The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri today released its August 2013 Baseline Update for U.S. Agricultural Markets, which provides an update on FAPRI-MU's long-term baseline, based on information available at mid-August.
Of note, the baseline updates uses 2013 acreage, yield and production estimates from USDA's August Crop Production Report, which represent the first objective yield estimates of the year and will be subject to revision. FAPRI-MU notes that final market outcomes are certain to differ from these projections, perhaps in significant ways, since weather and other factors will contribute to continued market volatility.
"The baseline update assumes a continuation of current agricultural and biofuel policies. Farm commodity provisions of the 2008 farm bill are extended in this baseline. In the case of the Renewable Fuel Standard (RFS), the baseline assumes that EPA uses some of the discretion it has to reduce mandates when cellulosic biofuel production falls short of targeted levels. This baseline update is not a forecast of what will happen, but it can be used as a point of reference to examine the possible impacts of proposed policy changes," the summary notes.
Further, FAPRI-MU says the macro-economic assumptions underlying the projections are based on July 2013 forecasts by IHS Global Insight, which calls for U.S. and world economies to grow at a faster clip in 2014 and 2015. Based on this forecast, inflation is expected to remain moderate but increases would increase after 2015. Also, the outlook calls for oil prices to dip in 2014 and then rise slowly.
Given the assumptions listed above, FAPRI-MU highlights the following baseline results:
- Prices for grains and oilseeds fall sharply from the drought -- induced peaks of the 2012-13 marketing year. Increased domestic and global supplies are the main cause.
- Corn prices average $4.65 per bushel for the crop harvested in 2013. Once stocks rebuild, prices could be even lower in subsequent years.
- Soybean prices average $11.33 per bushel for this year’s crop and could also decline further in 2014. For all crops, actual prices will be very sensitive to changing production estimates.
- Lower prices are likely to result in less corn acreage in 2014. The area devoted to soybeans, wheat, cotton and rice may increase slightly, while the total area planted to 13 major crops is projected to decline by about 1%.
- Ethanol production increases in 2014, but the size of the increase will be sensitive to EPA decisions about how to implement the Renewable Fuel Standard (RFS). Prices for the Renewable Identification Numbers (RINs) used to monitor RFS compliance will remain high if mandates are set at levels that require more biofuel use than is possible in 10% ethanol blends.
- Lower feed prices will reduce livestock and poultry production expenses, resulting in greater profitability and setting the stage for increases in meat production. In the case of the beef sector, however, reduced livestock herds mean beef production will reach a low in 2014.
- In spite of the 2012 drought, consumer food price inflation remains moderate.
See the full baseline update for more details.