A rebound for last year’s drought-stricken farmland means a bear is poised to bat down high grain prices. At least that was the prediction offered by Joseph Glauber, USDA’s chief economist, at the Outlook Forum in late February.
The problem with such forecasts, of course, is they can easily miss the mark. Glauber knows this all too well – and acknowledged it during his presentation – after he made similarly bearish predictions in early 2012 before devastating drought set in and grain prices skyrocketed. Just over half of the country still remains in drought.
“This year’s outlook is similar to the picture painted last year: High prices ahead of planting should encourage large corn and soybean acreages, and assuming normal yields, stock levels should rebuild and prices should moderate in 2013/14. Lower feed costs will bring relief to livestock, dairy and poultry producers and allow modest expansion over the next 12 months.
“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.”
Glauber also said consumers will pay more for groceries in the short-term. However, “the increase should be small relative to increases in recent years. … 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.”
Corn prices will “likely” drop “significantly.” Glauber said corn prices are forecast to average $4.80 per bushel this year -- down 33 percent from 2012’s record levels.
Other crop price forecasts:
“Likewise, larger supplies and increased carryout will weaken soybean prices to $10.50 per bushel, down 27 percent.”
“Cotton prices are expected to increase by 3 percent to 73 cents per pound for 2013/14, reflecting tighter domestic supplies.
“Rice prices are projected at $15.20 per hundredweight, up 30 cents from the mid-point of the 2012 price, in part reflecting smaller domestic supplies and ending stocks.”
The USDA is actually predicting record crops for corn and soybeans in 2013 if there are normal weather conditions.
“There has been much discussion about the effects of last year’s drought on corn and soybean yields in 2013,” said Glauber. “A number of factors suggest that corn and soybean yields will likely to return to 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.”
Livestock, dairy and poultry producers – stung by higher feed prices in recent years – will certainly hope Glauber’s predictions hold up. By this fall, said the economist, there should be “lower prices for most grains and oilseeds. Lower crop prices should lead to lower feed costs.”
As for ethanol production in 2013, Glauber said corn used for the fuel production will be below 5 billion bushels – at 4.7 billion bushels -- for a second straight year.
Droughts around the world in 2012 reduced global supplies for wheat, corn, and soybean supplies. “Global wheat stocks for 2012/13 are projected to be at their lowest level as a percent of use since 2008/09. Global corn stocks as a percent of use are projected to be the lowest since 1973/74. Despite record production, strong demand reduced global rice stocks as well. Soybeans stocks are anticipated to increase reflecting large anticipated production in the Southern Hemisphere, but stocks as a percent of use will remain below 2010/11 levels. Large global supplies should lead to stock rebuilding in 2013/14, but markets will remain volatile until production levels are known with more certainty.”
Global cotton stocks, said Glauber, are projected, “at 82 million bales, a record high and up 19 percent from last year. Most all of the increase has been in China where government policies have resulted in large acquisitions of cotton stocks to bolster producer prices. With China forecast to hold over 50 percent of world stocks, the world cotton outlook will depend on the sustainability of such policies over the longer run.”