soybean-to-corn price ratio climbed above 2.5 recently. For the first time, U.S. planted soybean area should exceed 80 million acres as corn acres retreat closer to 90 million.

For wheat, record highs were reached globally for yields, production and trade, but U.S. wheat production was marginally down from the past year. The stocks-to-use ratio will remain flat as global supplies grow marginally but as consumption increases at the same rate. Argentina's large crop and a less-competitive U.S. wheat price will limit future export opportunities.


Animal protein

Outlook for rural economy mixed
A reduction in beef output as a result of the lowest cattle inventory since the early 1950s and lower feed costs will be good news for competing meats, CoBank said in the report. Yet, as the hog, poultry and dairy sectors expand future production, it will be equally important to concurrently grow overseas markets (Figure).

A decline in beef production of around 6% is anticipated for 2014, mainly due to historically low cattle numbers, an increase in heifer retention, an expectedly small U.S. calf crop and reduced cattle feeder imports from Mexico and Canada.

While beef production at the close of 2013 came in higher than expected, at 6.4 million lb., heavier carcass weights failed to offset the decrease in cattle available for slaughter.

Cattle placed on feed continued a 16-month decline, with the latest U.S. Department of Agriculture estimate coming in at 10.7 million head in December, 5% below a year ago.

The aggressive bidding for feeder cattle is beneficial for cow/calf operators but makes it challenging for feedlot operators to remain in the black.

Despite high prices for U.S. beef, domestic and foreign demand has remained strong. Still, with tight supplies and expected high prices, beef exports will be the industry's wild card for 2014.

Market analysts have not mutually agreed upon the true impact of porcine epidemic diarrhea virus on overall pork production. Total pork production for 2013 was estimated to be around 23 billion lb., down only a modest 0.5% from 2012. Cheaper feed contributed to heavier carcass weights in the fourth quarter of 2013, which offset the fewer hogs that were slaughtered.

With slight growth in pork production and the increased carcass weight, prices continued to climb and were attributed to firm domestic demand and high beef prices.

Sluggish demand, especially in significant Asian markets, kept pork exports at a disappointing level of 4.1 billion lb., down 9%.

The broiler industry was lucrative in 2013, gaining 3% due to high prices for competing proteins and producers' restraint in strengthening the supply.

Similar to other livestock sectors, producers will begin ramping up production in the upcoming months, but a wide concern is that expansion costs will weaken profit margins.

Growth in broiler exports is anticipated in 2014, as long as chicken remains a cost-effective protein for foreign consumers.

A reduction in the turkey flock and decreased production in 2013 have begun to stabilize the turkey market after an unstable few years. Turkey production in 2013 was down 2%. A shortfall in hamburger output could boost ground turkey sales.



Overall, milk production from the U.S., European Union and New Zealand was down 1% from the previous year. Dairy producers in the U.S. appreciated the rise in net income as milk prices increased and feed costs fell, according to the CoBank report.

Milk powders, both whole and skim, were the industry's primary growth engines, with nonfat dry milk powder prices climbing 15% in the U.S. and 4% globally.

China's milk powder imports have skyrocketed at a rate of 32% per year. New Zealand is China's largest dairy supplier, but a recent drought has reduced New Zealand's production at a time when China needs more, which could open the door for the U.S.

Supply and demand in the global dairy market are fragile and subject to volatility, and global events have a profound impact on dairy prices, the report notes.

Volume:86 Issue:02

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