Crops Transition to the Back Burner

October 4, 2013 05:40 AM
Crops Transition to the Back Burner

U.S. economy is projected to grow

Corn prices will average $4.65 per bushel for the 2013/14 marketing year, according to the new baseline report by the Food and Agricultural Policy Research Institute (FAPRI).

If production allows stocks to rebuild, FAPRI says prices could be even lower in subsequent years.
Average soybean prices are forecast at $11.33 per bushel for this year’s crop, with the possibility of additional declines in 2014. However, if soybean yields are less than what USDA forecast in its August report, it wouldn’t be a surprise if soybean prices move higher than what FAPRI forecasts, says Pat Westhoff, FAPRI director, adding that the price of all crops will be sensitive to changing production estimates.

Interest rates are forecast to increase steadily from 3.3% this year to 7% by 2018.

Wheat prices are expected to decline from $7.11 per bushel this crop year to $5.90 in the 2014/15 marketing year and then gradually increase to $6.28 per bushel by 2018.

"These levels are reasonable for long-range prices," says Frayne Olson, North Dakota State University ag economist. "Producers should look at their cost of production and risk management strategies as they factor in these price points."

While FAPRI numbers point to lower crop prices in the decade ahead, Olson still believes producers will have selling opportunities. "FAPRI’s model assumes normal weather," Olson says. "There will be years when this is not the case." 

With corn prices set to decline, FAPRI expects fewer corn acres to be planted. "By 2018, we only expect 93.1 million acres of corn to be planted—that’s 4 million acres less than this year," Westhoff says.

Corn yields are anticipated to increase from 154.4 bu. per acre to 171.6 bu. by 2018. Soybean yields are only expected to increase from 42.6 bu. per acre to 46 bu.

Crops Aside. Corn-based ethanol production is expected to increase in 2014, although the size of the increase will be sensitive to the Environmental Protection Agency’s decision about how to implement the Renewable Fuels Standard.

Lower feed prices will reduce livestock and poultry production expenses, resulting in improved profitability and setting the stage for an increase in meat production. However, this does not apply to the beef industry. Reduced livestock herds mean beef production will reach a low in 2014, Westhoff says.

The institute sees growth in both the U.S. and global economies. U.S. gross domestic product (GDP) is forecast to increase from 1.6% in 2013 to 2.7% next year and 3.5% in 2015 before moderating in subsequent years. World GDP is forecast to increase to 3.4% in 2014, reaching 4% by 2015 and 2016. China’s GDP is expected to be 7.5% this year and peak at 8.2% by 2015, before declining to 7.1% by 2018.

FAPRI expects interest rates to increase during much of the forecast period, with the projected 2013/14 prime rate of 3.3% increasing slightly to 3.4% in 2015 but steadily rising to 7% by 2018.

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