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What to Watch For in USDA's Outlook Forum

February 19, 2014
By: Boyce Thompson, AgWeb.com Editorial Director
USDA soybean sunrise
  
 
 

The department’s recent 10-year forecast provides basis for comparison.

All eyes and ears will be peeled on the USDA’ Agricultural Outlook Forum Outlook this week for signs that the department may deviate from its recently released 10-year outlook for crops and livestock.

Traders, in particular, will be looking for indications that production and ending stocks for corn and soybeans could finish higher than forecasted for the 2014/15 growing season. Prices for most grains, of course, are already low compared to a year ago, and evidence of greater-than expected production could push them even lower.

Corn Projections

USDA’s 10-year forecast for corn calls for 93.5 million acres in 2014/15, down from last year’s 95.3 million acres. The number reflects a shift away from corn to other grains due to a big decline in corn prices. However, last year late spring rains prevented farmers from planting a lot of ground in northern Iowa and southern Minnesota, ground that may be sown this year.

Another big question is how much acreage will come out of the Conservation Reserve Program. USDA, at last report, expects more than 1 million acres to come out of CRP this year. It forecasts that enrollments will decline to 26 million acres in 2014 before rising back to close to 32 million acres by the end of the projection period.

Analysts expect the USDA to begin the year with a corn-yield forecast of 165.5 bu. per acre, the number used in its 10-year yield forecast. That would exceed the best year ever recorded. In 2009, farmers achieved a yield of 165.2 bu. per acre.

The industry has under-performed since then, largely due to the weather. Last year’s yield, 158.8 bu. per acre, would have been higher if not for late spring rains and continued drought conditions in some regions. The year before, extreme drought conditions in much of the Corn Belt depressed yields to only 123.4 bu. per acre.

The combination of yields and planting puts leaves USDA with a baseline projection of 14.26 billion bushels in corn production, with ending stocks of 2.6 billion. The question is whether those numbers could go even higher if more acres are planted than the USDA expects.

Soybean Projections

USDA Chief Economist Joseph Glauber indicated last week that his department’s official 10-year baseline projection of 78 million soybean acres may be too low. USDA estimates that 76.5 million acres of soybeans were planted last year. Anecdotal evidence indicates that many farmers plan to swap corn for soybean acreage this year.

Moreover, USDA’s 10-year forecast says projects that soybean plantings will remain near 78 million during the next decade. In seemingly contradictory fashion, it also says that "growth in both domestic use and export demand lead to increases in prices, allowing soybeans to compete with corn and other crops for land use."

Thanks to better seed technology and farming practices, the forecast calls for a projected increase in soybean yields this year; in the neighborhood of 45.2 bu. per acre, compared to the 43.0 bu. average harvested last year.

USDA’s baseline report projects soybean projection of 3.5 billion bushels, with 203 million bushels in ending stocks. Many traders, and farmers, wonder whether both numbers may come in higher, given the pronounced shift from corn to soybeans.

Overall, the 10-year forecast predicts that farmers will plant fewer acres with grain over the next decade due to lower projected returns.

The forecast assumes that, while corn demand for ethanol will slow, demand for U.S. grain will be aided by world economic growth (population growth and per-capita income), a continued low-valued dollar, and expansion of world biofuel production.

Here are some other predictions from the 10-year forecast that may have a bearing on the conference:

Corn:

-- USDA projects corn prices will decline through 2015/16, with farm prices dropping to $3.65 during the 2014/15 crop year and $3.30 the following year. Moreover, they will remain below 2013/14 price levels for the next decade.

-- Only small growth is projected for corn-based ethanol production over the next 10 years, as gasoline producers hit the blend wall and gasoline consumption declines due to more fuel-efficient vehicles. "Nonetheless, a strong presence for ethanol in the sector continues, with about 35 percent of total corn use expected to go to ethanol production during the projection period," the department says.

-- Feed use is expected to increase as corn prices fall, more livestock is produced, and production of distillers grains slows, "as the corn-based ethanol expansion moderates," the report says.

-- U.S. corn exports will increase during the projection period in response to strong global demand for grain to feed livestock. Export gains should be particularly strong to China. Meanwhile, the United States will recover its position as the world’s largest corn exporter, accounting for an average of about 40% of global corn trade over the projection period.

Soybeans:

-- Soybean prices fall from recent highs during the short term but then rise moderately after 2015/16, reflecting strengthening demand for soybeans and soybean products.

-- As growth in meat production resumes, and production of distillers grains and canola meal slows, "domestic demand for soybean meal and thus soybean crush is projected to grow in the coming decade," the report says.

-- Strong global demand, especially from China, will boost soybean’s cause during the next decade. China accounts for all of the increase in world soybean imports in the USDA’s model.

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