FAPRI Forecast: Corn Prices Drop, Net Farm Income Strong

March 10, 2013 11:39 PM
FAPRI Forecast: Corn Prices Drop, Net Farm Income Strong

If average weather returns, look for a record 2013 corn crop—and for corn prices to drop $2 per bushel, says a University of Missouri economist.

Pat Westhoff said corn prices are projected at $5 per bushel, down from $7 for the crop harvested last fall. Those were among thousands of numbers in the annual MU FAPRI baseline sent to the U.S. Congress today.

The MU Food and Agricultural Policy Research Institute analyzes the U.S. farm economy, said Westhoff, director.

The FAPRI corn price depends on expected planting of 96.9 million acres, second highest since the 1930s and just under the 2012 record.

FAPRI assumes average weather and a return to trend yields of 162 bu. per acre. That contrasts with 123 bushels in drought-stricken 2012. Last year, yields ran 23% below trend, the third year in a row below trend.

More corn cuts revenue, as record yields are offset by lower prices. Corn revenue drops in 2013 and 2014.

At the end of the 10-year baseline, corn prices stay just under $5 per bushel, still above pre-2007 levels.

With lower corn prices, demand returns for livestock feed and ethanol production. Both fell with high prices last year.

While FAPRI assumes average conditions, expect price volatility, Westhoff warned.

In a stochastic analysis, FAPRI computers draw 500 potential outcomes. Those show yearly corn prices that are below $3.50 per bushel 10% of the time and above $6 per bushel 10% of the time. Actual volatility and uncertainty may be greater, Westhoff said.

A rebound in global grain and oilseed supplies sharply lowers prices for soybean and wheat crops in 2013. Cotton prices stagnate in the face of large global stocks.

Soybean production was cut by drought, but not as much as corn. Late-season rains helped yields. For 2013, FAPRI estimates new highs in soybean production, exceeding the 2009 record. Prices drop sharply.

Despite crop revenue drops, two measures suggest 2013 will be the third straight year of high income for farmers, Westhoff said.

Net farm income in 2013 could reach the highest level since the early 1970s, even after correcting for inflation.

The other indicator, net cash income, declines in 2013. The two measures differ because net farm income includes changes in the value of inventories, and bigger crops should boost the amount of grain owned by farmers at year-end.

Federal crop insurance plays into a bump in income. The drought coverage payments exceed usual program payments from the federal Commodity Credit Corporation.

For the baseline, FAPRI assumes continuation of current farm law. That could mean CCC outlays of about $9 billion per year over the baseline. About $6 billion goes to major crop programs.

While revenues are high, farm input costs rose by 55% over the last six years, far higher than overall inflation. However, feed costs are expected to decline if 2013 brings average crop yields. Increased input costs moderate then slowly rise through 2022.

Both oil and natural gas prices dropped in the recession. However, oil prices rebounded and remain high, while natural gas prices dropped and stay well below pre-recession levels. Fertilizer prices increase, but remain below 2008 peak levels.

In land use, good planting-time weather and high prices pulled another 10 million acres into crops in 2012. Total planted area remains high in 2013, but declines with lower prices in 2014. Conservation Reserve acreage drops again in 2013.

The analysis is included in "U.S. Baseline Briefing Book: Projections for Agricultural and Biofuel Markets." The 50-page book was prepared by the team of MU FAPRI and Agricultural Markets and Policy in the MU College of Agriculture, Food and Natural Resources.

The book is on the MU FAPRI website at www.fapri.missouri.edu.


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