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While the U.S. farm sector will continue to see financial pressure in 2017, there is a modest recovery forecast for U.S. grain prices, according to the annual Baseline Briefing Book from the Food and Agricultural Policy Research Institute (FAPRI).
Declines in corn and wheat acreage and production in response to price decreases brought on by record production in 2016 are central to the projections, FAPRI noted. Projected corn prices increase to $3.60 per bushel for the 2017/18 marketing year and $3.71 per bushel for the period from 2018 to 2026. “Meanwhile, shifts in relative prices are likely to push up soybean and cotton acreage in 2017,” FAPRI said. “Strong export demand has supported soybean and cotton prices in 2016-17, and projections have soybean prices averaging $9.57 per bushel in 2017/18.”
Cattle and hog prices are projected to decrease due to large domestic supplies, FAPRI said. “Cattle, hog and poultry prices all have declined sharply since 2014, partly because of strong production, but also because of a strong dollar, which constrains export sales,” the report noted. “Although milk prices also have dipped since 2014, stronger international markets are projected to buoy prices in 2017.”
Given the forecasts, FAPRI said that is “expected to contribute to a decrease in 2017 net farm income for the fourth consecutive year. Also expected is a continued increase in farmers’ debt-to-asset ratio from a low of 11 percent in 2012 to nearly 14 percent in 2017 and 16 percent in 2026.”
Net farm income has declined by 48 percent since peaking in 2013, FAPRI said, but is projected to increase in 2018 and later years and to remain below 2015 levels in real terms.
“The world is an uncertain place, and commodity markets will continue to be volatile,” according to FAPR Director Pat Westhoff. “We use our models to develop a range of projected market outcomes that takes into account some major sources of uncertainty about future supply and demand conditions. In some of the resulting 500 outcomes, prices, quantities and values are much higher or much lower than the averages reported here.”
The Baseline Briefing Book is prepared annually by economists with FAPRI and the University of Missouri Agricultural Markets and Policy team and updated each August, giving policy makers, farmers, agribusinesses and the public an overview of the state of the US farm economy.
“Perhaps most importantly, it serves as a point of reference for policy analysts,” Westhoff observed. “Congressional staff ask us to look at policy alternatives relative to this set of baseline projections so they can better understand how policy choices may affect farmers, businesses, consumers and taxpayers.”
Highlights in brief Record U.S. yields and world production have resulted in further declines in the prices of corn, wheat and many other crops in the 2016/17 marketing year. Because of shifts in relative prices, projected soybean and cotton planted acreage increases in 2017, while wheat and corn acreage declines. Projected corn prices average $3.60 per bushel for the 2017/18 marketing year, up slightly from 2016/17. Corn prices average $3.71 per bushel for the 2018-2026 period. Strong export demand has supported soybean and cotton prices in 2016/17. Projected soybean prices average $9.57 per bushel in 2017/18 and remain near that level in later years. Cattle, hog, chicken and milk prices have all declined sharply since 2014. Production has increased, and a strong dollar is constraining meat export sales. Cattle and hog prices both fall in 2017 because of large domestic supplies. U.S. milk prices increase in 2017 with stronger international markets. Net farm income has declined by 48 percent since its 2013 peak. It increases in 2018 and later years, but in real terms, projected net farm income remains below the 2015 level. Lower farm income and rising interest rates result in lower projected land prices and farm asset values. The debt-to-asset ratio increases from 11 percent in 2012 to nearly 14 percent in 2017 and 16 percent in 2026. Agricultural risk coverage (ARC) payments are expected to decline rapidly, largely because of reduced guarantees tied to moving averages of past market prices. More farmers are assumed to choose price loss coverage (PLC) in 2019 if current program rules are extended by a new farm bill and producers can make a new election. Crop insurance net outlays are projected to average about $8 billion per year for fiscal years 2018-2026. Major commodity program outlays average about $7 billion per year over the same period. Food price inflation was just 0.3 percent in 2016, and is expected to reach 1.7 percent in 2017. In later years, projected food price inflation is like the overall rate of inflation in the U.S. economy. |
