The University of Missouri’s Food & Agricultural Policy Research Institute (FAPRI) updated its baseline for U.S. agricultural markets yesterday.
In part, the FAPRI report indicated that, “Increases in production result in continued downward pressure on prices for most crop and livestock commodities in 2016. This report provides an update of the 2016 FAPRI‐MU long‐term baseline to reflect information available in mid‐August 2016.”
“Record U.S. and world corn crops push corn prices lower, to $3.19 per bushel for the 2016/17 marketing year average. Projected prices begin to recover in 2017/18 with reduced acreage and lower yields, but remain below $3.90 per bushel through 2021/22,” the report said; while adding that, “Projected average soybean prices remain below $10.00 per bushel over the next five years.”
Table from Updated FAPRI Baseline
Yesterday’s baseline update also pointed out that, “Ethanol production growth has slowed in recent years. Projected declines in gasoline consumption and assumptions about implementation of the renewable fuel standard (RFS) result in only small increases in projected U.S. ethanol production.
“Increased supplies of beef, pork, poultry and milk have pushed prices lower. Fed cattle prices are down by more than $20 per hundredweight this year compared to 2015, and further declines are projected until prices reach their low point in 2020.”
Recall that earlier this week, the U.S. Department of Agriculture projected continued weakness in farm sector income: “Net cash farm income is expected to fall by 13.3 percent in 2016, while net farm income is forecast to decline by 11.5 percent.”
Producers appear to be responding to the lower market returns by reducing production costs as much as possible.
Christopher Doering and Donnelle Eller reported on the front page of yesterday’s Des Moines Register that, “Farm income losses this year should be less than expected, as farmers throughout the Corn Belt slash expenses in response to a prolonged slump in commodity prices.”
The Register writers indicated that, “Farmers such as Bob Bowman are doing whatever they can to bring down their costs. The corn and soybean farmer near DeWitt said he’s not making any ‘unnecessary’ capital purchases such as equipment upgrades and is spending only when something breaks or has to be replaced.
“‘It’s going to be close; we might not cover all of our depreciation,’ Bowman said of his razor-thin profit margin. ‘It’s definitely going to be a really lean year.’
“As a result of those more frugal choices, production expenses are expected to be $27.7 billion less than the USDA forecast in February, with farm expenses now forecast at $348.7 billion.”