Grain prices and crop producer income dropped sharply in 2013 and will probably remain there in 2014, while high prices for cattle will continue, says the new baseline report by the Food and Agricultural Policy Research Institute (FAPRI).
The baseline projections for agricultural and biofuel markets are 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.
The outlook was presented to the House and Senate Agriculture Committee staff on March 13.
FAPRI is a unique, dual-university research program, established in 1984 by a grant from the U.S. Congress, to prepare baseline projections for the U.S. agricultural sector and international commodity markets and to develop capability for policy analysis using comprehensive data and computer modeling systems of the world agricultural market. FAPRI is housed at the University of Missouri and Iowa State University.
Key results of the new projections include:
- Prices for most crops will likely 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 areas planted with corn will decline by 4 million acres, while areas devoted to soybeans and other crops will increase. Lower prices discourage production on marginal acres, but more normal weather conditions this spring may allow some land that wasn’t planted in 2013 to return to crop production.
- Reduced cattle numbers, caused in part by multiple years of drought, will 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 will improve the profitability of livestock production. One uncertainty is the effect of porcine epidemic diarrhea 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’s projection incorporates key provisions of the Agricultural Act of 2014 (the new farm bill). In several cases the analysis requires important assumptions about how the bill will be implemented and how people will respond to the new options provided. As more information becomes available, these assumptions and estimates will be revisited.
The baseline assumes that the Environmental Protection Agency proposal to modify the 2014 Renewable Fuel Standard 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.
The figures reported by FAPRI 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.