Friday, February 24, 2012
USDA Polishes Off Its Economic Crystal Ball
Agricultural economists, ag policy makers, and agribusiness executives from across the globe are in Washington for the annual USDA Outlook Conference, and heard Chief Economist Joe Glauber forecast 2012 US plantings at 94 million acres for corn. But that was followed with a forecast average price of $5 for corn as trend yields allow stocks to rebuild. Those lower prices will factor into an 11% drop in farm income, compared to 2011. How does that parallel with your own budget?
The USDA Outlook Conference allows agriculture to compare notes and make plans, and Glauber’s forecast should be heeded by Cornbelt farmers who are trying to ensure their profitability for what may be a financially challenging year. Glauber said the strong economic performance of agriculture in 2011 is projected to ease in 2012, with net cash income at $96 billion, which is an 11.5% drop from last year. Cash receipts will be a record high of $364 billion, but total expenses are projected to increase by $12.5 billion over last year. A red flag in the Glauber presentation is that debt is expected to rise by 3.8%.
Looking back at 2011, Glauber declared it to be a very good year, with record prices for many commodities, record exports, and record farm income. But he says prices are coming down which reflects strong production levels. He said supplies remain tight for feed grains, “Slowing growth in biofuels and a return to trend yields should result in a rebound in corn stocks. This should help relieve some of the volatility that have roiled markets over the past 5 years and improve prospects for future livestock expansion.”
Regarding ethanol, Glauber said the amount of corn used for ethanol will fall by 21 million bushels in the current marketing year. But he also said the price of ethanol will have to fall to work its way into the motor fuel supply. Current ethanol production capacity is 14.75 billion gallons, and he added, “The expiration of the Volumetric Ethanol Excise Tax Credit (VEETC) and the other duty and charges (ODC) on imported ethanol on December 31, 2011 has meant that corn-based ethanol produced beyond the 13.2-billion-gallon mandate will have to be attractively priced to be profitably blended with gasoline.” He said the longer run issue for corn-based ethanol is how much can be absorbed in the domestic gasoline supply—which is the blend wall of 10%, and that would be 13.5 billion gallons based on total use. Any more would have to be stored or exported.
However, ethanol exports reached a record in the past year with 909 million gallons shipped abroad, 43% going to Brazil, but that will declined as Brazil reconciles its ethanol and sugar refining capacities.
On the topic of exports, Glauber said 2012 should still be a good year, just behind the performance of 2012, but the economic woes of the EU has slowed the global economic recovery. Nevertheless, he expects the lower value of the dollar to more than compensate for the slower world growth and US commodities should remain competitive in world markets.
Globally, crop production is expected to increase because of higher prices beginning in 2010 that caused plantings to increase. Demand kept pace with production, with record world consumption for corn, soybeans, and wheat. But he said global corn stocks have not increased, and they have fallen to a 52.3 day supply, the least since 1973-74.
Glauber said if livestock did not hit record price levels in 2011, they will in 2012. He said domestic consumption has declined, due both to higher prices and changing demographics. He said exports have been a key driver in returns to producers, since beef, pork and broiler exports were at record levels. He forecast a similar scenario for 2012, limited only to insufficient supplies available for export.
On the consumption side, USDA economists are forecasting food prices to moderate, with inflationary price increases to be less in 2012 than they were in 2011. While the USDA Economics Research Service is projecting a 2.5% to 3.5% increase, the Bureau of Labor Statistics is suggesting food prices for in-home consumption to rise between 4.4% and 5.0% in 2012.
Summary:
Corn prices will be pushed down to the $5 mark in 2012, thanks to 94 million acres and a trend line yield that will build stocks. Subsequently, farm income will be less in 2012 than last year, particularly since production expenses will also be rising. USDA is also forecasting less corn to be used for ethanol production. Exports are expected to continue at a high level, helped by the value of the dollar.
Posted by Stu Ellis on 02/24 at 01:14 AM | Permalink