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USDA Outlook Bullish for 2013

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USDA Outlook Bullish for 2013

Joe Glauber at Outlook Forum

The annual USDA Outlook Forum held Thursday and Friday was full of optimistic predictions about the US farm economy for 2013.   Chief USDA Economist Joe Glauber sees nothing but blue skies ahead for US grain and livestock farmers, “The outlook for 2013 calls for a rebound in crop yields resulting in record production levels for corn and soybeans; and, by autumn 2013, lower prices for most grains and oilseeds. Lower crop prices should lead to lower feed costs and improved profitability for the livestock, dairy and poultry sectors.” His outlook presentation looked very similar to last year’s forecast which did not materialize because of the drought.

 

Glauber, like most farmers, is banking on better weather this year than last, “A return to more normal spring weather should result in more soybeans and slightly less corn planted in 2013.” He forecast corn plantings to average about 96.5 million acres, down slightly from 2012. Soybean acres are forecast to be up in 2013 to around 72.5 million acres, “If realized, this would equal the record high level reached in 2009. Increased SRW wheat seedings will likely increase double-cropping and reduced CRP area in the upper Midwest could further boost soybean acres.”

 

The forecast of higher production led to a forecast of lower prices at harvest, “A return to trend yields will likely push corn prices down significantly as stock levels rebuild. Corn prices are forecast to average $4.80 per bushel in 2013-14, down 33 percent from 2012-13’s record levels and, if realized, the lowest average price since the 2009/10 marketing year. Likewise, larger supplies and increased carryout will weaken soybean prices to $10.50 per bushel, down 27 percent.”

 

He is also seeing another big year for US farm exports, “With the exception of corn, export values are up for grain and oilseeds in FY 2013. Soybean exports are projected to exceed $22 billion in FY 2012, a record level if realized. Meat exports are projected up 1.3 percent with increased beef and veal and poultry exports offsetting a small decline in pork exports. Dairy product exports are forecast down 3.3 percent while exports of horticultural products are up almost 12 percent over FY 2012 levels.”

 

As for retail food prices, the USDA is now forecasting a 3-4% increase in food prices in2013, a bigger jump than in recent years but far from the catastrophe predicted during last summer’s drought. Glauber said, “While food inflation is anticipated to rise in 2013, the levels are unlikely to approach the levels reached in 2008 and 2011. USDA forecasts that food prices will increase only between 3 to 4 percent in 2013. Inflation is expected to remain strong, especially in the first half of 2013, for most animal-based food products due to higher feed prices. Food inflation is expected to be above the historical average for categories such as cereals and bakery products as well as other foods.”

 

Glauber ended his presentation by reminding his audience that all his prognostications are based on the assumption of a different weather pattern than we had in2012, “A key uncertainty is whether the historic drought of 2012 persists through 2013. Another year of drought would likely result in large liquidation and hardship for livestock producers. Historical odds favor a rebound in crop yields, however, which should bring significantly lower prices in 2013.”

 

 

Livestock Outlook

Livestock, dairy and poultry producers faced high feed costs for most of 2012 and high prices are

likely to persist through much of 2013 until new crops become available in the fall. Feed ratios,

which have generally been tight since 2007, tightened further in 2012 as feed costs rose relative

to meat and dairy prices (figure 18). While productivity gains have offset some of the decline in

feed ratios, margins have been tight throughout the second half of 2012 and into 2013.

In addition to high feed costs, cattle producers have been particularly hard hit by poor pasture

conditions and a poor hay crop. Almost two-thirds of the Nation’s pasture and hay crops were in

drought conditions with almost 60 percent of pasture condition rated poor or very poor for most

of July, August and September 2012. As was mentioned previously, dryness in the Southern

Plains has persisted for over two years and resulted in large liquidation in cattle numbers. The

January 1 NASS Cattle report indicates that most of the decline in the U.S. cattle herd has been

in the central and southern Plains. Cattle and calf numbers in Kansas, Oklahoma and Texas

declined by 3.4 million head between 2011 and 2013, a reduction of 13.6 percent. During the

same period, the U.S. cattle herd declined about 3.6 percent. The U.S. cattle and calf herd is at

its lowest level since 1952.

Likewise dairy producers were adversely affected by high feed costs and poor pasture conditions.

High temperatures during the summer also adversely affected milk production. As a result of

high feed costs, milk feed ratios have remained near the low levels experienced during 2009.

Strong pork and broiler exports helped keep margins higher than they would have been

otherwise, but high feed costs have limited hog, poultry and dairy expansion. Prices for

livestock, dairy and poultry products are all forecast up in 2013 (figure 19). Nonetheless, the

livestock, dairy and poultry sectors face continued tight margins in 2013, at least until new crop

feed grains and soybeans reach the market in the late summer and fall. Another year of below

trend yields and high prices would likely result in further liquidation.

 

Ethanol Outlook

From 2005/06 to 2010/11, corn use for ethanol in

the United States grew by over 680 million bushels annually, topping 5 billion bushels in

2010/11 and 2011/12. With higher corn prices due to the drought, ethanol production margins

tightened considerably this past summer. As a result, weekly production numbers (on an

annualized basis) fell below the allowable cap for conventional ethanol under the Renewable

Fuel Standard and have remained below the cap since mid-July (figure 14). Projected corn use

for ethanol has been reduced for the 2012/13 marketing year to 4.5 billion bushels. A record

corn crop for 2013/14 should improve ethanol production margins and lead to increased ethanol

production. Corn use for ethanol is projected at 4.675 billion bushels for 2013/14, up 175

million bushels from last year, but below 2011/12 levels (figure 15).

Several factors will likely hinder further growth in corn use for ethanol over the next few years.

One, U.S. gasoline consumption has been declining since 2008. At the time the Energy Act of

2007 was passed, forecasts by the Energy Information Administration for gasoline consumption

implied almost 150 billion gallons of blended gasoline by 2014 (figure 16). Increased fuel

efficiency and fewer miles driven due to the slow economic recovery have caused gasoline

consumption to decline. Current EIA forecasts of blended gasoline fuel consumption in 2013 are less than 134 billion gallons, 16 billion less than forecasts made in 2008. Two, ethanol

penetration rates remain near 10 percent as growth in higher blends (E15 and E85) remains

limited. Current penetration rates would imply a blend wall of less than 13.4 billion gallons for

ethanol. Ethanol produced in excess of that amount must be held as stocks or exported. Lastly,

while export markets have provided an outlet in past years for excess ethanol production, current

export prospects are reduced because of increased competition from Brazil and potential trade

restrictions for exports to the European Union.