Grain prices and farm income drop sharply in 2014, FAPRI finds

By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, March 13, 2014-- Larger global crop harvests in 2013 have contributed to a major reversal of fortunes in agricultural markets, causing grain prices and crop producer income to drop sharply and prices for cattle to reach record levels, noted the Food and Agricultural Policy Research Institute (FAPRI) its baseline report today.

According to FAPRI's results, projected corn prices over the next ten years are about $4 per bushel and soybeans prices are about $10 per bushel. Also, net farm income in 2014 is projected to decline by more than $30 billion (24 percent) from the 2013 record.

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Meanwhile, cattle prices and returns to cow-calf operators are likely to remain high until herds have a chance to rebuild, which will take time, the report noted.

FAPRI presented its baseline projections for agricultural and biofuel markets to the House and Senate Agriculture Committee staff this morning.  In its baseline report, FAPRI incorporated key provisions of the new farm bill, the Agricultural Act of 2014, which required making assumptions about how the bill will be implemented. 

The figures represent the average of 500 alternative outcomes based on different assumptions about the weather, oil prices and other factors. In some of the 500 outcomes, prices, quantities and values are much higher or much lower than the reported averages, FAPRI noted. 

Key results include:

•       Prices for most crops are likely to remain below recent peaks. Under average market conditions, projected corn prices over the next ten years are about $4 per bushel and soybeans prices are about $10 per bushel.

•       In 2014, projected corn area planted declines by 4 million acres, while the area devoted to soybeans and several other crops increases. Lower prices discourage production on marginal acres, but more normal weather conditions this spring may allow some land that could not be planted in 2013 to return to crop production.

•       The current policy baseline assumes that the Environmental Protection Agency (EPA) proposal to modify the 2014 Renewable Fuel Standard (RFS) will be adopted and that a similar approach will be used to set biofuel use mandates in subsequent years. Projected growth in ethanol production over the next several years is limited.

•       Reduced cattle numbers, caused in part by multiple years of drought, limit beef production in 2014 and result in record cattle prices. Cattle prices and returns to cow-calf operators are likely to remain high until herds have a chance to rebuild, which will take time.

•       Lower projected feed costs help improve the profitability of livestock production. One uncertainty is the effect of porcine epidemic diarrhea (PED) virus on the pork sector.

•       New farm bill provisions include programs that pay farmers only when crop prices or per-acre revenues are below trigger levels. Unlike the old direct payment program that made constant annual payments, the new programs could make no payments in some years and very large payments to producers in other years.

•       On average, the projected cost of major commodity programs under the new farm bill is about $5 billion per year, and crop insurance costs average a little over $8 billion per year.

•       Net farm income in 2014 is projected to decline by more than $30 billion (24 percent) from the 2013 record, as sharply lower crop prices and reduced government payments more than offset the impact of strong cattle and milk prices and a slight reduction in production costs.

•       Food price inflation was less than expected in 2013. Food prices are projected to increase by 2 percent in 2014.

FAPRI said its baseline projections were prepared based on market information available in January 2014. Macroeconomic assumptions are based on forecasts by IHS Global Insight and suggest moderate growth in the U.S. and global economies.

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