What will farmers plant in 2015? Which crops might prove to be the best investments? The Food and Agricultural Policy Research Institute (FAPRI) recently released its 2015 U.S. Baseline Briefing Book, which provides projections for agricultural markets.
Overall, FAPRI says, record production of corn and soybeans in 2014 has pushed down prices of all major grains and oilseeds. For the 2015/16 marketing year, FAPRI expects average corn prices for to be $3.89. Average soybean prices are forecast to come in at $9.29 and wheat prices at $5.17.
The group of economists ran 500 alternative outcomes to arrive at their 2015 projections. The results below represent the average of those outcomes, as well key findings.
In 2014, farmers planted 90.5 million acres of corn. Although area was the lowest it has been since 2010, yields were at an all-time high and 2014 was the second year in a row of record U.S. corn production.
The larger corn crops in 2013 and 2014 after three years of drought are the primary cause of lower corn prices. But, the lower prices did rejuvenate corn use. The main source of demand growth into the future comes from export markets.
After several years of record returns, market revenues fell in 2013/14 and again in 2014/15. Lower prices more than offset the yield increases. Variable expenses (which exclude land costs) fall in the short term as fertilizer and fuel prices moderate.
The 2014 soybean crop exceeded the previous record by over 18%. Farmers planted 83.7 million acres to the crop in 2014 and also achieved record yields. Soybean area is expected to set a new record in 2015 and remain high given strong global demand.
Even with increased use in 2014/15, the consumption of soybeans cannot match the record production. If yields decline to more normal levels in 2015, production and use of soybeans may be in closer balance. Increasing demand from China is the primary cause of increases in U.S. soybean exports.
Prices have fallen sharply in 2014/15, and a smaller decline is expected in 2015/16. In 2014/15, the decrease in the soybean price is more than enough to offset the increased yield. This results in lower market returns. Total and net returns decline again in 2015/16, as prices decline and yields are assumed to return to the long-term trend.
U.S. wheat yields were down in 2014, resulting in a second straight year of declining production. Even though projected planted wheat acreage is down in 2015, more typical weather might allow more of the crop to be harvested and yields to increase.
The weakening of the corn price has led to less wheat being used for feed in 2013/14 and 2014/15. Exports declined sharply in 2014/15 because of strong competition from other exporters and cheaper U.S. corn. Exports slowly rebuild beginning in 2015/16, but competing exporters will continue to capture most of the world wheat market.
Although U.S. wheat production was down in 2014/15, abundant domestic supplies of other crops and plentiful foreign production suppressed the price. Projected prices and returns fall further in 2015/16. Net returns to U.S. wheat producers remain well above pre-2007 levels.
Upland cotton acreage is likely to fall sharply in 2015, given low cotton returns in absolute terms and relative to competing crops. Large international stocks limit export and price prospects. Domestic mill use is relatively flat and accounts for a small share of total use of U.S. cotton.
China continues to be the main source of uncertainty in world cotton markets. China’s end-of-year cotton stocks are now almost twice as large as the amount of cotton China produces or uses each year. Recent policy changes in China should end stock accumulation, but it is not clear when and how existing stocks will be reduced.
Cotton revenues per acre harvested fall in 2014/15, as both prices and yields decline.
U.S. sorghum production rebounded in 2013 and 2014. Stronger export demand helps sustain the higher production levels. China accounts for the big increase in sorghum exports. This has allowed sorghum to sell at a premium to corn in 2014/15.
As with several other crops, sorghum returns have been declining since 2012/13.
Long grain rice area and production increased in 2014, and competitor rice prices remained below U.S. prices. As a result, long grain rice prices drop below $13 per hundredweight in 2014/15. Projected prices are steady for 2015-2024.
High prices and yields resulted in record levels of per-acre revenues for U.S. rice producers in 2013/14. Declines in rice prices in 2014/15 and 2015/16 reduce producer returns.
After the record crop of 2012, producers sharply reduced peanut area and production in 2013. 2014 production reverted to the long-term average.
Peanut yields were above the long-term trend for the third straight year in 2014. 2015 area is expected to increase as prices for competing crops weaken. More typical yields would offset this effect on production.
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