Commodity prices will fall "significantly" in 2013 due to strong corn and soybean production in 2013, USDA’s chief economist predicted today at the agency’s annual Agricultural Outlook Conference in Arlington, Va.
Joe Glauber predicted that corn prices will average $4.80 a bushel in 2013/14, down 33% from the marketing year before. Soybean prices, he estimated, would fall 27% to $10.50 per bushel. A return to normal weather conditions, he predicted, will result in higher production that will depress prices.
"There’s no reason to believe that we won’t be looking at normal yields this year," said Glauber, noting recent improvement in drought conditions, particularly in the eastern Corn Belt. "Historically, there’s little correlation between rainfall one year and the next."
Better weather, combined with more planted acres, should result in strong farm incomes in 2013, he said. Net farm income, according to ERS data released earlier this year, will equal $128 billion, the highest level in real terms since 1973.
Livestock producers, on the other hand, won’t feel the beneficial impact of lower feed prices until later in the year. Net cash income for the livestock industry, according to ERS’s forecast, will fall in 2013 due to a 6% increase in feedstock prices.
Glauber expects that farmers this year will plant at least as many acres for corn, soybeans, wheat as they did last year. But that will vary by crop. He expects corn planting to be down 0.7% while soybeans are up 0.4% and wheat is up 0.5%. "Combined acreage for those crops topped 230 million acres in 2012, and will likely approach similar levels for 2013," he said.
Corn and soybean production should be up as a result large plantings and better weather. USDA forecasts that corn production will be up 34.8% to 14.5 billion bushels and soybeans up 12.9% to 3.4 billion bushels.
The industry will be supported by record agricultural exports for 2013, according to USDA estimates. "The pace of exports this year has been impressive. In the first three months of the fiscal year, the U.S. exported $43 billion of agricultural products, greater than what we exported annually in the early 1990s," Glauber said.
Meanwhile, the United States, which used to command 70 to 80% of the world corn export market, is likely to relinquish its leadership position. This year, because of the drought, and strong yields in the Southern Hemisphere, the U.S. is likely to finish second to Brazil. "I expect this to be a very temporary situation," he said.
Increased production of corn and soybeans should rebuild historically low stocks. World corn stocks are at the lowest levels since 1993/94. Wheat stocks have dropped to 2008/09 levels.
Corn purchases by ethanol producers this year won’t return to 2011/12 levels. Glauber forecasts that 4.675 billion bushels of corn will go into ethanol, down from the 5 billion bushels bought in 2011/12. The economist explained that people are buying less gasoline due to economic problems and the increased fuel efficiency of cars.
Lower feed prices later in the year may stem the loss of cattle. Glauber noted that the country lost 3.4 million head in Kansas, Oklahoma and Texas in the last two years. During the summer, 60% of pastures suffered drought conditions. Without more rain, he said, "unfortunately we could see further liquidation."
Higher feed prices will lead record prices for livestock, dairy and poultry this year. Overall food prices, though, won’t increase as much. ERS forecasts that the food portion of the Consumer Price Index will rise by only 3 to 4% in 2013, below food inflation levels of 2008 and 2011.
The big variable in Glauber’s forecast is the weather. While the percentage of the country in drought condition has declined 5.4% since January, 56% of the land mass remains in drought conditions. "A key uncertainty is whether the historic drought of 2012 persists through 2013," he concluded