How will your farm operating budget look with $4.80 corn and $10.50 soybeans? Many farmers will have a problem covering their breakeven cost with USDA’s projection for the average prices of the 2013 corn and soybean crops. Nevertheless those prices were suggested Thursday at the annual USDA Outlook Forum during the presentation of Chief Economist Joe Glauber.
The official USDA projections revealed by Glauber in his speech (pdf) and in his slides (pdf) are based on large acreage, a return to normal weather and trend line yields. He says the high prices for the 2012 crop will encourage large plantings, domestically and globally. USDA is expecting about 230 million acres of corn, soybeans and wheat, the largest since 1982. Included in that is an expectation for 96.5 million acres of corn and 77.5 million acres of beans, which would equal the 2009 high for soybeans. Part of the reason for increased soybean acreage is an increase in soft red winter wheat for double-cropping along with reduced CRP acreage.
Along with increased acres are USDA’s ideas for increased yields, based on a return to more normal weather. USDA acknowledges that over half of the U.S. remains under a drought influence, but Glauber says there are several reasons to expect a normal trend:
- First, we have already seen some improvement in the eastern Corn Belt. While much of Indiana and Illinois was in drought throughout much of the summer, fall and winter rainfall has improved conditions there.
- Second, studies suggest that there is little correlation between seasonal precipitation in one year and the next. A dry summer in 2012 has little implication for summer precipitation in 2013.
- Third, research shows that corn and soybean yields are largely determined by summer weather conditions, with July weather being the most important. There is little evidence to suggest that low preseason moisture levels have significant impacts on corn and soybean yields.
With larger U.S. and world supplies, Glauber says prices will be lower for most grains and oilseeds. He forecast a $4.80 average for corn, down 33% from 2012 prices, and that would be the lowest since 2009-2010. The same is expected for soybeans, with a 27% decline to $10.50.
Glauber says the reason that corn prices rose aggressively the past several years is now contributing to lower demand, and that is ethanol. Use for ethanol topped 5 billion bushels between 2010 and 2012, but higher corn prices tightened ethanol margins, production was cut back and now overall motor fuel demand has also declined. Demand has dropped due to fewer miles being driven and increased fuel efficiency for those miles. While export markets have provided increased sales, but competition from Brazil and trade restrictions from Europe have diminished that opportunity.
Exports will be at record levels, dominated by soybean purchases by China. However, corn will not be high on the global shopping list and will be at the lowest levels since the early 1970s. The result will be Brazil taking over as the global corn exporter during the marketing year for the 2012 crop, then the U.S. returning to the top spot for exports of the 2013 crop.
On the flip side of lower grain prices are increased opportunities for profitability in livestock production. High feed prices have been their nemesis the past two years, and that scenario will continue until the 2013 harvest. While poor grazing resources have troubled cattle producers, they are joined by other livestock producers who have been challenged by high grain costs, and that limited expansion. Glauber says lower prices will foster expansion. But he says a repeat of 2012 will likely result in further liquidation.
USDA expects large corn and soybean acreage in 2013 and with normal weather there will be large production and a rebuilding of carryover stocks. High corn prices have diminished its demand, but high prices are still being paid by China for soybean purchases and they will be among the U.S. export leaders. High corn prices have also diminished ethanol demand, along with fewer miles driven. The result of increased production will be drops in corn and soybean prices in the neighborhood of 30%.