May 2013
Farm & Field

Ag Outlook 2013

USDA Predicts Overall Bright Outlook for 2013 But Sector Differences Likely to Continue

 

The agricultural outlook for 2013 is bright, according to the United States Department of Agriculture’s chief economist Joseph Glauber. But there are many uncertainties that could derail that prediction, just as a similar forecast last year went by the wayside for many producers.

Speaking recently at the USDA’s annual agricultural outlook forum, Glauber noted, despite a historic drought affecting much of U.S. agriculture, farm incomes are near record highs and ag exports are expected to break records again this fiscal year. Farm debt is low relative to assets, and equity and asset values are at record highs, he added.

However, that broad overview belies differences between sectors.

Despite adverse weather, crop producers generally have fared well due to higher prices and crop insurance programs helping offset yield losses, Glauber said. For uninsured producers and those with crops for which insurance is unavailable, 2012’s results were much different. And, for the third time since 2007, livestock, dairy and poultry producers have experienced sharply higher feed costs, with poor pasture conditions this past year and limited safety net programs on which to rely, he observed.

Projections are for a rebound in crop yields in 2013, resulting in record production levels for corn and soybeans and, by autumn, lower prices for most grains and oilseeds, lower feed costs and improved profitability for the livestock, dairy and poultry sectors, Glauber continued.

Among the economist’s key points in his presentation were these:

 

Exports – U.S. farm exports for fiscal year 2013 are projected at $142 billion; down $3 billion from last November’s forecast, but $6.2 billion above FY 2012 and a record in nominal terms after adjusting for inflation. Ag imports in FY 2013 also are forecast at a record $112.5 billion, leaving an agricultural trade balance of $29.5 billion. While exports to China are expected to be down $1.4 billion from last year’s record of $23.4 billion, that country will be the top market for U.S. farm products for the second straight year.

Increases in export values in FY 2013 will be due primarily to higher commodity prices, and export volumes are expected to decline for many commodities including corn and soybeans. Rice and wheat exports should be exceptions – both projected to be higher in volume and value. Corn sales abroad are projected to be at their lowest volume level since the early 1970s and Brazil likely will overtake this nation as the world’s largest corn exporter.

Crops – Droughts in North America, Southern Europe and the Black Sea region sharply reduced wheat, corn and soybean supplies. 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 are projected at a record high of 82 million bales, up 19 percent from last year. With China expected to hold more than half of world stocks, the cotton outlook will depend on the sustainability of that nation’s policies in the longer run.

High prices will support another year of large plantings for wheat, corn and soybeans with combined acreage for those crops expected to approach or exceed 2012’s 230 million acres. Conservation Reserve program enrollments are down again and have declined 9.7 million acres from the 2007/08 peak.

U.S. Upland cotton acreage is projected at 9.8 million, a decline of 2.3 million acres from 2012. The drop reflects lower expected returns for cotton relative to alternative crops such as corn and soybeans in the Southeast and Delta states.

Weather – Conditions this spring will be especially important in the Great Plains where elevated levels of wheat crop abandonment are expected due to drought’s lingering impact. U.S. wheat production nationally is projected to be 2.1 billion bushels, down 7.4 percent from 2012.

About 57 percent of cotton production is located in areas now in drought condition.

Corn and ethanol – With higher corn prices due to the drought, ethanol production margins tightened considerably this past summer and projected corn use for the biofuel has been reduced to 4.5 million bushels for the 2012/13 marketing year. A record corn crop for 2013/14 should improve ethanol production margins, leading to higher production and an increase in corn use to 4.675 billion bushels.

Grain, oilseed prices – Farm prices for most grain and oilseeds will be lower, reflecting larger domestic and world supplies. Corn prices are forecast to average $4.80/bu. in 2013/14, down 33 percent from the previous year’s record levels, while soybeans are expected to average $10.50/bu., a 27 percent drop.

Cotton prices are expected to increase 3 percent to 73 cents per pound, reflecting tighter domestic supplies.

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. Productivity gains have offset some of the decline in feed ratios, but tight margins from the second half of 2012 will continue this year.

Cattle and dairy producers also have been hit hard by poor pasture conditions and a poor hay crop. A large liquidation in cattle numbers has pushed the U.S. cattle and calf herd to its lowest level since 1952.

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.

Farm income – USDA’s Economic Research Service now is predicting 2012 farm net cash income of $135.6 billion, a record in nominal terms and the highest since 1973 after adjusting for inflation.

As of mid-February, $14.7 billion in indemnity payments had been made to producers suffering 2012 crop or revenue losses. Indemnity payments for 2012 losses could be as high as $17 billion when all claims are settled, a total considerably higher than the record $10.8 billion paid on 2011 crop year losses.

ERS is projecting 2013 net cash income of $123.5 billion, a decline of almost 9 percent.