Acreage and Price Swings

March 21, 2014 08:38 PM
Acreage and Price Swings

Less corn and wheat acres, more beans and cotton

The anticipation that builds in the days leading up to spring is almost too much to contain. To kick-start the season’s fever, USDA hosts the Agricultural Outlook Forum each February to release the numbers that paint a bigger picture. 

Despite record grain production in 2013, agriculture enters a new growing season with a "pretty tight" stock situation, said Joseph Glauber, USDA chief economist, at the Outlook Forum.

"If problems arise this year," he said, referring to a potential production shortfall due to inclement weather or other pressures, "we could see price spikes like we did in 2010 and 2011."

Otherwise, the forecast Glauber presented calls for continued price declines this marketing year. Corn prices are predicted to fall from $4.50 to $3.90, soybeans from $12.70 to $9.65, and wheat from $6.80 to $5.30. Cotton prices will not be spared, falling to a projected 68¢ in 2014/15 from this year’s estimated 76¢ per pound.

At the event, Glauber noted that USDA raised its expectation for 2014 corn prices from its 10-year forecast, which was released just days before the Outlook Forum. The reason for the update: The farm bill focuses on base acres rather than planted acres. 

USDA’s forecast calls for a 60¢ per bushel decline in corn prices for the year, which would drop them to their lowest level since 2009/10.

Lower prices are likely to translate into lower plantings for the eight major row crops this year, according to USDA. Crop mixes will change, especially on Midwest farms. "Stronger soybean prices relative to corn should support soybean plantings this year," Glauber added.

USDA is calling for 3.5% drop in corn plantings to 92 million acres and a 3.9% increase in soybean acres to 79 million acres. Wheat plantings will be down 1.2%, while all types of cotton will rise by 10.5%.

"Some people might say that’s a pessimistic outlook," Glauber said, "but we still have very positive dynamics in the market."

Exports are one bright spot. USDA estimates agricultural exports will reach a record $142.6 billion, up more than $5 billion from August. "Imports are up, too, but the trade balance is very healthy," he said.

Forecasts for the livestock industry are more optimistic than the crop sector. Lower feed prices should continue to bolster margins in 2014.

Dairy margins are expected to stay above $8 per cwt. this year. "Dairy product prices have been at or near record levels due, in part, to strong demand for U.S. products, especially cheese and butter," Glauber said.

The nation’s cattle herd remains slow to recover after an almost 1.3 million head reduction since 2011, mostly in the Southern Plains. "We should see some expansion in 2015," he said.

Census Results Are In

Agriculture Secretary Tom Vilsack used his podium time at USDA’s Agricultural Outlook Forum to address the preliminary findings of his department’s new farm census. Between 2007 and 2012, the amount of land in farms in the U.S. continued a slow downward trend, from 922 million acres in 2007 to 915 million in 2012. The good news, Vilsack said, is that "there’s a slowdown in the rate of loss" compared to previous surveys.

Of more concern to the Secretary, who is intent on helping bring more young people into farming, is that the average age of principal farm operators, 58.3, continues to rise. The average age has grown by slightly more than a year since the 2007 USDA census.
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The U.S. continues to lose farmers and farm acreage, Secretary Tom Vilsack said at USDA’s recent forum.

The most recent survey shows there has been a slight increase in the number of farmers under the age of 35 and 25. "But we need to accelerate those increases," Vilsack said, noting the large number of operators that are older than 65 and even 75.

Vilsack wasn’t surprised by a reduction in the number of farms in this country—2.1 million in 2012, down 4.3% from the previous census—especially given that the survey was conducted during the drought year of 2012. But he noted that most of the reduction is coming at the expense of mid-sized farms. The number of large and small operations held steady.

"It’s the medium-sized operations that feel the greatest stress," said Vilsack, noting that the new farm bill could create opportunities for local and regional farms.

Comparing mid-sized farmers to middle-class Amer­ica, Vilsack said, "We need to continue to be vigilant in terms of rebuilding the middle. The livestock disaster assistance provisions in the farm bill, which USDA is trying to expedite, should help mid-sized farmers," he adds.

Meanwhile, average sales on farms increased from $137,807 in 2007 to $187,093 in 2012, a dramatic rise tied to higher grain prices. The increase, though it continued a 30-year upward trend, was the largest in the history of the census.

In 2012, crop sales of $212.4 billion exceeded livestock sales of $182.2 billion for the second time since 1974.

Farm Income to Drop 26.6% This Year

USDA’s annual forecast for farm income shows it will drop to $95.8 billion in 2014, a precipitous 26.6% decline from 2013 and the lowest level since 2010, underscoring the need for farmers to mind their expenses.

If there’s a silver lining in the forecast, USDA predicts that farm income this year will still exceed the average for the previous 10 years. The decline will be driven by a change in the value of crop inventories and reduced government farm payments. The newest farm bill ended the roughly $4 billion in direct payments to farmers. 

Net cash income, which reflects the sale of more than $6 billion in carryover stocks from 2013, will decline only 22% to $101.9 billion.

Crop receipts are expected to decrease more than 12% in 2014, led by a projected $11 billion decline in corn receipts and a $6 billion decline in soybean receipts. After several years on the negative side of USDA reports, livestock receipts will increase 0.7% in 2014 largely due to a 7% increase in dairy receipts that reflects higher milk prices.

USDA expects farmers to respond to lower grain prices by slashing expenses. It forecasts a decline of $3.9 billion in 2014. If that happens, it would be only the second time expenses declined in the past 10 years, though the 2009 decline at $11 billion was much larger.

Meanwhile, several factors will conspire to slow the rate of growth in farm assets, debt and equity. They include lower net income, higher borrowing costs and moderation in growth of farmland values.

Even so, USDA expects the value of farm assets to rise 2.4% in 2014, while farm sector debt increases 2.3%. 

Despite the 26.6% drop in income, USDA projects median total farm household income to fall by $2,534 to $68,132 in 2014, according to a separate report. Given USDA’s broad definition of a farm, many farms are not profitable, even in the best years for farm income.

For additional coverage from the USDA Agricultural Outlook Forum, visit



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