The Five Year Forecast – Is It Better or Worse?
As the global economy turned south a year ago, the Food and Agricultural Policy Research Institute at the University of Missouri decided to revise their projections of food prices and production over the next five years. This was done early in the year and many commodity prices have changed direction in the last several months. FAPRI has issued an updated report as of August, 2009 give new updated estimates. Has the outlook gotten better or worse?
Although prices have fallen from the 2008 peak, many of the major commodity prices remain above pre-2007 levels. FAPRI is predicting that petroleum prices will increase over the next five years, however, they will not get back to the high levels of 2008. Also, this will lower the demand for ethanol and bio-diesel which will lower the pricing for corn and related products. The offset is that the cost of petroleum and fertilizers will be lower than peak pricing.
Corn Update – Corn acreage will climb steadily from 87 million to about 90.4 million in 2014. FAPRI is estimating a new crop record of about 165 bushels per acre, however, this extra production will be offset with additional use for Ethanol. It appears that the average price of corn will remain under the $4 level between now and 2014, however, it will still exceed pre 2007 baseline levels. Net per acre returns before cash rents are expected to average around $300 per acre.
Soybeans Update – Acreage will remain steady at around 78 million acres till 2014 with yields steadily climbing to around 43.2 bushels per acre. FAPRI is predicting pricing to remain in the $9 to $10 range. For each year, carryover is projected to average around 220-230 million bushels. This means that if there is any weather scares or disease issues, the price could increase dramatically. Net per acre returns before cash rents are expected to average around $240 per acre.
Wheat Update– Acreage will decline from the peak acreage of 55.7 million acres in 2008 to around 49 million in 2014. The yield is expected to climb slightly and the pricing appears to average between $5 and $5.50 between now and 2014. Net per acre returns before cash rents are expected to average around $90 per acre.
Cotton Update – Cotton acreage during these years peaked out in 2007 at 10.2 million acres. It is expected to remain level at the high 7 million acres between now and 2014. Pricing is expected to increase from the bottom of 49 cents per pound to about 61 cents per pound in 2014. Net per acre returns before cash rents are expected to average around $140 per acre.
Livestock Update – The beef herd is expected to continue its liquidation trend until about 2012. This will reduce the herd by about 2 million head to 30 million total. Pricing is expected to expand from the current 85 cents per pound to over a dollar for an average 1,100 – 1,300 pound Nebraska steer. Net returns are expected to become slight profitable next year and then top out in 2013 at about $70 per head.
Swine Update – Some liquidation will continue over the next couple of years, with production starting to increase in 2012. Pricing should firm from the drastic lows of last year and this year to around the high 50 cents per pound for barrows and gilts starting 2011 and beyond. Returns will remain negative this year at around $8 per head and trend up to a perhaps $8 per head in 2011 and 2012, however FAPRI expects returns to drop to zero in 2014.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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