Economic Assessment

March 23, 2013 05:48 AM

USDA gives big-picture forecast of the year ahead

For drought-weary farmers and ranchers, 2013 couldn’t get here fast enough. The hope of a new year and an optimistic outlook from USDA officials at the agency’s annual Agricultural Outlook Conference is encouraging for the nation’s crop farmers.

"There’s no reason to believe that we won’t be looking at normal yields this year," said USDA’s chief economist Joe 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."

Strong corn and soybean production will depress prices, Glauber predicted, but more planted acres should push net farm income to $128 billion, the highest level in real terms since 1973, according to the USDA–Economic Research Service (ERS). Corn prices will average $4.80 a bushel in 2013/14, down 33% from the previous marketing year. Soybean prices will likely fall 27% to $10.50 per bushel.

Joe Glauber

As chief economist, Joe Glauber is responsible for USDA’s forecasts and projections.

Glauber expects that farmers will plant at least as many total acres as they did in 2012 (230 million acres), but there will be some shifts with each crop. He expects corn acres to be down 0.7% while soybeans are up 0.4% and wheat 0.5%.

Favorable weather should also translate into higher yields. 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.

Export picture. The industry will receive an additional boost from record agricultural exports in 2013, according to USDA estimates. "The pace of exports so far 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 U.S., 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.

Less demand for fuel due to economic problems and increased fuel efficiency means ethanol plants won’t be buying as much corn this year. Glauber forecasts 4.675 billion bushels of corn will go into ethanol, down from the 5 billion bushels bought in 2011/12.

Risk reduction. Production agriculture knows all too well the risks associated with providing for a growing world. At the core of USDA’s mission is helping farmers mitigate these risks.

One of the agency’s focus areas is immigration reform. "Agriculture relies to a great extent on immigrant labor," said Secretary of Agriculture Tom Vilsack, adding that some crops weren’t harvested in 2012 for lack of available labor. "Many of those workers are in the country illegally.... It’s important and necessary that we have immigration reform."

After taking steps this past year to mitigate drought-related problems, USDA is focused on multicropping opportunities in the U.S. The department is trying to identify and mitigate barriers to multicropping, including available insurance programs.

Climate change is another issue USDA is tackling. The department recently produced two studies that demonstrate its impact on agriculture. "There’s no question that the climate is changing," Vilsack said. To help, USDA is expanding its pest forecasting and soil health management tools.

In order to better serve America’s farmers, Vilsack encourages farmers, ranchers and those involved in agriculture to reach out to their lawmakers. "We need you to encourage Congress to help us help you," he says.

U.S. Cattle Herd Continues to Contract

Record high feed prices and contrary weather continue to pound the U.S. cattle herd. This year, beef production is expected to decline another 3% to 25.1 billion pounds, even as steer prices rise to record highs.

Feed prices will let up, but not until later this year, said Shayle D. Shagam, livestock analyst for the World Agricultural Outlook Board at the Agricultural Outlook Forum. Corn prices during the first three quarters will average $6.75 to $7.65 per bushel, according to USDA projections. In the fourth quarter, corn should drop to $4.80. Soybean meal prices will average $300 per ton in 2013/14.

The prospect of lower feed prices later in the year isn’t likely to stop a six-year reduction in the U.S. cattle herd. "The U.S. cattle inventory is expected to continue contracting in 2013," said Shagam, attributing the bulk of the decline to the lack of forage. In 2012, the cow herd totaled 38.5 million head, which was 2% smaller than the previous year, and the calf crop totaled 34.3 million head, the smallest since 1949.

The small calf crop will lead to tighter cattle supplies moving into 2014 and less heifer retention, making an increase in beef production before 2016 unlikely.

USDA forecasts that slaughter rates during the first half of the year will be virtually the same as 2012, but will decline sharply as feedlot inventories drop. Cow slaughter is expected to decline even more from 2012 levels as producers retain cows and herd liquidation moderates. As a result, "total commercial cattle slaughter during 2013 is expected to decline almost 4%," Shagam said.

The slaughter decline will be partly offset by carcass weights increasing to almost 791 lb., due to a combination of mild winter weather and increased adoption of beta-agonists that improve feed efficiency.

USDA forecasts beef exports at 2.45 billion pounds, slightly lower than 2012, which saw a 12% drop from 2011 due to high U.S. beef prices and a strong dollar. Sales to most foreign markets will decline with the exception of China and Hong Kong.

Another Tough Year for Dairy

Dairy Cows

While the outlook for the dairy industry is bleak for most of the year ahead, there could be some relief in the last three months, said Jerry Cessna, a senior agricultural economist with USDA at the agency’s Agricultural Outlook Forum. Net cash income for dairy operations will fall 14.5%, from $98,000 in 2012 to $83,900, as higher feed prices through the first three quarters of the year more than outweigh the impact of higher milk prices.

The dairy industry set several records this past year, Cessna noted:

  • The annual milk-feed price ratio dropped to the lowest level.
  • More than 200 billion pounds of milk was produced.
  • More cows were slaughtered than any year since 1986 when the government paid the industry to thin the cow population.

Cessna expressed surprise at increases in milk production during the fourth quarter of 2012, which partly stemmed from an increase in the cow population. "It is not expected that cow numbers will continue to rise," he said. "The fundamentals point toward lower cow numbers in 2013."

Cessna noted that dairy cow slaughter was high throughout 2012. By January of this year, the inventory of replacement heifers expected to calve in 2013, 2.9 million head, was down from 3.1 million the year before.

What’s ahead for dairy prices? Cessna said prices for various dairy products are likely to continue in the same direction for the first three months of 2013. During the last two months of 2012, Cheddar cheeses prices fell from $2.01 per pound to $1.79 per pound. Butter prices dropped from $1.84 to $1.60 per pound.

"The real story is what’s happened on non-fat dry milk and whey," said Cessna, noting that stocks of those products shot up during the last two months of 2012. During that time, the price of non-fat dry milk rose slightly.

"Inventory levels at the beginning of 2013 seem to indicate that supplies of dairy products are plentiful," reported USDA.

USDA projects that the number of cows will decline by 0.7% this year due to high feed prices and in response to low milk feed rations in 2012. Even so, those cows will be more productive.

You can e-mail Boyce Thompson at

For more coverage from the 2013 USDA Agricultural Outlook Forum, visit

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