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Economist Sees Lower Crop Prices in 2009

Ethanol will provide the only demand increase for corn.

Farm income hit a record high in 2008 due in part to record prices for corn, soybeans and wheat, but an economist speaking at a crop outlook seminar at the American Farm Bureau's 90th annual meeting said farmers can expect lower prices this year.

Jim Sullivan, an agricultural economist and senior vice president of Informa Economics in Washington, D.C., said the global recession will mean weakening demand for corn, soybeans and wheat this year. For corn, the only strong driver for demand will be ethanol while biodiesel will be the top demand driver for soybeans.

"Last year was a good year for U.S. farms, but declining prices cloud the 2009 horizon. Volatility is still there, and we will see declining prices from last summer's highs," Sullivan said.

"The only demand increase we can expect to see for corn this year and next year will be corn used for ethanol," he explained. In 2008, 30 percent of total U.S. corn production went to ethanol while it represented 35 percent of total domestic use. In 2009, ethanol is expected to climb to 34 percent of U.S. production and 38 percent of domestic use.

Sullivan sees a "decent" supply of soybeans in the United States and worldwide this year. The economist expects soybean prices, like corn prices, to be down in 2009. For wheat, there is an excess supply both in the United States and worldwide. "We will see stocks build for wheat, which should mean lower U.S. winter wheat plantings," Sullivan said.

One bright spot of the weak global economy for farmers is that fertilizer prices are coming down from last summer's record highs. Continued price softening is expected, and Sullivan encouraged farmers to delay their fertilizer purchases.

Cotton farmers can expect another challenging year in 2009, according to Sharon Johnson, senior cotton analyst with First Capitol Group in Atlanta, who also addressed the seminar. "Cotton prices are under significant pressure as consumption and trade are negatively impacted," Johnson said.

The global recession is weakening demand for cotton products. "Nobody is going to the stores, and they're certainly not buying many cotton items," Johnson said.

The past few years have been tough for cotton producers. In 2007 and 2008, world cotton consumption declined by its largest percentage in 65 years.

Cotton acreage has been losing to corn acreage since 2006. For 2009, cotton acreage will also be impacted by input costs, versus competing crops and credit availability.

For 2009, Johnson projects cotton acreage at 8.3 million acres with harvested acres at 7.8 million acres. She sees a potential yield of 860 pounds per acre, indicating a crop forecast of 14 million bales with a range of 12 million to 15 million bales.

TAGS: Wheat
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