February 13, 2008 

 

US grain prices to stay high for the next ten years 

 

 

Exports driven by a weaker US dollar and higher global consumption, along with rising biofuel demand will keep grain commodity prices at a high level for the next decade, according to a USDA projection released Tuesday (February 13, 2008).

 

Agricultural commodity prices are expected to remain high for most of next decade as world consumption of many grain, oilseed, and meat commodities has exceeded world production in the past several years, drawing down global stocks and leading to price increases, the report said.

 

The "USDA Agricultural Projections to 2017" noted that its long-term agricultural projections is not a forecast but the results of a long-running scenario under current legislation and other existing conditions.

 

The general well-being of the global economy over the next decade encourages rising world demand for agricultural products, especially in developing countries. This is further boosted by biodiesel and ethanol production happening outside the US, the report said.

 

Export market
 

The US will remain competitive in global agricultural markets, although trade competition will continue to be strong, especially with rising production in Brazil, Argentina, Canada, Ukraine, and Russia.

 

US competitiveness would likely be sustained in the first half of the projection (2008-2013) due to the weakened dollar. The strengthening US dollar, combined with trade competition from other countries would constrain US exports for some crops.

 

Even so, export gains through a strengthened global economy would continue to contribute to gains in cash receipts for US farmers.

 

Continuing growth in the livestock sectors of developing countries in Asia, Latin America, North Africa, and the Middle East is expected to account for most of the growth in world coarse grain imports projected during the next decade.

 

Although the US is the world's largest corn exporter, the country's massive ethanol production would limit corn export growth through 2012/13, allowing competitors like  Argentina, Ukraine, Republic of South Africa, and Brazil to see greater growth in their corn exports.

 

US corn exports fall over the next several years as global corn trade declines from the record 2007/08 level and as more corn is used domestically in the production of ethanol.

 

After growth in ethanol production in the US slows, US corn exports rise in response to stronger global demand for feed grains to support growth in meat production.

 

Higher commodity prices would lower government payments, thus prompting the agriculture sector to be more market-driven.

 

The higher value of US agricultural exports and steady global economic growth would lead to higher export volumes and prices, thanks also to global biofuel demand and the weaker dollar. 

Wheat exports
 

Wheat exports from the Black Sea Region has grown in the past 10 years and would continue to do so in the next decade, with Russia and Ukraine expected to feature more prominently in the world wheat trade, the report said.

 

However, high year-to-year volatility in these countries' production and trade can be expected due to typical weather-related variation in yields.

 

Feed grains
 

Consumer prices for red meats, poultry, and eggs would exceed the general inflation rate in 2009 as the livestock sector adjusts to higher feed costs.

 

Higher feed costs would be partially mitigated by more Dried Distillers Grains in Solubles (DDGS) from ethanol production.

 

Meanwhile, feed use of corn would decline in the initial years of the projections and then rise only moderately as increased DDGS feeding helps meet livestock feed demand, particularly for beef cattle.

 

Higher corn prices would encourage the use of feed wheat but this would level off as wheat prices relative to corn stabilize.

 

Soy acreage is expected to fall after 2008 due to more favorable returns for corn production.

 

However, long-term growth in domestic soy crush would be driven by increasing demand for domestic soy meal for livestock feed and rising domestic soy oil demand for biodiesel production. 

 

Grain plantings
 

2008 would produce a shift toward wheat and soy and away from corn due to short-term global supply reductions for those crops.

 

After declining in 2008, corn acreage increases and remains above 90 million acres over the remainder of the projections as the expansion in ethanol production increases corn demand.

 

Soy plantings would decline to less than 70 million acres after 2008, reflecting more favorable returns to corn production.

 

Wheat plantings would rise sharply this year in response to high prices resulting from tight global supplies but would fall back to about 56 million acres in the longer run due to competition from other crops.

 

Ethanol production

Relatively high prices for crude oil contribute to favorable returns for ethanol production.

 

However, US ethanol production is expected to see slower growth after a strong expansion through 2009/10.

 

By 2017, ethanol production would reach 14 billion gallons per year, using almost 5 billion bushels of corn.

 

The report's projections assume the tax credit available to blenders of ethanol and the 54-cent-per-gallon tariff on imported ethanol used as fuel remain in effect.

 

With a greater share of output going to biofuels, higher crop prices would lower exports and domestic feed use of feed grains.

 

An effect of this is that soymeal would be more plentiful thanks to increased soy crush for biodiesel production.

 

Domestic corn use grows throughout the projection period, primarily reflecting increases in corn used in the production of ethanol.

 

Wheat

 

Overall demand in the US wheat sector grows very slowly through the projection period.

 

Domestic demand for wheat reflects a relatively mature market.

 

Feed use of wheat, a lower-value use of the crop, rises in the initial years of the projections from the levels of recent years as higher corn prices encourage increases in wheat feeding.

 

As price relationships between wheat and corn stabilize, wheat feeding levels off after 2010/11.

 

US wheat exports are steady over the projections period amid competition.

 

Wheat prices are projected at levels high enough that the EU can export wheat without subsidies, thus permitting higher EU exports. Consequently, the US market share declines through the projections to under 20 percent by 2017/18.

 

Wheat stocks are expected to rebound from low 2007/08 levels as higher prices encourage additional acreage and production. Then in the later years of the projections, stocks decline as wheat acreage falls, pushing prices up.

  

Corn

 

Corn prices continue to rise through 2009/10 as increases in ethanol production strengthen corn demand. As ethanol expansion slows, stocks rebuild somewhat and corn prices decline.

 

However, in the long run, corn used for ethanol production and moderate export growth would outpace increases in production, causing a slow decline in corn stocks and subsequent high prices.  

 

As soy acreage is held lower by competiton for land with corn, soy stocks are held relatively constant but soy prices would remain high throughout the projections.

 

The full report can be accessed here

 

                       Source: USDA