Periodically, the USDA National Agricultural Statistics Service (NASS) updates and releases the baseline projections for U.S. crop and livestock production for the next decade. A few months ago, NASS released the latest updated baseline projections for U.S. crop production. While projections this far into the future may seem insignificant, they do become important in the future long-range planning process for farm operators, ag lenders, ag policy makers and others.
The latest release by NASS looks at baseline projections for the U.S. crop sector for the next decade (2013-2022). In the short term, the U.S. crop sector continues to be impacted by relatively high grain prices and strong profitability in crop production. Total U.S. crop acreage in 2013 is projected to be among the largest ever, exceeding 325 million acres. As of June 30, total U.S. corn acreage in 2013 was estimated at 97.4 million acres, which is the largest amount of planted corn acres in the U.S. since 1936. NASS has estimated 2013 planted soybean acreage in the U.S. at the record-level of 77.7 million acres. It should be noted that some analysts feel the level of 2013 planted corn and soybean acres may be adjusted downward later this year, due to the large amount of prevented planted crop acres from the extremely wet Spring in Southeast Minnesota, parts of Iowa, and other areas in the Upper Midwest.
The NASS annual data is shown on the basis of the federal crop year, which runs from Sept. 1 in the year of production through Aug. 31 the following year. The NASS baseline assumptions reflect continued strong global demand for U.S. produced crops, and steady growth in the world economy over the next decade. Corn-based ethanol production in the U.S. is expected to rebound from the sharp production declines in 2012 that resulted from high cash corn prices; however, NASS expects future expansion of the domestic ethanol industry to be quite slow. NASS expects most crop prices to decline significantly 2013-2014 and 2014-2015; however, NASS does expect most grain prices to remain above pre-2007 levels, due to continuing strong global demand for U.S. grains.
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The 2012 drought greatly reduced total corn production in the U.S., which led to very strong corn prices for the 2012-2013 corn marketing year. The lower corn supply and continued higher corn price levels lead to lower domestic corn use for livestock feed and ethanol production, and resulted in lower corn export levels. The supply of corn stocks is expected to more than double by the end of the 2013-2014 marketing year, as compared to the current year. If this becomes reality, it likely will lead to more moderate corn prices later in the 2013-2014 marketing year. Following are some NASS baseline projections for U.S. corn production, usage and prices in the next decade:
- Planted corn acreage is expected to moderate back to 88-92 million acres after the next couple of years, with annual production levels between 13.5 and 15 billion bushels, which will be fairly close to expected total corn usage. After sharp increases in the next couple of years from 729 million bushels for 2012-13, corn ending stocks are anticipated to be near 1.5-1.6 billion bushels for the balance of the next decade.
- Growth of the U.S. ethanol industry is expected to be small over the next decade, as compared to the 2005-2010 time period. Corn use for livestock feed and residual use is also expected to be fairly steady in the short-term, with some slight growth later in the decade, with anticipated livestock production increases. Food and industrial use for corn is also expected to rise slightly over the next decade, with increased demand for high fructose corn syrup and corn starches.
- Corn exports are expected to recover nicely from the weather-reduced 2012-13 export levels, with global demand for feed grains expected to remain strong, and with the greatest export growth expected in shipments to China. The U.S. remains the largest corn exporter in the world, accounting for about 45% of the global corn trade; however, that is well below the 70 percent U.S. corn export share, prior to 2000 and the ethanol boom.
- 12-month average on-farm corn prices, which were $7.60/bu. for 2012-2013 and $6.22 for 2011-2012, are expected to decline to $5.40/bu. for 2013-2014 and $4.10/bu. in 2013-2014, before stabilizing in the $4.40-4.80 range later in the decade.
On the short-term, soybean production is expected to increase more quickly than soybean demand, which could lead to lower farm-level soybean prices. However, NASS expects both domestic soybean use and global soybean demand to increase in the coming years, which will help soybean prices rebound somewhat later in the decade. Here are some of the NASS baseline projections for U.S. soybean production, usage, and prices in the next decade:
- Planted U.S. soybean acreage is projected to stay near 75-76 million acres over the next decade, leading to annual soybean production around 3.4-3.6 billion bushels, which is fairly close to anticipated total soybean usage. Soybean ending stocks are expected to increase from 140 million bushels in 2012-2013 to over 200 million bushels by 2015-2016, and then to stabilize between 215-225 million bushels later in the decade.
- Since 2008, lower livestock feed demand, combined with alternative feed sources such as dried distillers' grains (DDGs) and canola meal, lead to slower domestic demand for soybean meal. As livestock production increases over the next decade, demand for soybean meal is expected to follow. Demand for soybean oil is also expected to grow over the next decade, primarily due to increased usage of soybean oil for production of biodiesel; however, alternatives such as other vegetable oils and corn oil may limit this future growth.
- Export demand for U.S. soybeans is anticipated to remain strong over the next decade; however export competition from South America is also likely to increase. The U.S. share of world soybean exports is expected to decline from 39% in 2013-2014 to near 30% by the end of the decade. China is expected to account for 90% of the increase in global soybean trade over the next several years.
- The 12-month average on-farm soybean prices, which are projected at $14.50/bu. for 2012-2013, are expected to decline to $10.35 for 2014-2015, and then to stabilize in the $10.65-11.35 range for the rest of the decade.
Based on the NASS projections for U.S. corn and soybean production, usage, ending stocks and farm-level prices for the next decade, it appears that corn and soybean producers could be in for some much tighter profit margins over the next decade, compared to recent years. The anticipated tighter profit margins in crop production in the coming years are likely to lead to moderations in crop input costs, which have been steadily rising in recent years. If the NASS projections hold up, it is also likely to put pressure on land values and cash rental rates in the next few years, which have both risen sharply in the past few years. It should noted that the projected continued strong demand for U.S. corn and soybeans could lead to temporary sharp grain price increases, if crop production is reduced due to weather problems, such have occurred frequently across the U.S. in recent years.