Grain prices will likely again drive U.S. agriculture in 2013, according to several speakers at the recent Tennessee agriculture leadership forum,made possible by Farm Credit Mid-America.
Near record low stocks of soybeans and corn and wheat will keep demand for these grain products high and prices good for farmers through the 2013 season.
However, the news is not universally good for farmers. Livestock and dairy farmers will continue to be in a high stress economic situation due to continually increasing grain prices, economists contend.
Terry Barr, senior director for industry research for Co-Bank ACB, says the outlook for the U.S. economy as a whole is not nearly so rosy. He says the world economy is not getting better.
Barr says 60 percent of U.S. economic growth is determined by consumer spending. Debt, unemployment and political uncertainty will limit growth in these sectors in 2013.
To underline his point, Barr notes that while unemployment may be down to 7.8 percent, under-employment in the United States is still nearly 15 percent.
Home prices, he says, have increased by 1 to 1.5 percent per month over the past three months. However, nationwide home prices remain about 30 percent lower than the price levels of 2006.
Between June 2006 and July 2012 central banks worldwide have injected $6 trillion into the global economy. Countries like the United States, Great Britain, Japan and Switzerland have shouldered most of the load.
By early 2013, the United States will face yet another economic crossroad. The U.S. Congress will have to decide whether to raise the debt limit and whether to extend tax cuts.
“How Congress and the president face these issues will go a long way toward determining U.S. economic recovery,” Barr says.
What does a good and bad financial outlook mean for farmers, especially those in the Southeast, for the upcoming 2013 planting season?
Grain crops promising
Among the primary crops planted in the region, economists speaking at the Tennessee agricultural forum agreed that grain crops will likely remain a good crop for Southeastern growers, while traditional crops like cotton and peanuts may face a difficult time competing for acreage.
Though not considered by some to be a traditional southern crop, wheat acreage over the past few years has continued to climb, especially in the upper Southeast.
From 2010 until 2012 in the United States, wheat prices have increased by 42 percent and use for livestock feed has increased an astounding 238 percent.
During the same time, U.S. wheat exports were down by 11 percent and food and seed use was up 3 percent. The small increase in food and seed use was driven primarily by an increase in demand for wheat seed.
Uncertainties over the U.S. corn crop in 2012 are dominating world markets, according to Barr. He notes that U.S. corn yields declined for the third year in a row in 2012.
In June of 2012, the USDA estimated corn yields would be 163 bushels per acre. Following one of the worst droughts in history in the Midwest that yield estimate is now down to 122 bushels per acre.
Production declines over the past three years have driven domestic use for corn down from 13 billion bushels in 2010 down to an estimated 11 billion bushels in 2012. Use is projected to continue to decline in 2013.
In 2012 corn stocks were at their lowest levels since 1995. In the past year corn used for ethanol in the U.S. is down 25 percent, feed use is down 9 percent and corn exports are down 25 percent. During that same time, corn prices have increased by 26 percent.
Regardless of the driver, soybean acreage across the region was up in 2012 and appears certain to be up again for the 2013 planting season.
Barr says the soybean market is riding on a smaller South American crop and on U.S. production concerns for the drought stricken 2012 crop.
Since 2006 world soybean stocks are down 12 percent. More alarmingly, exports from major soybean exporters like Argentina, Brazil, Paraguay and the U.S. are down an average of 35 percent.
Most economists agree this continued decline in soybean stocks worldwide should mean extended good prices.
Brazil and Argentina had a sharp increase (29 million metric tons) in soybean production in 2012 and U.S. production is expected to have a slight decrease.
Worldwide, soybean production is expected to increase by 11 percent for the 2012 production season, but demand will more than offset a one-year increase.
In the United States strong demand will absorb the smaller than expected crop, pushing stocks lower and domestic demand higher.
Whether the price of 2012 beans goes up or down will be driven by purchases made in South America and China, according to Barr. He says prices may be up or may be down, but almost assuredly will be high.
Declining soybean stocks will push soybean meal prices even higher, Barr says. Soy meal prices already are already up 45 percent over the past two years, he adds.
A larger than expected world cotton crop in 2012, plus reduced demand is pushing cotton stocks up worldwide.
A significant reduction in cotton acreage in the U.S. as a whole and in the Delta and Southeast in particular, has not significantly affected global cotton supplies.
Projections for acreage in 2013 vary dramatically from one source to another. Some cotton insiders say they expect similar drops across the cotton belt for the coming year.
While high grain prices have been a boon for some farmers, the corresponding high price for livestock feed has been devastating for many.
For example, beef cattle numbers are at their lowest level since 1952 and production is near historic lows (22.5 billion pounds).
The economic news is not all bad for livestock producers, at least for those able to stay in the business. Beef prices over the past two years have risen by 53 percent and hog prices are up by 65 percent.
Despite the high prices, production is expected to fall 45 percent and pork and poultry production by 1-2 percent in 2013.