February 24, 2012

 

US farmers will likely grow a record 94 million acres of corn in the 2012-13 marketing year, improving supplies and bringing down prices for most grain crops, USDA Chief Economist Joe Glauber said Thursday (Feb 24).

 

Corn projection was identical to the USDA's baseline forecast issued this month, but an increase from plantings last spring. Farmers sowed 91.9 million acres of corn in 2011.

 

Glauber expects a slight pullback in 2012 as supplies grow, prices soften and demand cools. Still, he projected farm income for the year will be the second highest on record and crop prices will remain above historic levels.

 

In addition, he expects US farmers to plant 75 million acres of soy for harvest in the upcoming crop year, which runs from September 2012 to August 2013. The projection was up from a baseline forecast of 74 million acres and even with plantings a year ago.

 

Recent high corn prices have made farmers more likely to plant corn instead of soy, according to analysts. The baseline projections were compiled in November as part of the government's budget process.

 

Glauber's planting estimates largely met expectations with futures prices for corn and soy largely unchanged in morning trading at the Chicago Board of Trade. Still, shares of some farm suppliers, such as equipment makers Deere & Co. (DE) and Agco Corp. (AGCO), came under some selling pressure.

 

Glauber in his remarks forecast an 11.5% decrease from 2011 in income from farming, giving growers less money to spend on a range of products from tractors to fertiliser.

 

As for prices, the economist said average corn prices are likely to be around US$5.00 a bushel in 2012-13, down nearly 20% from the previous year. Soy prices are projected to fall 2% to US$11.50 a bushel in 2012-13.

 

Helping to pressure prices is a weaker outlook for exports compared with a year ago and softening of corn demand by ethanol makers.

 

Total US agricultural exports are likely to be US$131 billion in the 2012 fiscal year, the second-highest on record behind 2011, as higher global crop production brings down prices and export volumes, Glauber said.

 

He added exports to China are likely to fall 15% due to concentration of trade in bulk commodities like soy and cotton.

 

Glauber said corn use for ethanol is likely to continue its slide. The amount of corn that went into ethanol in the 2011-12 marketing year fell to five billion bushels from 5.021 billion in 2010-11. The figure is likely to fall by another 50 million bushels more to 4.95 billion bushels in 2012-13.

 

The rapid rise of ethanol production in the US over the past several years has come to a halt. The expiration of US ethanol subsidies on December 31, 2011 could limit production of the fuel this year to the 13.2 billion gallons that is required by Congress under the US renewable fuel standard, if producers cannot sell at attractive prices without the subsidies, Glauber said.

 

Strong foreign demand for US ethanol pushed production higher in 2011, but that driver is expected to weaken, Glauber said.

 

As for other major crops, farmers are likely to plant 58 million acres of wheat, up from the baseline projection of 56.5 million acres and 54.4 million last year. Cotton plantings will likely be 13 million acres, up from a previous baseline forecast of 12 million. Glauber's projections are not based on surveys of farmers.

 

Wheat prices will likely fall 14% to US$6.30 a bushel and cotton prices will likely fall 11% to 80 cents a pound, according to Glauber's presentation.

 

Livestock and poultry are expected to show strength in 2012. Glauber projected beef prices will rise 9% in 2012 to a high of US$1.25 a pound, while chicken prices will climb 7% to 84.5 cents a pound. Milk prices, however, are expected to fall by 8.9%, while pork will see a slight 1.7% decline.