FAPRI update: Will $4 corn be the new normal?

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.



COLUMBIA, MO., Aug. 28, 2014 - In what could be great news for livestock and poultry producers and a gut-check for many corn, soybean and cotton growers, the latest baseline projections from the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri suggests that corn prices could hover near $4/bu. through 2020, after dropping down to $3.89/bushel in 2014-15.

During that same five year time period, soybean prices are projected to range from $10.30 to $10.69/bu.; wheat prices would drop from $6.27/bu. this year to $5.97/bu. in 2020; cotton would range from 65.2 to 64 cents/lb., and farm gate rice prices would range from $13.87 this year down to $13.17/cwt.

Poultry producers are expected to take advantage of lower feed prices and expand production, increasing the supply of broiler meat from about 38 million lbs this year to over 42 million pounds in 2019.

Of course, these baseline projections represent an update on several policies that are as yet unknown, including the Agricultural Act of 2014 and the 2014 Renewable Fuel Standard (RFS).

“Many of the regulations to implement the new farm bill had not been issued at the time this update was prepared in August 2014. The assumptions used here may prove inconsistent with at least some of the final regulations,” FAPRI Director Pat Westoff points out.

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“The update assumes that EPA will set the final RFS for 2014 at levels greater than in the proposed rule, but less than indicated under EISA (the Energy Independence and Security Act). The portion of the RFS that can be met with conventional biofuels such as cornbased ethanol is assumed to be set at 13.6 billion gallons for 2014, which is above the 13.0 billion gallons in the proposed rule, but less than the 14.4 billion gallons implied by EISA.The baseline assumes a similar process will be used to set the RFS each year.”

Here are a few highlights of the report, which can be read in full here: www.fapri.missouri.edu

·        The potential for record corn and soybean crops has weighed on prices for grains and oilseeds. Corn and soybean prices for the crops harvested this fall could be the lowest since 2009.

·        Corn prices fall to $3.89 per bushel for the 2014 crop. Even with a projected decline in 2015 U.S. corn production, prices remain around $4 per bushel in 2015 and beyond.

·        Large U.S. and global supplies cause soybean prices to decline to $10.30 per bushel for the 2014 crop and below $10 per bushel for the crop harvested in 2015.

·        Cotton prices have also declined sharply, partly in response to large Chinese and global cotton stocks. Farm prices for cotton drop to 65 cents per pound this year, and remain near that level.

·        Ethanol production prospects depend, in part, on EPA decisions about how to implement the Renewable Fuel Standard (RFS). With lower prices, ethanol exports continue to increase in 2015.

·        Reduced cattle numbers, animal disease problems and strong international demand are among the factors causing record cattle, hog and milk prices in 2014. Supply response to these high output prices and lower feed costs contribute to lower meat and dairy prices in 2015.

·        Higher retail meat prices contribute to an uptick in consumer food price inflation in 2014, but the projected rate drops below 2 percent again in 2015.

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